The LNG business performed very strongly with total operating profit* increasing by 48%.
LNG Highlights
- Delivered LNG to nine countries
- Took first deliveries from 17 year 3.4 mtpa contract with Equatorial Guinea LNG
- Commenced gas deliveries (220 000 mmbtud) to south Georgia and Florida markets
- Exercised option to participate in the expansion of the Elba Island LNG receiving terminal
- Quintero LNG regasification plant, Chile, sanctioned
- SPA signed with Nigeria LNG for 2.25 mtpa LNG for 20 years, from the proposed Train 7 project in Finima, Bonny Island
- Took delivery of four new LNG ships
* For a reconciliation between Business Performance and Total Results, see note 2, 2007 Annual Report.
BG Group’s LNG business had a record year in 2007. Volumes of LNG managed by BG Group increased by 31% to around 13.0 million tonnes, helped by new contracted supplies, additional spot cargoes and liquefaction volumes reaching a new high of 7.0 million tonnes. This, together with more LNG shipping capacity, enabled BG Group to supply LNG to nine countries. BG Group and partners sanctioned a new regasification project in Chile.
LIQUEFACTION
Egyptian LNG Train 1 output of 3.6 mtpa is sold to Gaz de France under a long–term supply arrangement. BG Group purchases 3.6 mtpa from Train 2 and delivers this into Lake Charles and other destinations.
Since first quarter 2005, BG Group has been tolling gas through SEGAS’ Damietta LNG plant and purchasing 0.7 mtpa of Damietta’s LNG production (reducing to 0.5 mtpa from 2009) under a five year contract.
BG Group is a shareholder in four trains of Atlantic LNG. The fourth train, one of the world’s largest operating trains of LNG (5.2 mtpa), entered the full commercial phase of operation in 2007 and is now undergoing a work programme designed to maximise its efficiency.
In 2007, BG Group had the first full year of deliveries from the 20 year 2.3 mtpa contract with Nigeria LNG Trains 4/5, which began in 2006. In February 2007, BG Group signed a Sale and Purchase Agreement (SPA) with Nigeria LNG for the acquisition of 2.25 mtpa LNG for 20 years, which will be produced from the proposed Train 7 project in Finima, Bonny Island.
BG Group is jointly developing a new liquefaction plant at Olokola (OKLNG) on the south-western coast of Nigeria. A Shareholders’ Agreement was signed in March 2007 between the Nigerian National Petroleum Corporation, Shell, Chevron and BG OKLNG Ltd, which includes the launch project and any future expansions. BG Group has a 14.25% interest in the proposed project, which currently comprises four LNG trains of 5.5 mtpa each, with a two-phased development of two trains each currently envisaged. Work is currently underway to optimise project design and procurement.
In 2006, BG Group signed a Memorandum of Understanding (MoU) with Nigeria’s Brass LNG for the acquisition of 1.67 mtpa LNG for 20 years with initial deliveries expected to start by 2013. A full SPA is anticipated during 2008 and it is planned that cargoes will be delivered on an ex-ship basis to Lake Charles and Elba Island with BG Group retaining destination flexibility.
From May 2007, BG Group started receiving LNG cargoes under a 17 year 3.4 mtpa supply contract with Equatorial Guinea LNG. The facility experienced some downtime in production in October/November during its first year of operation.
In October 2007, BG Group mutually agreed to end a MoU with Oil Search Limited to evaluate the feasibility of developing a LNG export project in Papua New Guinea.
REGASIFICATION
During 2007, BG Group was responsible for meeting just over 1% of the US daily gas demand and importing around 55% of LNG delivered into the USA.
Lake Charles
BG Group holds the entire capacity rights at the Lake Charles regasification terminal. The current capacity is 1.8 bcfd, with 2.1 bcfd peak send-out and is contracted to 2028. An Infrastructure Enhancement Project (IEP) is currently being implemented at Lake Charles and is expected to be onstream in third quarter 2008. The IEP involves new vaporisation technology and a natural gas liquids recovery unit to remove ethane, propane and butane prior to placement of gas into the pipeline. This is expected to reduce Lake Charles’ fuel gas consumption by up to 85%.
Elba Island
LNG from Atlantic LNG Trains 2 and 3 (BG Group 32.5%) is regasified and marketed at Elba Island in Savannah, Georgia, where the Group has capacity and associated LNG purchase and gas sales agreements.
In May 2007, BG Group began utilising its capacity in the Cypress pipeline, which connects gas sourced from Elba Island to markets in south Georgia and Florida. This new 165 mile pipeline came into service with an initial capacity of 220 000 mmbtud, which is planned to
rise to 336 000 mmbtud by May 2008.
BG Group has agreed with Elba Island’s owner, El Paso Corporation, to further expand the storage at this terminal from 4.0 bcf to 8.2 bcf and increase BG Group’s vaporisation capacity from 675 mmscfd to 1.17 bcfd. The expansion is expected to be onstream by 2014, with
BG Group having an option to bring this forward to mid-2012.
As part of the expansion project, BG Group has rights to transportation capacity in the Elba Express Pipeline. This new 190 mile inter-state pipeline is planned to be onstream from 2010 and will deliver gas from Elba Island to additional markets in Georgia and, through the interconnections with other pipelines, to south-eastern and eastern USA. In 2007, both the expansion of the Elba Island terminal and the Elba Express Pipeline received Federal Energy Regulatory Commission approval.
Providence
BG Group and its partner, KeySpan, have elected not to continue with the Providence LNG project, Rhode Island, USA.
Gas Marketing
Since acquiring capacity rights at Lake Charles in 2001 and Elba Island in 2004, BG Group has established an integrated gas marketing and distribution business consisting of access to over 15 inter- and intra-state pipelines, salt storage capacity and over 280 industrial customers, enabling BG Group to improve the price it receives for its gas in the US market.
During 2007, contracted supply rose to around 12.6 mtpa, as the new long–term supply contracts from Equatorial Guinea began to be delivered. This is anticipated to rise further to 15.0 mtpa with a full contribution from Equatorial Guinea and the new volumes from Nigeria LNG Train 7 when they come onstream.
In 2007, BG Group delivered 150 cargoes (2006 104 cargoes) into its US terminals, 86 cargoes to Lake Charles (2006 50 cargoes) and 64 cargoes to Elba Island (2006 54 cargoes), and re-marketed a further 81 cargoes to other higher value markets (2006 78 cargoes). During 2007, BG Group delivered LNG cargoes to nine countries.
Construction progressed at the Dragon LNG regasification terminal at Milford Haven, Wales, and the terminal is scheduled to be operational during 2008. BG Group has rights to 2.2 mtpa of capacity allowing it to send out 3 bcm (106 bcf) of gas per year for 20 years. The project has an exemption from the regulated third-party access provisions imposed by the Second EU Gas Directive and BG Group has contracted pipeline capacity with National Grid.
In May 2007, BG Group and partners took the Final Investment Decision to proceed with the construction of the 2.5 mtpa Quintero LNG regasification terminal in Quintero Bay, Chile. The regasification plant is planned to have an initial baseload send-out capacity of 340 mmscfd on a sustainable basis and 170 mmscfd of additional peaking capacity, meeting approximately 40% of central Chile’s expected demand for natural gas once onstream. BG Group’s partners have contracted to purchase up to 1.7 mtpa LNG from BG Group for 21 years. The terminal is expected to be in early operation by mid-2009 and in full operation by mid-2010.
BG Group continues to pursue the 6.0 mtpa Brindisi LNG regasification project in southern Italy. BG Group’s share of the capacity would be 4.8 mtpa with the remaining 20% to be made available for third-party access, in compliance with the exemption granted under the Second EU Gas Directive.
No construction has taken place on the Brindisi site since it was seized by the Italian authorities in February 2007 in connection with a criminal investigation into allegations of improper conduct related to the authorisation process. A court hearing in relation to the criminal investigation has been scheduled for 13 March 2008 to consider whether criminal charges should be brought against BG Italia S.p.A. and/or any of the individuals involved. Further details of this matter are contained in Risk Factors and note 27.
In October 2007, BG Group received formal notification from the Ministry of Economic Development that the original ‘Article 8’ authorisation for the construction and operation of Brindisi LNG had been suspended pending the submission by BG Group of a full Environmental Impact Assessment (EIA) and confirmation from the Italian authorities as to the validity of the ‘Article 8’ authorisation. On 15 January 2008, BG Group commenced the EIA approval process by submitting an EIA.
The timing of first deliveries to the Brindisi terminal is dependent on how soon access to the site can be restored, approval of the EIA and resolution of the various outstanding legal matters.
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The Methane Jane Elizabeth
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BG Group’s shipping remains a key enabler for the LNG 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 charters additional ships on a shorter-term basis to meet its requirements.
In 2007, BG Group took delivery of four 145 000 cubic metre new-build ships and signed an agreement with Samsung Heavy Industries Co Limited for the delivery of two new-build dual-fuel diesel electric LNG ships, expected to be delivered in late-2009 and mid-2010.
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