BG deal fuels hopes for gas project

BG GROUP is on the cusp of signing up the first customer for LNG from coal-seam gas, in a sign that demand for the fuel is weathering the oil-price slump.

The British company yesterday revealed an agreement that would allow China National Oil Corporation to buy half the gas from BG’s Gladstone project and take equity in it.

Under the offtake agreement – which has yet to be finalised – the Chinese Government-owned company would buy 3.6 million tonnes a year of LNG for 20 years. It would also take a 10 per cent stake in the LNG processing units and buy 5 per cent of BG’s gas interests in the area.

BG would not say how much the Chinese company was willing to pay, but a spokesman said the deal would represent a “meaningful premium” to the upstream acquisition costs in its takeover of Queensland Gas.

BG paid $5.5 billion for Queensland Gas last year and $1 billion for Pure Energy this year.

BG’s chief executive, Frank Chapman, said the agreement was an “important milestone” for the company’s plans to export 7.4 million tonnes of the gas from Gladstone from 2014.

The deal has not yet gained regulatory approval, but it is not expected to face the hurdles that have dogged other Chinese-Government investment plans.

Analysts said the agreement was good news for the three other LNG projects in the region involving Origin Energy, Santos and Arrow Energy and their overseas partners.

After a 70 per cent slump in oil prices, analysts had warned of delays to the projects because buyers would be driving a hard bargain in sales negotiations.

Sceptics have also argued the $20 billion takeover frenzy in coal-seam gas in recent years was a bubble waiting to burst.

An analyst at Wilson HTM, John Young, said the strong demand and the buyers’s willingness to take an equity position in LNG projects were positive for the rival projects.

“It’s just another sign that this industry’s going to develop,” Mr Young said.

Source: Sydney Morning Herald   www.smh.com.au