British Gas India, part of the British Gas Group of the UK, has approached GAIL India to further their alliance beyond Mahanagar Gas, their distribution business in Mumbai.

The two have been exploring the possibility of the British firm offering a strategic stake of 15-25 per cent in Gujarat Gas to GAIL India, officials familiar with the discussions said.

Talks are also on for British Gas India and GAIL to form a joint venture for the latter's gas distribution business in three cities in Gujarat.

The companies have also been discussing a joint bid for exploratory blocks under the fourth round of the new exploration licensing policy.

"We have identified two areas--exploration and production, and city gas distribution--where the two gas majors have synergies. We are also in talks to buy equity in Gujarat Gas," a GAIL official said. British Gas owns 65 per cent stake in Gujarat Gas.

"We plan to broaden our relationship with GAIL," Nigel Shaw, CEO of British Gas India, said. However, he did not dwell on any specific proposal.

The two entities are discussing a tie-up for exploration and production, a proposal GAIL had not seriously considered earlier.

GAIL is a distributing company which buys natural gas from the Oil and Natural Gas Corporation and distributes it to industrial and commercial users, besides operating a few liquid petroleum gas plants.

It also manages the Hazira-Bijapur-Jagdishpur pipeline, in which the residual gas is cracked to make petrochemicals at Auraiya in Uttar Pradesh.

Apart from an exploration and production partnership, British Gas India and GAIL are in talks to extend their gas distribution network to other cities.

The companies want to extend the Mahanagar Gas distribution system in Mumbai to Pune, where GAIL has distribution rights.

Moreover, the partners are looking at jointly developing a piped gas distribution system in Ahmedabad, Mehsana and Kutch.

"But this will have to be under Gujarat Gas. We are negotiating with British Gas India to pick up an up to 25 per cent stake in Gujarat Gas for extending the piped gas system to the south of Gujarat," a GAIL official said.

Gujarat Gas has a pipeline network stretching beyond 1,600 km. It supplies natural gas to Surat and the twin cities of Ankleshwar and Bharuch in the south of Gujarat.