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Total-Adani deal signals robust investment appetite in gas ‘sweet spot’ India
Total’s move to buy a more than one-third stake in Adani Gas is a sign of the growing appetite that global energy firms have in investing in India’s gas sector, with analysts hopeful that New Delhi’s push to encourage the consumption of cleaner fuels would increasingly attract more such investments. “The Total-Adani joint venture creates a put option on Total’s global LNG portfolio in a market with huge potential for demand, a move replicated in other countries as sellers become partners with buyers,” said Chinmayee Atre, LNG analyst at S&P Global Platts Analytics.
Total announced in October that it would acquire a 37.4% stake in Adani Gas and also set up a joint venture for marketing natural gas in India and Bangladesh. Adani Gas, one of the four largest distributors of city gas in India, is 74.8% owned by Adani Group. As part of its strategy to develop new gas markets, Total is expanding its partnership with Adani Group, which includes the Dhamra LNG import and regasification terminal in eastern India, and could potentially include Mundra in the west, Total said.
GROWING INTEREST OF ENERGY MAJORS
Total’s gas ambitions for India come a time when other international oil majors, like Shell and BP, are stepping up efforts to play a bigger role in India, where the share of gas in the energy mix is as low as 6%, compared with a global average of 24%. “Similar deals maybe possible as other domestic oil companies foray into the gas marketing space,” Atre of Platts Analytics said. With international gas production rising sharply and India being one of the most under-penetrated gas markets, many international companies were keen to invest in India’s gas sector to have an early mover advantage, analysts said.
“India is a sweet spot as far as gas is concerned,” said Sumit Pokharna, oil and gas analyst at Kotak Securities. “Looking at growing global supplies, India offers a strong value proposition because of cost economics. More international companies might look to invest in the gas value chain in India.” India’s dependence on LNG imports is set to rise as domestic production is expected to grow at a compound annual growth rate of 8.89% over the next five years, while demand is expected to increase by a compound annual growth rate of 11.07% over the same period, according to Platts Analytics.
Wood Mackenzie forecasts that India’s LNG demand will double from 37 Bcm in 2018 to 75 Bcm by 2030, providing a major growth opportunity for Total. “Total’s investment in Adani is undoubtedly a show of faith in India’s gas demand growth,” Wood Mackenzie Research Director Nicholas Browne said. “The government has a target to increase this to 15% by 2030. While we don’t consider this likely, gas demand is set to grow considerably.”
In addition to Total, Reliance and BP are jointly investing up to $6 billion to develop already-discovered deepwater gas fields off theeast coast of India, which is expected to boost gas output by 30-35 million cu m/d (1 Bcf/d) in phases over 2020-2022. In addition, Shell’s country chairman for India Nitin Prasad recently told Platts that Shell was keen to participate actively and grow in the Indian gas market.
Earlier this year, Shell became a full owner of the Hazira LNG and Port venture following the acquisition of a 26% equity held by Total. The terminal has a regasification capacity of 5 million mt/year. Shell is developing truck-loading facility at the Hazira LNG terminalas the company is keen on supplying LNG to industrial and transportation segments.
EFFORTS TO GROW DISTRIBUTION NETWORK
The city gas distribution sector in the South Asian nation is a segment that could witness more interest from international companies in the coming years, analysts told Platts. “The Total-Adani deal also solves the issue of unavailability of infrastructure as an impediment for demand to pick up in upcoming South Asian LNG buyers like India. City gas is expected to be one of the biggest growth drivers for India’s gas market,” Atre said.
The Total-Adani joint venture comes when Adani Gas is aiming to expand its distribution of gas over the next 10 years through its 38 concessions covering 7.5% of the Indian population, and market natural gas to industrial, commercial and domestic customers targeting 6 million homes. It is also looking at 1,500 retail outlets of natural gas for vehicles.
An official at an international oil and gas company based in India said that the city gas distribution space could witness a few more international companies buying stakes, although they could be relatively smaller compared with the Adani-Total deal. “The Total-LNG deal is a master stroke in my view. There will be more consolidation in the city gas distribution space. A lot of capital expenditure and effort is required to grow that network,” the official added.
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