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The Times: Gas bills still on upward trend, says BG

February 09, 2007
Carl Mortished, International Business Editor

Frank Chapman, the chief executive of BG Group, has told consumers to expect higher gas prices over the long term, as the gas explorer and liquefied gas trader reported that sliding international wholesale prices had eroded profits in the fourth quarter.

The dramatic fall in prices in the UK over the past six months, which yesterday forced Centrica, the group’s supply division, to cut bills to consumers, demonstrates that Britain’s open market is working, Mr Chapman said.

However, he gave warning that the need to import more gas as North Sea supplies dwindle would keep upward pressure on prices. “By 2015, forecasts suggest this country needs to import 100 billion cubic metres per year more than it consumes today.” His comments came on the day that British Gas said that it would cut its prices by 11 per cent and 17 per cent.

BG Group’s focus on gas is paying off despite the fourth-quarter dip with the group’s annual net profit rising by more than a fifth to £1.64 billion. The integrated gas company has outperformed its bigger rivals, which are struggling to raise their game. BP and Royal Dutch Shell both said in recent weeks that safety and security problems would stymie growth and leave both companies standing still in volume terms in the present year.

Meanwhile, BG expects to pump more. Production of gas and oil rose 5 per cent in the past quarter and 19 per cent over the full year as fields in Trinidad and Egypt came on stream. Mr Chapman predicted that the strong upstream performance would continue for the foreseeable future, with gas and oil production rising between 5 per cent and 7 per cent per annum from 2006 to 2009.

He said that gas and oilfields producing about 600,000 barrels per day (bpd) at present had enough potential to generate more than 500,000 bpd by 2015. Profits from the liquefied natural gas (LNG) business surged from £171 million to £352 million last year. Demand for LNG is expected to grow at 12 per cent a year to 2012, compared with 7 per cent annual growth since 1980. BG will begin to import LNG this year when the Dragon LNG receiving terminal at Milford Haven, Wales, receives its first cargoes from Trinidad, Nigeria or Egypt. LNG terminals and the new Langeled pipeline from Norway are compensating for dwindling North Sea supplies, Mr Chapman said.

“As tranches of supply come on stream you will see an effect on prices,” he said. He noted that BG was not concerned about a gas glut. The company intends to bring cargoes in during periods of peak demand.

Mr Chapman said that BG had deliberately sought a different business model to the oil majors that “have a mindset of acquiring exploration acreage”. Instead, he said: “We come at this with a mindset of how to supply markets. When we start [drilling wells] we already know where to deliver the gas.”

However, BG has also embraced the emerging trading market in LNG in the Atlantic Basin. It has a big terminal at Lake Charles, Louisiana, but the company frequently diverts cargoes to other markets when it can secure better prices, using the flexibility provided by its own fleet of LNG carriers.

Barrel business

8 billion BG Group’s total reserves are 8 billion barrels (up 13%)

601,000 BG’s production is 601,000 barrels per day (up 19%)

5%-7% BG’s forecast annual growth in volume to 2009

1%-2% Shell’s forecast annual growth in volume to 2010

1% BP’s forecast annual growth in volume to 2009

http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article1355989.ece

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