Executives with BG Group plc, one of the world's largest suppliers of liquefied natural gas (LNG) and an ever-larger U.S. shale gas producer, on Tuesday dismissed concerns about the bloated global gas market.
Gas demand worldwide is forecast by the company to grow 3% a year through 2020, which will eat up any oversupply concerns and in fact tighten the LNG markets, CEO Frank Chapman said in a conference call with financial analysts.
"The increase by 2020 will be equivalent to more or less the entire current North American gas market," Chapman said, and BG is well positioned to profit from the growth in nearly ever corner of the globe.
BG's annual LNG production worldwide is forecast to be up by at least 50% by 2020; profits for the division in 2011 and 2012 are forecast at between $1.9 billion and $2.2 billion a year. By 2015 net production for U.S. shale gas operations is expected to nearly double to 190,000 boe/d from 2010's 100,000 boe/d.
Existing discoveries alone, fueled by the U.S. shales and growing Brazilian operations, should lift annual production 6-8% a year to 2020, "with the 7% mid-point now achievable from existing discoveries alone," Chapman said. BG's organic reserve replacement ratio in 2010 was 229%.
"2010 was a pivotal year for BG Group as the largest growth opportunities in our history began to crystallize amid a positive outlook for global gas markets," the CEO said.
Executive Vice President Martin Houston, who oversees BG's Americas and global LNG division, told analysts that each of BG's markets is forecast to grow through 2020, with the strongest increases in Asia, led by China. LNG supply should reach 20 million tons/year by 2015, which is 50% above current levels. The "potential supply case" reaches 30 million tons/year by 2020.
BG's largest LNG project to date, the $15 billion, two-train 8.5 million ton/year Queensland Curtis LNG project, is scheduled to begin operations in 2014. Total gross resources are now estimated at about 21 Tcf, which is nearly quadruple the projected resource potential when the project ramped up in February 2008.
All of the extra gas, which in the United States has flooded the markets, actually will be directed to undeveloped countries, Houston explained. Sixty percent of gas demand growth through 2020 will be outside the developed countries that comprise the OECD, or Organisation for Economic Co-operation and Development.
However, the company sees gas supplies tightening much faster than many analysts are predicting. By 2020 BG predicts that global gas supplies will be 1,000 billion cubic meters/year below the load demand expected.
"We think the supply challenge will be much greater than this," said Houston. "We are expecting new supplies of gas from a variety of sources," and all together the new sources, which include global shale prospects, could fill the expected supply gap if they could be produced.
"But that's a very big 'if,'" said Houston. "The industry has just nine years to fill supply to meet expected demand growth...Supply would need to grow 9% a year, which would be around $2 trillion of investments, [finding and development] costs. Take all that and put it into context...Take Norway, as an example. Industry has less than nine years to bring on stream 20 times the current gas stream of Norway just to meet projections...There's a huge corresponding supply challenge with supply growth."
In the United States BG sees "modest demand growth in the biggest gas market," said Houston. Because of "abundant shale resources, gas prices will remain out of oil parity for some time."
Most of BG's global gas portfolio "is indexed to oil, and that provides certainty for buyers," he explained. Oil indexation is "normal for LNG contracts, and it remains the case for the foreseeable future..." About 70% of BG sales (by value) are expected to be oil or oil-related by 2015, up from 50% in 2010, which means that "75% of the increase in global gas will compete with, and therefore be priced against, oil."
BG added 1.7 billion boe to total reserves and resources to reach 16.2 billion boe, which is 69 years of production at 2010 levels, he said. This year the company will focus on "key prospects" that include the United States, Australia, China, Norway, Tanzania and Egypt. BG, which produces about one-third of Egypt's gas, said civil unrest has, to date, had no material impact. Production there has not been affected and a temporary drilling suspension is close to being lifted. Floods in Queensland, Australia, also have had a minimal impact on the LNG project.
Total capital spending is set at $10 billion in 2011 and $11 billion in 2012, with the "major investments" in the United States, Brazil and Australia.
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