French energy company Total is to buy a 37% stake in the gas distribution business of Indian conglomerate Adani Gas.
Under the agreement, Total will extend relations with the Indian company beyond the current partnership via a $600m investment in exchange of over a third of Adani distribution business.
India is one of the fastest-growing markets for LNG and this deal will certainly help the French company combat stagnant demand in Western Europe.
Such an expansion is taking place at the right time and place, alongside a well-established local conglomerate, and will secure a significant increase in global market share in a highly competitive industry for Total.
With the Indian government aiming to increase its share of LNG in the total energy supply from 6% currently to 15% by 2030, Total executives are confident their investment choice will soon yield results.
Additionally, the plans call for a seven-fold growth in a steel pipeline network by 2027 that the Indian distributor already has in place. This makes Adani the perfect company for emerging market expansion.
This deal is crucial for Total in their ambition to establish itself as the second-largest gas company in the world. Expectations are that the deal will help secure growth for the French company for the next few years.
After a very successful 2018, in which Total registered net income growth of 28%, the expansion of the liquefied natural gas business is also a sensible move from an organisational standpoint.
At 5%, the gas, renewables and power segment accounts for only a small portion of the group’s total income. The push forward in this segment is expected to bring balance to its sources of income.
A slowdown in advanced markets is good for India
Lack of LNG transport infrastructure has withheld the potential for industry growth in India, but that is now poised for change.
However, the current government in India is determined to develop infrastructure to reduce its dependence on dirty fossil fuels.
Subsequently, other key energy players have developed partnerships with well-established conglomerates in emerging markets.
BP struck a deal with Reliance Industries to form a joint venture in a projected petrol station network and aviation fuel business in India.
Reliance also recently aroused the interest of Saudi Aramco, which bought a 20% stake in its refining unit in exchange of $75bn.
Given the size of the expansion that competitors intend to carry out in India, Total plans to continue its expansion with Adani in Bangladesh, as well as developing a separate project in Pakistan.