BG today raised the stakes in its takeover battle with Shell for Australian gas company Pure Energy as it launched a new bid.

BG boosted its cash offer by 25% to A$995 million (£449 million), topping the previous offer from Shell's Australian gas partner, Arrow Energy, by 11%.

BG and Shell are both keen to bulk up in Australia's liquefied natural gas market, which is still booming despite the decline in the wider gas market. Arrow bid for Pure in December to build reserves to feed a planned LNG project in Australia, from which it could supply customers mainly in Asia.

Australia's coal-seam gas industry attracted more than A$17 billion in investment last year, and has largely defied the economic downturn thanks to strong Asian demand.

LNG is in strong demand as a cleaner fuel that can be supplied by boat rather than through costly pipelines. It is also becoming more sought-after in Britain and Europe amid growing fears about over-reliance on Russian pipeline supplies.

Pure Energy today rose as high as A$8.38 in Sydney trading, indicating some investors expect a raised bid. The BG bid is worth A$8 a share.

Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne, said BG's latest offer was reasonable. He added: "It still looks as though it's within the range of previous acquisitions, so it's not overspending. It's conjecture whether Arrow can come back or not with a higher offer."

Arrow is "considering its position", and recommends Pure shareholders take no action on BG's offer.

Shell, which owns 30% of Arrow's Australian acreage and 11.2% of Pure, would not comment on its plans. It had earlier supported Arrow's original offer.

Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Shell, Malaysia's Petroliam Nasional and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.