United States of America and Global LNG

BG Group net production (mmboe)

Haynesville shale

BG Group entered the shale gas business via an alliance with EXCO in 2009 through which the Group:

• acquired a 50% interest in EXCO’s acreage in east Texas and north Louisiana, predominantly in the Haynesville shale gas formation;
• entered into a joint development agreement with EXCO to cooperate in the further development and production of shale gas in east Texas and north Louisiana; and
• acquired a 50% interest in related and complementary EXCO gas gathering and transportation assets.

At the time, the acquisition brought 3.2 tcf of net potential resource to BG Group’s resources. EXCO operates the jointly held upstream acreage. Since the alliance was formed, the partners have added further acreage, increasing their potential resource position.

In 2010, BG Group and EXCO jointly purchased Common Resources, L.L.C. (Common) for approximately $442 million. Common owned producing assets, gathering lines and acreage in Shelby, San Augustine and Nacogdoches Counties, Texas. Later in 2010, the partners purchased acreage from Southwestern Energy for approximately $356 million. This acquisition of Southwestern’s assets resulted in an increase to BG Group’s and EXCO’s interests in much of the acreage acquired from Common in the highly prospective Haynesville and Bossier leases. The acreage is well situated in what appears to be a highly productive area in the Shelby Trough which runs from the south-east corner of DeSoto Parish, Louisiana through southern Shelby, northern San Augustine and eastern Nacogdoches Counties, Texas.

Marcellus shale

In 2010, BG Group entered into further joint venture arrangements with EXCO to acquire a 50% interest in companies that hold EXCO’s producing and non-producing assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia.

Under the terms of the transaction, BG Group:

• acquired a 50% interest in EXCO acreage in the Appalachian Basin;
• at the time, increased its estimated net gas resources by 2.1 tcf; and
• paid a total consideration of $800 million plus $150 million drilling carry, equating to an estimated unit resource cost of $0.40 per mcf.

BG Group also acquired 50% of EXCO’s interest in approximately 5 900 shallow producing wells, many of which secure ongoing ownership of deeper Marcellus rights and approximately 2 100 miles of gathering infrastructure serving the shallow wells.

BG Group and EXCO have established a 50-50 midstream joint venture company to operate the upstream assets and a 50-50 midstream joint venture company, known as TGGT, to invest in gathering and transportation, both based near Pittsburgh.

In 2011, BG Group acquired further Marcellus shale properties in partnership with EXCO.

Through the two EXCO joint ventures (JVs), BG Group has acquired a significant unconventional E&P position in the US lower 48, increasing the Group’s footprint in the world’s largest natural gas market. The JVs create synergies with BG Group’s US LNG import position and US natural gas marketing business.

BG Group’s US shale operations continue to gather momentum, with 2010 net production of 11.6 mmboe, up by nearly 10 mmboe on 2009 net production.

Alaska

BG Group has interests in over 2.4 million gross acres in the eastern North Slope (ENS) and the foothills of the North Slope areas. In 2006, BG Group signed a Participation Agreement for a 33.33% interest in 2.2 million acres in the foothills area of the Alaskan North Slope. Equal partners are Anadarko (operator) and Suncor Energy. BG Group signed a further Exploration Agreement to acquire a 40% interest in 140 000 acres of land along Alaska’s ENS. Partners are Anadarko with 50% (operator) and Arctic Slope Regional Corporation with 10%. Drilling and seismic activities were carried out in both of these areas during 2007-2009. BG Group is evaluating the results for incorporation into a plan to determine the commerciality of gas in the region.

Lake Charles

In 2001, BG LNG Services (BGLS) signed a 22-year LNG Terminalling Service Agreement to utilise the capacity of the LNG import facility at Lake Charles, Louisiana. The terminal has access to 15 major intra-state and inter-state pipelines through the Trunkline Gas Pipeline system.

Following two expansions, the Lake Charles facility’s sustainable baseload capacity is 1.8 bcfd (with peak capacity of 2.35 bcfd) and it has two unloading berths. All of the capacity of the expansions is committed to BGLS.

In 2006, BGLS signed an agreement with Trunkline LNG, the owner of the Lake Charles terminal, for upgrades to the facility and also extended BGLS’ rights as the sole capacity holder. The terminal is now fully contracted to BG Group until 2030. The upgrades included an ambient air vapourisation system and a natural gas liquids (NGL) extraction plant to remove higher Btu products such as ethane, propane and butane from the LNG, and came online in 2010. The new system is expected to reduce fuel gas consumption by up to 85%, thus enhancing margins, reducing emissions and providing an additional revenue stream from NGL sales.

In May 2011, BG Group in conjunction with Southern Union, the parent company of Trunkline LNG, submitted an application for a US LNG export licence. In July 2011, the US Department of Energy granted authorisation, for LNG export by vessel from the Lake Charles terminal, to countries with which the US has a free trade agreement.

Elba Island

Since 2004, BG Group has been a marketer of regasified LNG at Elba Island, near Savannah, Georgia after taking over contracted capacity and long-term LNG supply from El Paso in 2003. BG Group has 0.63 bcfd capacity of the LNG import facility at Elba Island. Additionally, BG Group entered into a long-term transportation arrangement with Southern Natural Gas to construct the Cypress pipeline expansion of the Southern Natural Gas Pipeline system running from Elba Island to Jacksonville, Florida. Cypress Phases I and II are now up and running with the ability to supply approximately 336 000 mmbtud of natural gas to southern Georgia and Florida markets.

In 2010, the terminal was expanded and construction was completed on the first phase of the 190-mile Elba Express pipeline, which transports natural gas from Elba Island to markets in south-eastern and eastern USA. The second phase of the Elba Express pipeline, expected to go into service in 2014, will increase total Elba Express pipeline capacity to 1.2 bcfd, with 0.22 bcfd being reserved for BG Group.

Storage

In addition to the LNG storage facilities at Lake Charles and Elba Island, BG Group will from time to time contract for natural gas storage capacity on a seasonal and/or medium to long-term basis to facilitate its operational and commercial requirements.

BG Group’s successful LNG business has been built around a portfolio of flexible LNG supplies that can be deployed globally in order to capture greater margin opportunities. BG Group has material access to the two most liquid gas markets globally, the USA and UK, where it can sell its LNG if greater margin opportunities are not available elsewhere.

LNG supply

BG Group pursues a number of options to create a diversified supply portfolio. These options include buying LNG from third parties as well as from BG Group equity LNG liquefaction projects in Egypt and Trinidad and Tobago. The portfolio has a variety of contract periods and shipping arrangements.

The Group’s current contracted LNG supply is around 13 mtpa, with a target of around 20 mtpa to be achieved when Queensland Curtis LNG (QCLNG) in Australia comes onstream. 

LNG Marketing

BG LNG Trading (BGLT) in conjunction with the Group’s LNG shipping organisation is engaged in marketing LNG to buyers throughout the world, both on a long-term and short-term basis. The combination of flexible supply, shipping capacity and commercial capability enable BG Group’s strategic approach to LNG marketing. In addition to marketing its own contracted portfolio of volumes, the Group also buys and sells spot LNG cargoes on an ad hoc basis.

The Group has market access to both the US, via the capacity rights at Lake Charles and Elba Island, and to the UK through its 50% ownership of the Dragon LNG terminal. The Group also has a long-term contract to supply its Quintero LNG terminal in Chile with up to 1.7 mtpa for 21 years.

Additionally, BG Group has made LNG sales to over 40 customers around the globe. The Group has delivered to 22 of the current 25 LNG importing countries. BG Group has also bought LNG from 12 of the 18 LNG producing countries.

As the Group’s LNG supply increases with the start-up of the QCLNG project, the Group has been entering into a number of long-term sales contracts to manage its portfolio of supply.

In 2008, BG Group was selected by the Energy Market Authority (EMA) of Singapore to source and supply the Singapore market on an exclusive basis with up to 3 mtpa of LNG for up to 20 years.

In 2010, BG Group signed a sales contract with China National Offshore Oil Corporation (CNOOC), focused on the QCLNG project in Australia. The contract sets out the basis on which CNOOC will purchase 3.6 mtpa of LNG for a period of 20 years (see Australia for full details).

In March 2011, BG Group signed a sales agreement with Tokyo Gas Co., Ltd. (Tokyo Gas) for the supply of 1.2 mtpa of LNG for 20 years from 2015. Tokyo Gas will be supplied with LNG from the QCLNG facility and from BG Group’s global LNG portfolio (see Australia).

BG Group also signed a sales agreement with Chubu Electric Power Co. Inc, (Chubu Electric) for the long-term supply of LNG. Under the agreement, Chubu Electric will purchase up to 122 cargoes over 21 years, starting in 2014. This will be supplied from BG Group’s global LNG portfolio, including the QCLNG facility in Australia.

In the US, BG Energy Merchants (BGEM) has a US gas marketing business of more than 4 bcfd. It markets its own shale gas production as well as regasified LNG from Lake Charles and Elba Island, along with indigenous gas supplies, to multiple intermediary and end-use customers via delivery through the US natural gas pipeline infrastructure.

Sales are made under various short, medium and long-term arrangements. BGEM’s customers include leading gas and electric utilities, as well as industrial companies and wholesale gas merchants.

Shipping

BG Group has a long history in LNG shipping, having been involved in the development of both the prototype and the first working LNG carriers in the industry.

BG Group’s shipping activities are directed towards meeting the needs of the Group’s LNG and crude oil trading. The Global Shipping organisation also provides marine assurance, HSSE and consultancy services to other BG Group marine operations and projects.

BG Group’s shipping is a key enabler for the LNG and crude oil business to ensure delivery and provide flexibility to market cargoes. BG Group has a core fleet of ships that it owns or has under long-term charter. In addition, it contracts additional shipping as required on a short or medium-term basis to capture business opportunities and maintain a balanced shipping position.

In 2010, BG Group took delivery of four new-generation, energy-efficient LNG carriers. The ships have a capacity of 170 000 cubic metres and are among the first carriers in the world to integrate onboard reliquefaction with the propulsion system, allowing natural gas boil-off to be reliquefied and returned to cargo tanks.

The four new carriers are more efficient and produce fewer emissions than conventional steam vessels due to their tri-fuel, diesel-electric engines and efficient hull form.

As part of the LNG sales agreement signed with CNOOC in 2010, BG Group is finalising the joint venture structure with CNOOC for the design and construction of two LNG vessels. These vessels are expected to serve the Group’s global LNG trading needs.

In May 2011, BG Group took delivery of its first chartered dynamically positioned oil tanker. The tanker is used to shuttle equity crude oil to markets from the initial Lula floating production, storage and offloading unit in the Santos Basin, offshore Brazil.

In June 2011, BG Group signed 10-year time charters for the construction and use of four oil shuttle tankers offshore Brazil. The Suezmax shuttle tankers will begin service upon delivery in 2013 and 2014.