interesting bg article today

Iposted this on the WCL thread, but it is just as appropriate to BOW.
cheers
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Matt Chambers | May 14, 2009
The Australian

BG wins first big Chinese gas deal

AUSTRALIA'S liquefied coal seam gas industry took a big leap forward yesterday when China National Offshore Oil Corp signed the first major supply deal with BG Group and agreed to take a stake in its $8 billion gas export plans.

The deal, which represents a defining moment in the development of the CSG industry, puts BG one step ahead of its rivals.

But at the same time it sharply increases the value perceptions of the reserves being proved up by other players in the fast-emerging sector and is likely to be followed by more supply deals with offshore buyers.

For an undisclosed price, the Chinese oil giant has agreed to buy 3.6 million tonnes a year of liquefied natural gas for 20 years, underpinning a whole processing unit, or train, of the two-train project.

CNOOC will also take a 5 per cent stake in gas ground in Queensland's Surat Basin and a 10 per cent stake in one of the two LNG trains.

The deal is a positive for the four parties trying to build multi-billion-dollar LNG plants at Gladstone to export Queensland's vast coal seam gas reserves.

It shows there are buyers for the yet-to-be proven CSG-to-LNG plants, despite suggestions from the likes of Woodside and Oil Search that there could be trouble selling the unconventional gas.

But it also puts the British gas giant at a marked advantage over its Gladstone CSG rivals in talks to consolidate the projects, a move most observers see as a must.

BG yesterday revealed that it would be prepared to take part in consolidating the four planned projects, joining sentiment expressed by rivals Origin/ConocoPhillips, Santos/Petronas and Shell.

"If and when there is some strategic benefit for Queensland Gas Co (BG's Australian unit) to contemplate consolidation, there may be some contemplation of it, but we are 100 per cent focused on developing our own world-class project," a BG spokesman said.

Shell, which has the least advanced of the projects and lacks CSG reserves, submitted an initial advice statement for its plans to the Queensland government yesterday.

It is believed Shell submitted advice for a four-train project, which would make its ambitions bigger than BG's and Santos's and equal to Origin's.

Shell has the most to gain from consolidation, and consequently is in the weakest bargaining position.

State-owned CNOOC has a 5 per cent stake in the Woodside-operated North West Shelf's reserves through a 2002 deal to buy 3 million tonnes a year of LNG from that project.

That deal was done at a discount to prices at that time but it is thought BG has not had to sell its LNG substantially below where other deals are being priced.

BG chief executive Frank Chapman said the deal built on a memorandum of understanding signed with CNOOC last year under which the pair agreed to explore opportunities for co-operation.

Body: "We look forward to working with our CNOOC partners as we drive forward our plans to establish Queensland Curtis LNG in the vanguard of a new world-class LNG industry in eastern Australia," Mr Chapman said.

It is thought the CNOOC deal will need Foreign Investment Review Board approval.

According to BG, including the CNOOC deal, it had recently signed supply agreements totalling 8.3 million tonnes a year, "firmly underpinning development of the two-train first phase of the QCLNG project".

The other agreements were to supply Chile and Singapore.

BG has announced the first train alone would cost $8 billion.

UBS analyst Gordon Ramsay said the CNOOC agreement was a great deal and would be positive for other LNG players.

"CNOOC has signed up for big volumes and Oil Search said it will have all their volumes signed up by mid-year; the LNG market is quite weak right now so to see these deals signed is quite encouraging," he said. BG and CNOOC have agreed also to form a consortium to build and own two LNG ships in China.

The pair aim to finish negotiations and sign fully termed transaction documents before BG Group's final investment decision on the project, which is expected next year.

The deal is the second signed to buy LNG made from Queensland coal seam gas, after LNG signed an agreement to supply Norwegian LNG shipper Golar from its planned 1.5 million tonne a year plant.