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Unconventional gas to underpin BG’s LNG

UK firm to drill 675 Haynesville wells in 2011-20; BG upbeat about Australian CBM

UK GAS player BG Group firmly believes shale gas will support, not hinder, its international liquefied natural gas (LNG) business. BG, which received approval for a project to convert coal-bed methane (CBM) to LNG in Australia last year, is bullish about shale gas, saying the resource gives it a “fantastic platform on which we could enter the [US] market”.

This optimism comes despite the US’ unconventionals boom effectively ending the country’s need for LNG imports, BG’s most lucrative business segment.

Keith Johnston, BG’s general manager of strategy and portfolio development, says the company now has a “rapidly expanding and capital-efficient” US shale-gas business, with total resources of about 8.5 trillion cubic feet (cf), adding that BG’s LNG business provides it with a “distinctive set of advantages” as it expands its global unconventional-gas opportunities.

Unconventional gas accounts for around 30% of BG’s total resources, which “gives some idea of how important BG believes unconventional energy to be”, says Johnston. “BG’s unconventional business is now a core part of our growth in the next decade.”

BG acquired shale-gas acreage in the Haynesville play, which straddles northwest Louisiana and east Texas, in 2009 and now claims to have accessible shale-gas resources of 5.3 trillion cf. The company aims to drill over 675 wells in the Haynesville between 2011 and 2020, up from the 125 wells in operation now.

Johnston says BG can make shale gas profitable despite low US gas prices of around $4/’000 cf. BG’s unit and technical costs are around $2.40/’000 cf “from field to truck” and it can break even at gas prices of $3.20/’000 cf, he adds. But Johnston says cost efficiency is essential if BG is to sustain production of around 100,000 barrels of oil equivalent a day from its Haynesville acreage until 2020.

BG also has acreage in the Pennsylvania sector of the Marcellus Shale, where it has 12 production wells on stream and two rigs operating. By the end of this year, BG aims to have five rigs at work in the Marcellus and to have drilled 50 development wells and 10 appraisal wells. While Johnston says it is “early days” for BG in the Marcellus, the company believes its operations there could expand on a similar scale to its Haynesville holdings.

But BG is not just looking at US unconventional gas. In 2008 it bought the Queensland Curtis CBM-LNG (QCLNG) project, in Australia, a move it says tripled its CBM resource potential. At QCLNG, the UK firm is pioneering the use of unconventional gas as an LNG feedstock.

The two-train development, which will produce at initial rates of 8.5m tonnes a year (t/y) when it comes on stream in 2014, was given the go-ahead in October last year. BG aims to have 2,000 CBM wells operational by start-up, boosting that to 6,000 wells over the life of the project.

BG has secured global LNG sales agreements linked to the project, including a 20-year 9.5m t/y export contract with China’s state-owned CNOOC, which took a 5% stake in QCLNG as part of that deal. It has also lined up a 20-year agreement with Tokyo Gas for 1.2m t/y, starting in 2015. BG said it has already bagged supply deals worth a total of almost 10m t/y and is confident it will land more export contracts, which could be the basis for further expansion at QCLNG.

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