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TOTAL to Gain From Adani Venture as India Invests $60B in Gas

Zacks Equity Research

TOTAL S.A. TOT ventured into the natural gas market in India through the acquisition of a 37.4% stake of Adani Gas Ltd. for $600 million. This strategic deal will expand TOTAL’s natural gas footprint in India where demand for the commodity is rising and the government is supporting its increasing usage.

India’s government is going to invest $60 billion in developing its natural gas supply and distribution infrastructure, and aims to more than double the share of natural gas in its energy base to 15% by 2030 from the current level of 6.2%. The investment will help in the development of national gas grid and import terminals by 2024.

Acquisition of Stake in Adani Gas
This acquisition in a way confirms the media reports that were making headlines since June this year. TOTAL’s acquisition of interest in Adani will give it access to several assets across the gas value chain, notably two imports and regasification liquefied natural gas (LNG) terminals.

Adani currently supplies gas in five cities and has the right to develop city gas distributions in other 38 geographies. Over the next decade, Adani targets to reach 6 million homes. TOTAL will benefit from Adani’s existing presence in the market in India and use its global experience in LNG trading for the benefit of the customers therein.

Perfectly Timed Acquisition

TOTAL’s natural gas partnership with Adani is perfectly timed and coincides with the government of India’s announcement of $60-billion investment in building gas pipeline and terminal infrastructure that is close to or in advanced stages of completion.

The lack of proper transmission and distribution pipelines were creating a bottleneck in the expansion of natural gas networks in different industries and towns of India. The government announcement in a way ensures the availability of a proper infrastructure, which will help TOTAL in expanding the natural gas business in India, together with Adani Gas.    

Prospects Abound in India

India has the potential to become a new hotspot for oil and gas investments. Hence, international oil and gas majors could look for opportunities in India. Increasing demand and the availability of proper infrastructure could make Exxon Mobil XOM and BP Plc. BP, among others, interested in exploring opportunities in oil and gas markets in India.

TOTAL’s Long-Term LNG Outlook

We notice an ongoing transition in the energy space, with more emphasis being given to producing electricity from clean sources. TOTAL expects natural gas and LNG to play a major role in this transition. The company expects to increase LNG sales to 50 million tons per year by 2025 from the present level.

Per the LNG outlook of Royal Dutch Shell PLC RDS.A, global demand for the commodity will increase in the range of 4-5% within the 2015-2030 time period. Given strong long-term prospects of LNG, TOTAL has undertaken various initiatives to strengthen its position in the market. Acquisitions, tie-ups and the commencement of organic LNG projects are helping TOTAL to strengthen its position in the global market.

Price Movement
TOTAL’s shares have underperformed its industry in the past 12 months.

Zacks Rank
TOTAL currently has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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