www.platts.

com

International Gas Report

Russia to sink $2.5bn in Nigeria Issue 618 / March 2, 2009

Russian gas giant Gazprom and Nigeria
aim this month to conclude an agreement
on domestic and export gas sales.
Gazprom said February 25 that it
hoped to tie up the $2.5 billion
investment plan in Nigerias gas sector
in March (IGR 606/1). Its country head
Vladimir Ilyanin said at a conference in
Abuja late February that a joint Russian-
Nigerian company would be formed.
We are looking at the domestic
market infrastructures, the gas gathering
systems and the new export projects in
gas. We are going to go into them
immediately, he said. One project is
the $20 billion trans-Sahara pipeline
project. If built, the 4,300 km line will
transport 30 billion cubic meters/year Analysis
from the Niger Delta into Europe by Israel insists on more than one supplier 3
way of Niger and Algeria (IGR 600/9). South Korea moves gas
The project has been on the drawing down the agenda 4
board for at least 20 years. Iraq listens to the concerns of investors 6
Ilyanin said the line gave Gazprom China starts small-scale
enough opportunities to showcase its liquefaction plants 7
experience outside Nigeria. Saudi Arabia cuts associated gas output 8
French Totals country boss Guy Netherlands faces up
Maurice reportedly said during the to competitive future 9
same event that his company was
ready to join Gazprom the first time
News
a major has said as much. This could
bring more credibility to the project. BG outbids Arrow for Aussie Pure 12
continued page 2 Thai PTTEP gives Clough contract 13
Indias Gujarat starts up Dahej line 14
Huskys Liwan 3-1 strikes gas 15

Sweden snaps up Dutch Nuon Foreigners top in Bangladesh

Soon two big Dutch utilities will likely be
in foreign hands, now that Swedens
state-owned power generator Vattenfall
has bid 8.5 ($10.95) billion for Nuon
a deal that Nuons two boards have
recommended to shareholders.
The price paid is close to the 9.3
billion that German utility RWE paid for
Essent, the other major regional Dutch
utility, in January (IGR 615/21).
The deal gives Vattenfall equity gas
production in the Dutch sector of the
North Sea, storage rights at Epe in
Germany, 2.5 GW of gas-fired power
capacity and another 3.1 GW of
Zeebrugge Q4 gas vs Dated Brent Crude
($/bbl)
46
Norway slashes Troll work plan
16
17
UK supply needs $334bn spend 19
planned capacity; but not Nuons grid
UK LNG importers miss winter 20
company Alliander. Dutch law requires
legal unbundling of vertically integrated Dana finds more gas in Nile Delta 20
utilities by separating infrastructure Gas producers build more storage 21
owners from energy suppliers. US plans to tax more from 2011 22
Vattenfall has put its power grid in Senate approves $800bn spend 22
Germany up for sale. ETP launches open season 23
Under the deal, Vattenfall would Ice keeps LNG offshore Algonquin 24
initially acquire 49% of Nuons shares,
Argentina eyes gas-for-power swaps 24
with the remaining 51% to be bought in
Chevrons finds support two trains 26
the coming six years under fixed terms.
Following the initial acquisition of Indian Petronet doubles Dahej 27
49%, Vattenfall will have operational Shells losses mount in Nigeria 29
control over Nuon, the company said Spains Repsol seeks YPF buyer 30
continued page 2 Spains GN launches Fenosa bid 30
Thai PTTEP eyes acquisitions 31
M&A deals fall 59% in Q4 2008 32
Norways profits delight 32
($/MMBtu)
7.6 BP gives Dudley the Americas, Asia 33

45 Zeebrugge Brent 7.5

Contracts and tenders 35
44 7.4

43 7.3
Events 36
42 7.2

41 7.1
Markets and prices
40 7.0
12-Feb 13-Feb 16-Feb 17-Feb 18-Feb 19-Feb 20-Feb 23-Feb 24-Feb 25-Feb Global gas market wallows in oversupply 37
Source: Platts Global Alert

The McGraw Hill Companies

 LEADS

Russia to sink $2.5bn in Nigeria Sweden snaps up Dutch Nuon

continued from page 1 continued from page 1

Last September, Nigeria National Petroleum
Company signed an MOU with Gazprom the supplier
of almost a quarter of Europes gas in a move which
analysts said reflected its keen interest in Nigeria as it
attempts to tighten its grip on Europes natural gas
supplies. Europe, on the other hand, is trying to
escape from Gazproms expansionist sales policy, and
senior executives from the European Commission have
visited north African gas producers to see where
business can be done.
Gazprom believes its experience of running similar
large-scale, long pipeline projects and maintenance
operations will stand it in good stead in its
negotiations. We certainly want to help to continue
expanding our reach in the global gas market, Ilyanin
said. Most of Russias exports already come a vast
distance, although through very different terrain.
Nigerias domestic gas industry has operated far
below its full capacity because of a lack of funds and
insecurity in the Niger delta. Nigerias president Umaru
YarAdua has said he wants to raise $20 billion from
companies to invest in harnessing gas reserves to
solve the countrys chronic power crisis. This would
include monetizing gas which is now flared in the
absence of end-users. Western companies such as
Germanys E.ON and UK-based BG Group and Centrica
are also keen to move into Nigeria.
Gazprom signed a memorandum of understanding
with state oil company NNPC and the next phase of this
MOU is to begin detailed discussions on gas supply,
both for domestic use as well as for exports, NNPC boss
Mohammed Barkindo said. He, however, could not say
when a deal would be signed even as the Nigerian power
sector faces a gas-supply crisis. Gazprom is expected
to focus most of its initial investment on improving
Nigerias domestic gas industry. Staff
February 23. The transaction is expected to close by
the end of the second quarter of 2009 and is subject
also to regulatory approval.
The takeovers by two foreign companies are positive
for competition, while a merger of the two, as was
considered last year, would just have been more of the
same and might also have posed problems with Brussels,
according to a Dutch energy adviser, Floor Touber of
Horatio Assurances M&A business in Amsterdam. He also
said Vattenfall is seen as very green, unlike RWE.
There are still some independents left, such as
Eneco, which is in merger talks, and Delta, which is
playing its own game and promoting itself as an
independent, Touber said. But the politicians will be
looking at ways of regulating the foreign owners, he said.
By far the biggest Dutch gas supplier is GasTerra,
which is half owned by the state and a quarter each by
Anglo-Dutch Shell and US ExxonMobil (see page 9).
Nuon has a total installed capacity of 3.735 GW,
which will boost Vattenfalls generation capacity to
32.135 GW.
After losing out to German rival RWE in the race for
Essent, much speculation surrounded Vattenfalls next
target, with newspaper reports heavily associating the
utility with a possible offer for UK energy company
Scottish & Southern Energy if its bid for Nuon had
failed. Vattenfall was competing for Nuon with the likes
of Italys Eni and Danish Dong both of which would be
of strategic value, with their gas assets.
Vattenfall CEO Lars Josefsson said: Nuons widely
respected knowledge in renewables and clean energy
technologies is a very valuable addition to our own,
adding that it will accelerate the realization of
Vattenfalls strategy to make electricity clean. Although
Vattenfall is seen as green in Sweden, in Germany it has
lignite mining operations for its power plants. Staff

] Editor
William Powell
International Gas Report
International Gas Report is published twice monthly by Platts, a division of The
McGraw-Hill Companies, registered office: 20 Canada Square, Canary Wharf,
London, England, E14 5LH.
Issue 618 / March 2, 2009

To reach Platts
(ISSN: 0266-9382)

william_powell@platts.com E-mail: support@platts.com

tel +44 (0)20 7176 6282 Officers of the Corporation: Harold McGraw III, Chairman, President and Chief
fax +44 (0)20 7176 6657 Executive Officer; Kenneth Vittor, Executive Vice President and General Counsel; North America
Robert J. Bahash, Executive Vice President and Chief Financial Officer; John Tel: 800-PLATTS-8 (toll-free)
Managing Editor Weisenseel, Senior Vice President, Treasurer.
+1-212-904-3070 (direct)
Paul Whitehead Prices, indexes, assessments and other price information published herein are
based on material collected from actual market participants. Platts makes no Latin America
Editorial Director, European Power warranties, express or implied, as to the accuracy, adequacy or completeness of Tel: + 54-11-4804-1890
Vera Blei the data and other information set forth in this publication (data) or as to the
merchantability or fitness for a particular use of the data. Platts assumes no Europe & Middle East
Editorial Director, Global Power liability in connection with any partys use of the data. Corporate policy prohibits Tel: +44-20-7176-6111
Larry Foster editorial personnel from holding any financial interest in companies they cover
and from disclosing information prior to the publication date of an issue. Asia Pacific
Vice President, Editorial
Dan Tanz
Copyright 2009 by Platts, The McGraw-Hill Companies, Inc. Tel: +65-6530-6430
Permission is granted for those registered with the Copyright Clearance Center
(CCC) to photocopy material herein for internal reference or personal use only,
Platts President provided that appropriate payment is made to the CCC, 222 Rosewood Drive, Advertising
Victoria Chu Pao Danvers, MA 01923, phone +1-978-750-8400. Reproduction in any other form, or Tel: +1-720-548-5479
for any other purpose, is forbidden without express permission of The McGraw-Hill
Manager, Advertising Sales Companies, Inc. Text-only archives available on Dialog, Factiva, and LexisNexis.
Ann Forte Platts is a trademark of the McGraw-Hill Companies, Inc.

The McGraw Hill Companies

2 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 ANALYSIS
Israel insists on more than one supplier
While the Tamar-1 field appears to solve all Israels problems, there is no point in
counting the chickens yet. It will not be on stream for some years, and Israel wants a
diverse supply portfolio.
Israels national infrastructure ministry is warning that
the country will face a shortage of natural gas supplies
in the coming years unless consumers reach
agreements with potential suppliers. The warning by the
ministry comes just weeks after the announcement of a
major discovery of natural gas at the Tamar-1 field off
the countrys north Mediterranean coast (IGR 617/16).
The gas from Tamar-1 will not reach Israel before
2014 at the earliest, predicted the ministrys
director-general, Hezi Kulger, In an interview with
Platts, Kugler said that the discovery was some way
from the coast and the huge cost of developing it
meant that the gas will not be available to meet
Israels short term needs.
However, his boss, the minister Benjamin Ben-Eliezer
has requested that Noble Energy speed up
development of the field in light of Israels energy
shortage. Were interested in seeing the gas from
Tamar-1 reach Israel as quickly as possible, the
minister said February 25. Tamar-1s operator, Noble,
did not commit to a timetable but said that day the
company and its Israeli partners were aware of the
countrys energy needs and would make every effort to
deliver the gas as quickly as possible.
Demand in 2009 is expected to reach 4 billion cubic
meters and rise to 6 Bcm next year. Long term
projections are for demand to rise to 12 Bcm in 2015
and as much as 15 Bcm in 2020. Even with potential
reserves of 142 Bcm or possibly even 200 Bcm, the
government is continuing with its policy of diversification
of suppliers. Until recently Israel was concerned about
over reliance on Egyptian supplies. But even with the
latest windfall the government is opposed to dependence
on any one supplier, even it is a domestic company.
Israel is supplied by the Yam Thetis consortium
Noble Energy, Delek Exploration and Avner Oil and Gas
and by East Mediterranean Gas. The Yam Thetis
Mary field, off of Israels southern Mediterranean
coast, is expected to run dry within four to five years.
EMG began supplying Israel with gas in May but
technical problems have led to reductions in the flow.
The situation is expected to improve in the coming
months and Israel is banking on increasing amounts of
Egyptian gas in the coming years (IGR 606/18).
But any additional quantities will be at a higher price:
following talks late February, a new deal between the two
has doubled the price for additional supplies to $4.50-
$5/MMBtu. The price applies to all new gas supplies to
Israeli customers over and above the initial 15-year
3 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
agreement with state-owned IEC, which is for 1.7 billion
cubic meters/year of gas at $2.75/MMBtu
The Tamar-1 discovery gives us more flexibility in the
future but well still need several suppliers, Kugler
noted. Kugler has instructed the state-owned Israel
Electric Corp to guarantee supplies for the next few
years as a matter of urgency.
As part of the effort, the IEC resumed talks with BG
about supplies from its Marine field, off the
Mediterranean coast of the Palestinian-controlled Gaza
Strip. The Israeli ministries for infrastructure and
finance revised an earlier decision and have now given
the utility the go ahead to commit for the entire
amount of gas in the Marine field.
BG could start Marine field in 2012
BG has confirmed that talks have resumed but said that
serious negotiations were yet to begin. A senior IEC
delegation was in Britain in mid-February for talks. An
IEC source said that the company was very interested in
concluding a deal and that the Tamar discovery could
have a positive contribution to speeding up the talks.
Kugler said that BG informed him that the Marine field
could be operational in 2012 if an agreement were
reached. The director general is also pressuring the
countrys nascent private power industry to reach
agreements with suppliers in order to get their projects up
and running in the coming years. He stressed that in the
short term the IEC, the private power companies and
industrial users should enter into urgent discussions with
East Mediterranean Gas for supplies from Egypt. They
must sit down seriously with EMG and reach agreements
now or they will be to blame for the shortage in coming
years, he said.
Israel is also proceeding with plans for an LNG terminal
project. Kugler said that the preliminary tender would be
issued within the next few weeks. The governments
economic cabinet will then give its final approval for the
tender. The plan is to issue the full scale international
tender by July of this year.
LNG to come onstream by 2015
The target is for the LNG terminal to be operational by
2015 at the latest. The ministries for finance and for
infrastructure have stressed that Israel needs maximum
diversification regarding suppliers of natural gas and
therefore the LNG project is still critical. The
infrastructure ministry has reported substantial foreign
interest in the project including a number of leading
American and European energy companies.
 ANALYSIS
Last February the Israeli government approved the
issuing of a tender for the supply of LNG and the
building of a terminal off the countrys Mediterranean
coast to handle at least 4 Bcm/year of imports. The
government decision will require the IEC to purchase a
minimum of 1 Bcm/year of LNG annually for a
minimum of ten years. The cost of the terminal is
estimated at $700 million.
The proposal calls for the terminal would be operated on
an open access basis with direct sales to customers.
Under the terms of the decision LNG will be supplied by
a private gas company that would build and operate the
offshore terminal though other potential suppliers would
be allowed to use the terminal.
The infrastructure ministry is also continuing its
efforts to encourage further exploration in Israels
economic waters. In mid-February the ministrys
South Korea moves gas down the agenda
South Korea is worried about energy security and the environment, so it has drawn up an
energy strategy that will reduce the need for natural gas, which it imports now solely as a
liquid, but will perhaps later import by pipeline.
The government of South Korea has unveiled a new
power sector strategy designed to increase energy
security, cut carbon emissions and promote domestic
technology. The countrys already substantial nuclear
sector is to be greatly expanded, with renewables
making an increasing contribution to the generation
mix. In thermal power production, fuel-oil will be
almost eliminated as a feedstock, while the
importance of coal will be somewhat downgraded. Yet
perhaps the biggest surprise in the new strategy is
that the proportion of liquefied natural gas-fired
capacity in the generation mix is set to fall from 22%
in 2008 to just 6% by 2022.
Under the presidency of Lee Myung-bak, the new ministry
of knowledge economy has been given the key role in
determining long-term energy strategy. The ministry
formed a panel of 96 energy and environmental science
experts last year to predict long term energy trends and
the panels findings have now been incorporated in the
new strategy. Growth in electricity use is expected to be
far lower in the future, at an average of 2.1%/year
between now and 2022, in comparison with about 9% in
the 1990s. Nevertheless, this will still require a
substantial increase in generating capacity from the
current level of 65.8 GW, particularly as the ministry has
recommended a substantial increase in the gap between
power use and generation capacity.
At present, South Korea possesses 45 coal fired
plants, 40 gas fired facilities, 13 fuel oil fired plants
and 20 nuclear reactors, which account for 25%, 25%,
4 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
advisory council on oil and gas recommended granting
19 new licenses for gas exploration off of Israels
Mediterranean coast.
The consortium led by Noble Energy and including Delek
Exploration and Avner Gas and Oil was granted 12
licenses. Six were approved for US-based Pelagic
Exploration and one license to Energetic Corp.
Infrastructure minister Benjamin Ben-Eliezer is expected
to approve the councils recommendations in the coming
weeks. Ministry officials said that following the latest
round of recommendations 54% of Israels economic
waters would be licensed.
There has been a marked increase in interest by local
and foreign companies in exploring for oil and gas
following last months discovery of gas at Tamar-1, said,
the director of the ministrys Natural Resources
Licensing Department Yaakov Mimran.
10% and 33% of power production respectively,
leaving hydro and renewables to contribute the
remaining 7%. The ministry is planning 12 new
reactors to be built by 2022, boosting the nuclear
industrys share of production to 48%, while a less
concrete goal of 60% has been set for 2035. A
combination of wind, solar and tidal power projects
should see the proportion of electricity generated by
renewables rise from 2.4% in 2007 to 6.1% in 2020
and 11% by 2030.
Focus on nuclear displaces gas
This focus on nuclear power and to a lesser extent
renewables will see thermal power plants play a
decreasing role in the generation mix. All existing oil
fired plants are to be decommissioned, with just a single
new facility built, largely for research and development,
while three coal-fired plants will be decommissioned and
seven built. Six gas fired plants are to be closed down
and eleven developed but the ministry expects many of
the new thermal plants to be relatively modest in terms
of generating capacity.
A ministry statement explained that the plan was to
generate more low-carbon power while cutting back on
high-priced reserves such as LNG and coal. Under the
plan, the fuel cost will be about 56% lower [in 2022 in
relative terms] than this year, the ministry said. Yet fuel
costs are only one explanation for the plans. South
Korea possesses virtually no oil, gas or coal reserves of
its own and so has long been forced to rely on imports
for most of its energy requirements. The increased focus
 ANALYSIS
on nuclear power and renewables will therefore
strengthen its energy security, particularly as state
owned Korea Resources Corporation is seeking to
acquire its own overseas uranium mines.
South Korea is classified as a Non-Annex 1 country
under the Kyoto Protocol and so is not required to
reduce its carbon emissions by 2012. However, Seoul
recognizes that it will be regarded as an industrialized
nation in whatever successor agreement to Kyoto is
finally reached and so its energy strategy has the
benefit of focusing on low-carbon technologies.
Finally, successive South Korean governments have
consistently sought to promote domestic technology.
Foreign nuclear reactor technology was imported in
the 1970s and 1980s but government funding into
R&D meant that all reactors completed since 1998
have employed largely Korean technology and Korea
Hydro & Nuclear Power Company is now seeking to
export its reactor designs overseas. Similarly, Seoul
is providing R&D support for renewables in the hope
of encouraging the emergence of a new hi-tech,
export orientated industry.
Gas plays baseload role in short-term
Nevertheless, thermal power plants are expected to
provide some baseload generating capacity for the
foreseeable future. Gas-fired capacity may make a
diminishing contribution to total power production but
given that the number of gas fired plants is predicted to
increase from 40 to 45 over the next 13 years, the
dramatic fall in LNG-fed production cannot solely be
attributed to a realignment in the generation mix alone
but also to a new source of supply.
At present, virtually all South Korean gas demand is
satisfied by LNG imports but in September last year
Seoul agreed to import 10 billion cubic meters/year
from Russia via a new pipeline. The ministrys energy
strategy was unveiled in January, just four months after
the pipeline deal and so the two do not appear in any
way contradictory. Rather, the government of South
Korea seems keen to secure an alternative source of
gas and one that is less prone to price fluctuations.
The countrys LNG imports may now have fallen from
an average of $20/MMBtu in August last to $6.60/MM
Btu by this February but the wide price swings make it
difficult for Korea Gas Corporation, which holds a
monopoly on South Korean gas imports until 2010,
and Korea Electric Power Corporation (Kepco) to plan
for the long term.
Kogas made a net loss of won 30.3 billion ($20.18
million) in the final quarter of 2008, in comparison with
a won 206.2 billion profit for the same period in 2007.
Kepco fared even less well, recording a net loss of won
2.95 trillion for the whole of 2008, largely because the
ministry of energy blocked its plans to increase
electricity tariffs to cover higher LNG costs. In
November, the ministry finally granted gas tariff rises of
9.7% to won 598/cu m ($0.44/cu m) for industrial
5 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
customers and 4.8% to won 677/cu m for residential
consumers, but the new rates are still substantially
lower than Kogas would like.
Building the import pipeline could certainly help to hold
gas prices down. The financial details of the project have
not yet been concluded but Seoul believes that piped gas
will be substantially cheaper than LNG. According to
ministry figures, the average global price of LNG was
$499/mt in 2007, in comparison with an average price of
$410/mt equivalent for pipeline gas around the world.
Under the September deal, Gazprom will transport 10
Bcm/year from eastern Siberias Yakutsk fields to
Vladivostok and on to South Korea from 2015. It was
originally hoped that the pipeline could be routed through
North Korea, with Pyongyang expected to gain about $100
billion in transit fees, but relations between North and
South Korea have deteriorated over the past few months.
As a result, a more expensive subsea route is being
considered, running 600 km across the Sea of Japan.
Subsea line avoids North Korea
The subsea option became much more likely in February
when the ministry announced plans to develop a new
gas storage project close to where the pipeline would
reach South Koreas east coast. Reserves on the
Donghae gas field are being depleted and the
government plans to use the field to store up to 1.7
million mt equivalent of Russian gas (IGR 617/20). This
will boost national gas storage capacity as a proportion
of annual consumption to 24.3% by 2017, up from just
9.2% now, and so support Seouls energy security policy.
Russias 10 Bcm/year of gas for South Korea is the
equivalent of just over 7 million mt/year of LNG, which
would comprise a significant proportion of the 27.26
million mt that South Korea imported in 2008. The ministry
has not released any projections on the total share of gas
fired capacity in the generation mix in 2022 but a fall
seems more than likely given the growing importance of
nuclear energy and renewables. Yet even if gas does
become a less important power sector feedstock, this
need not translate into a decrease in total gas imports
over the period in question, as 50% of all imported gas is
used in non-power sector industrial processes.
Recent research by Tokyo Gas concluded that large
numbers of industrial consumers in East Asia will switch
from fuel oil to gas feedstock over the next decade and
the firm already supplies a greater proportion of its
supplies to non-power sector customers in Japan than at
any other time in its history. A similar trend could be
emerging in South Korea given Kogas decision to
construct a new LNG terminal on the east coast at
Samcheok and the MKEs revelation that it will promote
the increased use of natural gas for heating by
residential customers and vehicles that run on liquefied
petroleum gas. Even if the power sector is looking to
other technologies, gas looks set to maintain a sizeable
presence in the energy mix of Asias fourth biggest
economy for a long time to come. Neil Ford
 ANALYSIS
Iraq listens to the concerns of investors
Iraqs oil ministry has eased the terms of its first post-war bidding round, bowing to
pressure from foreign would-be investors. The state will reduce its share drastically and
has made concessions regarding the data.
Iraqs oil ministry has eased the terms of its first post-
war bidding round to make them more palatable to
international oil companies, sources have told Platts.
This includes reducing the share of state-owned Iraqi oil
companies in the joint ventures to 25% from 51%.
The proposed changes to the Initial Tender Protocol
followed talks in Istanbul, Turkey, February 12-14
between representatives from 32 pre-qualified foreign oil
companies and an Iraqi delegation that included senior
oil ministry officials and affiliate upstream companies.
Oil minister Hussein al-Shahristani did not attend.
The workshop represented a milestone in the first
bidding round process to develop six oil fields and two
gas fields under long-term service contracts and was
designed to hear the views of the qualified companies
on an initial tender protocol issued by the oil ministry.
Sources close to the workshops participants told Platts
that the oil ministry had received a large number of
comments from the foreign oil company with one source
saying that the comments filled more than 100 pages.
As a result of the feedback, the Iraqi delegation
presented some modifications to previous terms in order
to ease some of the majors concerns.
The delegation told participants that it had decided to
reduce the required share of the state oil companies
in the joint operating entity that will be responsible
for operating the fields to 25% from 51%.
Furthermore, the operating entity of the fields will be
detached from the state oil companies, the North Oil
Company and the South Oil Company. In the modified
version, operatorship of the joint venture will be put
under the direction of a joint management committee
in which the international oil companies will hold
75%. However all decisions relating to development
will have to be unanimous. Under the previous plan,
the national Iraqi oil companies would have had 51%
in the management company.
Iraq removes some of the charges
The Iraqi delegation also took the initiative to ease
the bidding parameters by removing the
maintenance remuneration fee, a $/b fee that was
supposed to be paid as a reward for maintaining a
pre-determined baseline level of production. The
baseline production level has also been changed
from a horizontal line to a declining line that
reflects the true nature of the field.
The new parameters are: an improvement remuneration
fee, a $/b fee as a reward for every barrel above the
6 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
declining baseline of production, and, an improved
production target, a b/d production target to be reached
in the seventh year of the contract.
The sources also said that the Iraqi delegation had
put on the table another parameter related to a fast-
track production target three years from start-up of
the contract but the idea is still under consideration
by the oil ministry.
A source at one of the foreign companies involved in
the negotiations said that while the revised terms
were a welcome development, there were still some
concerns over the issue of operatorship and the level
of investment required by the mulinationals, which he
said would be financing the Iraqi share of the project
as well as their own.
The six oil fields on offer under a 20-year service
contract are the major producing fields of Kirkuk and
Bai Hassan in the north, and the two Rumaila fields,
Zubair, West Qurna I and the three Meissan fields in
the south. The two gas fields are Akkas in the
western Anbar desert and Mansooriya northeast of
Baghdad in Diyala province.
The Iraqi oil ministry will use the feedback from the
foreign oil companies to produce the Final Tender
Protocol according to which the foreign majors will
present bids to develop the fields. Prior to the workshop,
the ministrys consultants, Gaffney, Cline & Associates,
classified the comments from the international oil
companies into categories, enabling the participants to
split into groups to discuss the responses.
Investors had data issues
One of the impressions obtained by the sources from
the workshop was that most of the foreign oil companies
were not happy with the quality and the quantity of the
data that was given to them for the fields. The
multinationals reportedly expressed concern that they
could not carry out simulation runs on the basis of the
data provided or make any accurate commercial and
technical evaluations based on assumptions and
guesstimates, as one source put it.
The sources said the Iraqi officials advised the foreign
oil companies to make site visits to the fields to survey
local conditions, especially existing surface facilities.
The consultants informed the companies on the sidelines
of the conference that US oil services companies Bechtel
and KBR, a former division of Halliburton, were ready to
carry out the task of on site visits on their behalf. The
 ANALYSIS
sources said that around 10 of the companies present
took up the offer with Bechtels offer garnering the most
interest. Both companies have been active in post-war
reconstruction work in Iraq.
The Iraqi delegation told the qualified companies that
they had until March 6 to submit further opinions and
comments on what was discussed in the workshop,
after which the ministry would issue the final
protocol, expected around mid-April, taking their
comments into consideration.
This schedule, which the foreign oil company
representative believes is too tight, will enable the
ministry to conduct the final bidding round by the middle
of June, a deadline the Iraqis are desperate to meet to
China starts small-scale liquefaction plants
China has brought onstream another two small-scale LNG production plants in Inner
Mongolia and Guangdong, adding to the countrys growing list of such niche liquefaction
facilities catering to the domestic market.
China has developed mini-liquefaction plants to solve
transport difficulties in areas too remote for pipelines to
be economic. It has just brought on stream two new
liquefaction plants, one in Erdos, Inner Mongolia, and on
in Guangdongs Zhuhai city, said the deputy-president of
Chemtex (China) Engineering Co, Weibin Li.
US-based Chemtex is the engineering, procurement and
construction contractor for both the Erdos and Zhuhai
projects, which are based on the patented PRICO
technology by US firm Black & Veatch.
The Erdos facility, owned by privately local firm Xingxing
Energy Co, has a 200,000-mt/year capacity. It began
commercial operation on November 30 and attained
100% production capacity on December 10, said Li.
Feed gas for the Erdos plant is supplied by state-
controlled oil giant PetroChina from the Changqing oil
field which spans the Shaanxi and Gansu provinces,
and the Ningxia Autonomous Region, all of which border
Inner Monoglia, he said.
LNG produced from the Erdos plant is transported by
specially designed trucks, each with a capacity of 53
cubic meters, to markets as far away as the southwestern
Guizhou province, eastern Jiangsu province, northeastern
Shandong province and Shanghai city, Li said.
In Zhuhai city in the southern Guangdong province,
Chemtex also completed construction of a 600,000-
cubic meters/day (around 438 mt/day) liquefaction plant
on December 6, Li said. The Zhuhai plant, located on
Hengqin island, is owned by state-owned China National
Offshore Oil Corp. The plant entered commercial
7 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
ease the pressure on the ministry to increase oil
production, the sources said.
The Istanbul workshop was open to the 32 companies
which had purchased tender documents ahead of the
Istanbul conference. A total of 35 international oil
companies were pre-qualified for the first bidding round
launched in the middle of 2008.
The new fields are expected to add 1.5 million b/d to
Iraqs oil production capacity. Iraqs sustainable
production capacity is believed to be around 2.4
million b/d currently, although the country had
achieved production levels as high as 3 million b/d in
the months before Saddam Husseins ouster in the
US-led war of 2003. Faleh Al-Khayat
operation on December 6, but is not yet running at full
capacity as it is suffering from a shortage of feed gas
from CNOOCs fields in the South China Sea, said Li.
However, LNG produced from the Zhuhai plant is not
intended for the Guangdong market, but mainly for
Shanghai. From Zhuhai, the LNG would be trucked to
Shanghais Wuhaogou peak-shaving plant, which was
built around 1999 to store gas for emergency cover as
part of a project to pipe gas to Shanghai from the
offshore Pinghu field in the East China Sea. An
expansion of Wuhaogou was brought online in
November, boosting its storage capacity to 100,000
cubic meters, or equivalent to around 10 days of
Shanghais gas consumption.
Besides from Zhuhai, Shanghai also buys
domestically produced LNG transported by trucks
from a small-scale liquefaction plant in the remote
northwestern Xinjiang Autonomous Region; as well as
imports small LNG shipments on 19,000 cu m ships
from Malaysia. Shanghai would also start importing
conventional sized 120,000-150,000 cu m LNG
cargoes from Malaysia later this year, when a 3
million mt/year LNG import terminal, which is now
being built by CNOOC, is ready.
Zhuhai is a mere 60 km southwest of Shenzhen,
where Chinas first LNG import facility, the
Guangdong Dapeng terminal, is sited. Zhuhai is also
where CNOOC has a proposal for another LNG import
terminal. In fact CNOOC also has plans to build an
additional LNG import terminal at Shenzhen, bringing
to three the number of existing and proposed terminal
projects in Guangdong province.
 ANALYSIS
More domestic liquefaction plants planned
While there were initial doubts about the economics of
transporting LNG over long distances using trucks, a
scarcity of gas in certain remote regions or cities still
awaiting connection to a pipeline grid has resulted in
demand for domestically produced LNG, enabling such
niche plants to be profitable.
Chinas gas pipeline network has improved but still
cannot penetrate certain remote areas and some cites
are not yet able to access pipeline gas, Li said. There
is always a market for domestically produced LNG
transported by trucks, and this has always been a
sellers market, he added.
Also, some city gas companies may find the volume of
gas allocated by PetroChina at state- controlled prices
to be insufficient, so they supplement it with more
expensive, domestically produced LNG and aggregate
the costs, said Li.
For example, in the eastern Anhui province, the city gas
company of Hefei city buys LNG from domestic
liquefaction plants at around Yuan 5/cu m ($0.73/ cu
m, or $20.30/MMBtu) to augment gas supplies from
PetroChinas West-East pipeline, and sells the mixture
to residential users at around Yuan 2.1/cu m,
according to local media reports.
Saudi Arabia cuts associated gas output
Saudi Arabias gas production is bound up with crude output, and in todays climate of
cuts, it is left facing a shortage of gas. It is not expecting any non-associated gas for some
time, while Empty Quarter drilling has also disappointed.
Cuts in Saudi Arabias crude oil output to comply with
its OPEC target have reached a level where gas supply
is close to falling below demand. While the situation is
manageable in the near term, the kingdom will be
unable to produce enough gas to meet demand if oil
production falls below 8 million b/d, Jadwa Research
said in a report February 17.
The report by chief economist Brad Bourland said the
decision by OPEC to reduce its overall production by a
total 4.2 million b/d from a September baseline meant
group kingpin Saudi Arabia reducing output to 8.05
million b/d, a target achieved in January.
With [oil] prices yet to show any sign of recovery,
the kingdom is planning to reduce production by an
additional 300,000 b/d in February. Early indications
are that production will be maintained at this level,
Bourland said.
Trading sources told Platts earlier in the month that
they had been informed by Saudi Aramco that it
intended to cut supply by a further 300,000 b/d in
8 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
By comparison, in Fujian province where Chinas second
LNG import terminal is located, the government has
approved a price of Yuan 3.65/ cu m for regasified LNG
to be sold to residential users in the capital city of
Fuzhou, the local media has reported.
Before the Erdos and Zhuhai plants were completed,
China already had at least three operating liquefaction
plants a 400,000 mt/year unit by Chinese
conglomerate Guanghui in the northwestern gas-rich
Xinjiang region; a 150,000 cu meter/day unit owned by
privately held Xinao Group at Beihai in the southwestern
Guangxi region; and a pilot 40,000 mt/year plant by
state-owned Sinopec in the Zhongyuan oil field in the
northeastern Henan province.
In addition to the Erdos and Zhuhai plants, Chemtex is
also the EPC contractor for four more liquefaction
projects in China, all to be based on Black & Veatchs
techonolgy, said Li.
The four new proposed plants would be sited at
Dazhou in the central Sichuan province (500,000
mt/year); Jingbian in the central Shaanxi province
(500,000 cu m/day); Lanzhou in northwestern Gansu
province (300,000 cu m/day); and in the far flung
northwestern Xinjiang Autonomous Region (1.5 million
cu m/day). KimFeng Wong
February. The unilateral move by the worlds biggest
exporting nation would push output below 8 million b/d
in what appears a bid to help lift prices above
$40/barrel for US light sweet crude oil futures. Bourland
noted that around 60% of Saudi Arabias gas output is
associated gas produced alongside crude oil.
Reducing oil production therefore lowers the amount of
gas available ... It is estimated that if oil output falls
below 8 million b/d the kingdom will not produce enough
gas to meet demand, he added.
A temporary dip in production from the January level
would not be a problem in the near term since power
facilities can be run using alternative feedstock such as
fuel oil. Liquids can also be used for petrochemicals
though both are more costly than gas, Bourland said.
Reliance on gas reduces the scope for sustained oil
production much below 8 million b/d and with some
other OPEC producers also heavily reliant on
associated gas, the chances of further large oil
production cuts are limited, he said.
 ANALYSIS
The shortage of gas prompted Saudi Aramco recently
to take the unusual step of securing imports of gasoil
on long-term contracts, taking advantage of low
international prices, and in preparation for burning
more liquids for power generation, the report said.
Saudi Aramco last month issued a tender for 40,000
mt/month of 0.5% sulfur gasoil to cover the period
March-December 2009. Although the kingdom will
not be greatly affected by the temporary reduction in
the availability of gas, it highlights the long-term
supply issue, Jadwa said.
Gas demand is growing rapidly and many of the heavy
industrial projects and economic clusters planned in
the kingdom are premised on the availability of cheap
gas feedstock, it added. While more expensive
feedstock can be used, this undermines the
competitiveness of the end product.
Saudi Aramco supplies gas feedstock to local industries
at a level believed to be below $1/MMBTu.
Jadwa said some new non-associated gas fields would
soon be entering production, the largest being the
offshore Karan field with a production capacity of 1.5
Bcf/day which is set to come on stream in 2012. New
oil fields due to come on stream over the next few
years will also provide new sources of associated gas.
However, the four consortia looking for non-
associated gas in the Empty Quarter have yet to
make any commercially viable discoveries. At the
same time, lower crude oil production and weaker oil
prices have had a major impact on Saudi Arabias oil
income, Jadwa said.
Netherlands faces up to competitive future
The Netherlands has always played an important role in the security of supply within
Europe, thanks to its giant Groningen field. But the field will not last for ever, and the
market needs to prepare for a future without it.
The Netherlands unique Groningen field has been a key
supply source for northwest Europe. Most recently it was
able to supply some extra gas during the Russia-Ukraine
crisis, owing to its reservoir characteristics. But it will
not last forever, and the Netherlands has been boosting
its infrastructure the so-called roundabout model
in readiness for the massive influx of gas from Russia.
This means more pipeline and more storage capacity
and implies there will be room for more entrants and
hence more competition, but the state is still intimately
involved with the biggest supplier, GasTerra.
At the beginning of February the International Energy
Agency published a report on Dutch reform policies.
9 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
Oil prices and $/ rate part company
($/barrel) ($/)
160 1.7
134 1.6
108 1.5
82 1.4
56 1.3
30 1.2
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Source: Platts
It estimated that Saudi oil revenues were $9.8 billion in
January, slightly above the figure for December but down
from in excess of $30 billion/month between May and
August last year. The peak was $38 billion in July, when
oil prices soared to a record of $147.27/b. The last
time oil revenues were below $10 billion for two
consecutive months was in the first half of 2004, Jadwa
said. Bourland also noted that the close relationship
between the US dollar and oil prices had broken down
(see graph). There was a correlation between oil prices
and the US currency over the 11 months to November
last year when investors bought oil, a dollar-denominated
asset, as a hedge against dollar weakness and vice
versa. The end of this linkage is the result of a shift in
investor sentiment, he said, and said there was no real
reason for the two to be linked in the first place.
Dollar strength is now being fueled by the return of
funds that had been invested abroad by US investors
and perceptions that the dollar is a relative safe haven,
while the direction of oil prices reflects the prospects for
the global economy. Kate Dourian
It covers the structure of energy supply in the
Netherlands, the countrys regulatory system and
the evolution of the Dutch trading hub, the title
transfer facility.
While the state has been the most progressive in
continental Europe in terms of unbundling which has
enabled the two big utilities Nuon and Essent to be
bought the biggest supplier, GasTerra, remains half
state-owned, and this presents the government with a
conflict of interests with regard to further liberalization.
GasTerra manages the countrys supply portfolio and
its exports, and buys Groningen output and gas from
the small fields, giving it an unassailable position as
far as new entrants are concerned.
 ANALYSIS
According to Horatio Assurances energy expert Floor
Touber, there is a big debate going on about how free is
the market. What will happen with the small fields? Will
they remain the first source of supply with Groningen
used to balance?
Small fields
Groningen operator NAM, a joint venture between Shell
and Exxon, expects the field to be able to produce gas
for the next 50 years, a spokesman said. The field now
produces gas at a maximum rate of of 350 million cubic
meters/day. In 2008 the Groningen field produced 41
billion cubic meters.
But this might be optimistic. Touber thinks the field
will run out at around 2020. It could be another
decade depending on developments, but there will be
an end to Groningen gas.
The IEA report therefore urges the government to
invest more money to further develop the countrys
small fields and keep Groningen for as long as
possible. The Dutch government in 1973 introduced
the small fields policy, which requires the incumbent
supplier to buy gas from smaller and more marginal
wells. It has done so on terms and conditions that few
if any other suppliers can match.
The IEA observed that the policy of conserving
Groningen at the expense of the small fields has
helped to substantially increase gas reserves over the
last decade.
The report recommends that open access to these
new resources be granted to interested parties, and
welcomes the Dutch governments initiative to widen
out competition in the Dutch energy market. The IEA
regards the Dutch governments initiative to enhance
exploration and production activities in the
environmentally-sensitive Waddenzee area as a model
for future policies.
[The government] has been quite successful in its
approach to facilitate gas production in the sensitive
Waddenzee area. After several years of negotiation with
all parties involved, both permits to explore and to
produce could be given and the government itself
created a fund to improve environmental quality in the
area and to stimulate regional initiatives aimed at
sustainability, the report said.
Small fields made to work harder
On December 18 2008, the minister for economic
affairs, Maria van der Hoeven, sent a letter to the
Dutch parliament, explaining what measures have
been introduced and will still be taken to generally
enhance the gas production from smaller fields.
Measures include the removal of obstacles in
legislation and regulations and the introduction of
more efficient procedures for the granting of permits;
the improvement of information services to the mining
10
industry and the tackling of permits which are not
being worked on. These reforms in combination with
a change of the Mining Act, for which a proposal was
submitted on May 28 2008 will boost gas production
in the Netherlands, including the Dutch part of the
continental shelf, a spokesman for the economy
ministry told Platts.
The Dutch government is promoting active use of all
production licenses. In this context the industry and
government are working on a covenant to promote the
active use, both by current license holders as well as
new ones, when the holders are not planning to be
active in those parts, the secretary-general of the
Netherlands Oil and Gas Exploration and Production
Association Bram van Mannekes told Platts. The
impact of [these] measures [is] difficult to predict, but
it is expected to add at least some 20 Bcm of gas.
Apart from the extra gas these measures will help to
keep the offshore infrastructure in place for a longer
time, van Mannekes added.
However, the government has some harsh critics. In an
interview with Platts a spokesman for the Environment
Assessment Agency, an advisory body to the Dutch
government, expressed concerns about the continuing
emphasis on the small fields production and the
Dutch governments interest in increasing the small
fields gas output.
Joop Oude Lohuis acknowledged the swing capacity of
the Groningen field as an important aspect in the
Netherlands energy supply structure. He warned,
however, that the small fields were not as commercially
attractive for the Dutch government.
They are very expensive to develop, resulting in a loss
of profit for the state he said. Our view is that this
natural gas does not run away. The government should
encourage the development of these fields later when
the price for gas has gone up again, he added.
Rather than further expanding the small fields for gas
production in the Netherlands, the agency would like to
see the Groningen facilities used for accommodating
increased gas imports from outside Europe. We
support the idea of Groningen as the centre of the gas
roundabout, as such contributing to a sustained use of
natural gas in Europe. Holland has the knowledge for
such a gas roundabout and could even make a profit
out of it, he said.
The notion of the Netherlands using its geographic
location and expertise to serve as the centre of a gas
roundabout for northwestern Europe has gained
widespread support.
Dutch spot market liquidity growing
The spot market in the Netherlands is organized around
the Title Transfer Facility, a virtual market place set up in
2003 by the Dutch state-owned grid operator Gasunie.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 ANALYSIS
The TTF is operated by Gas Transport Services, a
subsidiary of Dutch grid operator Gasunie.
At the beginning of February the TTF reported a new
trading record for gas trading in 2008 and is now the
largest hub in continental Europe, the hub operator said.
There were increasing numbers of gas traders and
suppliers registering to trade at the Dutch trading
platform and the operator experienced substantial
growth in 2008, GTS said.
Market participants supplied 20.3 Bcm at the TTF in
2008, equal to almost half the total domestic gas
consumption in the Netherlands.
The volume of gas traded at the TTF also doubled year-
on-year to around 64 Bcm, representing a value of
around 15 billion ($19.12 billion). The number of TTF
traders grew by 20% to a total of 60 trading
participants, making TTF the largest gas hub on the
continent in terms of supplied volume and trading
volume, the hub operator said.
This development has been widely welcomed by the
Dutch government, industry as well as the IEA. Over the
years of its existence, however, the hubs balancing
system has come into focus and suggestions for its
reform have been made.
In its report the IEA describes the system as potentially
punitive to new entrants and smaller shippers and
would like to see a low-cost regime as well as a
transparent and cost-reflective billing system created.
The Dutch governments critique is in line with
observations made by the IEA.
TTF balancing regime too stringent
In a letter to the Dutch parliament from February 18
2008 obtained by Platts, van der Hoeven criticizes the
narrow structure of the TTF balancing regime: ...GTS
places strict demands on network users. [Network
users] must be balanced every hour and every
deviation has a cost (imbalance charge), even if the
deviation is such that the transport network as a whole
remains in balance.
In the UK, on whose gas hub the Dutch TTF is modelled
commercially, the transporter is revenue-neutral, and is
even incentivized by the regulator to pay a price as close
to the market value as possible, if it needs to intervene
to balance the system. The worse that the monopoly
transporter judges the market, which leads it to buy or
selling prematurely or at prices that are more than a
certain percentage off the average price paid on any given
day by market participants, the less money it can receive.
She also voices her concern over a lack of information
for shippers, which leads to a situation where
imbalance charges [are] an expense that they have
little control over. It may also take years before the final
invoice for imbalance is received.
11
A well-functioning information service on the other
hand could help shippers adjust the gas supply in
time, the letter continues. The structure makes it very
hard for new entrants to join the system and reform
was needed to boost the role of the Dutch hub in
Europe, van der Hoeven said.
Energy traders have been ambivalent about the
duration of the balancing period, even though a
shorter period appears to disadvantage the shipper.
What matters is not a longer period, but better
information, they say, and access to the flexibility
needed to correct an imbalance.
Although TTF operator GTS does not consider the system
punitive and favors cost reflectivity in order to avoid free
rider behaviour, as a spokesman for the company
explained, Gasunie is planning to change the system. At
the beginning of February the company had already
announced that it planned a reform of its balancing
system, but did not give any specific details as to
character of the reform.
The system has hourly balancing, and the argument is
that with the massive flexibility afforded by the
Groningen field, daily balancing would not work: the UK
market is based on daily balancing, but beach
deliveries generally run at steady rates over the day.
The way ahead
But if the speed at which the Dutch government has
been able to implement recommendations and push
reforms through is encouraging, it is at a crossroads
with regard to its energy policy. It has to prepare for the
end of Groningen
As Touber says, the Groningen field is one of the few in
the world which can be turned on and off daily but there
is very little transparency about how it is used. The
same is true of the transmission network and
underground storage. It is all in the hands of one or two
parties and it is not in their commercial interests to
provide transparency,
Among these parties is the state, which, at the same
time, is keen to liberalize the market. But assuming it
is the desire of the Dutch government to liberalize the
market, we need more transparency and regulation.
This is a paradox.
For decades the Dutch society has benefited from the
Gasunie operation. It has been treated very well from
the point of view of security of supply. Prices appeared
acceptable, if not to every industrial consumer. But, in a
supposedly liberalized market, large gas buyers and
distribution companies would like more flexibility in their
purchasing arrangements and a better view of the
competitive situation, Touber said. If the government
really wants a liberalized market then it should strive for
transparency: in costs for capacity and in the available
quantities of gas. Maria Yassin Jah, William Powell
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
ASIA-PACIFIC
BG outbids Arrow for Aussie Pure
UK major BG has raised the stakes in Australia: it upped
its bid for Australian coal seam gas player Pure Energy
by another A$100 million, in the face of the improved
offer from rival bidder Arrow Energy (IGR 617/1). Pure
has recommended that its shareholders accept UK gas
major BG Groups cash offer of February 26, which
values the company at A$995 ($635) million.
Arrow had last revised its offer February 11 to A$3 in
cash and 1.57 of its own shares for every one held in
Pure Energy, which represented an implied total value of
A$7.18/share as of February 18.
Pure said its independent directors believed that
BGs revised offer was superior, as it carried an 11% South China Sea.
premium to Arrows implied value.
Pures independent directors, who hold a combined
stake of around 12% in the company, intend to accept
the increased BG Group offer within seven days if no
superior offer emerges, the company said.
In addition, two key Pure shareholders, Tom Fontaine
and Karl Meade, who hold interests of 5% and 3%
respectively, also intend to take up BGs offer in the next
seven days, the Australian company said.
BG has been notified formally by Australias Foreign
Investment Review Board that there are no government
concerns over the takeover.
Both BG and Arrow are eyeing Pures coal seam
methane reserves in the northeastern Australian state of
Queensland to support their respective LNG project
proposals in the port city of Gladstone.
Pure announced February 18 a 32% rise in its proved
and probable CSG reserves to 522 petajoules from the
394 PJ it had announced in December.
Eastern Australias extensive coal seam gas
resources have attracted the attention of a number of
world oil and gas majors over the past 12 months and
BG has played a prominent role in the merger and
acquisition activity. BG launched a successful A$5.6
billion takeover of Queensland Gas Company last
October, just two months after being thwarted in a hostile
A$13.7 billion bid for larger local player Origin Energy.
Arrow is also working to develop its resources to
supply a 1.5 million mt/year LNG project being
planned by Liquefied Natural Gas Limited at
Fishermans Landing in Gladstone.
Norway sees Asian LNG growth
Norwegian energy giant StatoilHydro has pegged its
Asian expansion strategy on liquefied natural gas. It is
looking at the possibility of taking stakes in LNG
projects in Australia and Indonesia, a senior company
official said February 26.
"We see LNG export opportunities as most
interesting and Australia and Indonesia are our main
12
ASIA-PACIFIC
areas of interest," the vice president for the company's
international business Nils Helge Sorgard, said.
"We could get involved in domestic pipeline gas
projects, but the focus will be on LNG," Sorgard said at
the Asia Upstream conference in Singapore. In Australia,
the company is more keen on projects offshore
northwest Australia rather than eastern Australia and
coal seam methane-based LNG projects, he said.
Sorgard did not specify which projects the company was
interested in.
In Indonesia, StatoilHydro has expressed an interest
in joining Japan's Inpex in developing the Masela floating
LNG project and helping state-run Pertamina develop the
technically challenging Natuna D-Alpha gas block in the
StatoilHydro has a small presence in Asia. The
company has a 75% operating stake in China's Lufeng
22-1 field in the South China Sea with China National
Offshore Oil Company (25%).
It holds a 40% and 51% stake, respectively in the
deepwater Kuma and Karama blocks off Indonesia and
has a 10% stake in deepwater block KG-DWN-98/2
offshore the east coast of India.
Martell-1 strikes Pluto LNG
Woodside Petroleum has made a gas discovery with its
Martell-1 well in the Greater Pluto area off Western
Australia, where it is drilling to find additional reserves
to underpin its LNG expansion plans. Wireline logs from
Martell-1, in Carnarvon Basin permit WA-404-P, indicate a
gross gas column of about 110 meters in good quality
reservoir sandstones, Woodside said February 24.
Woodside holds a 50% operating stake in the permit,
with US-based Amerada Hess holding the remainder.
The well is located about 290 km (180 miles)
from Karratha and 100 km northwest of the Pluto gas
field. Woodside is drilling in the area as part of its
plans to secure gas to underpin a train two expansion
of its Pluto LNG project, the first train of which is
being built on the Burrup Peninsula. The A$12 ($7.7)
billion project will process gas from the Pluto and
Xena gas fields to produce 4.3 million mt/year of
LNG. The Martell-1 discovery is expected to be
followed by further drilling on the structural trend later
in 2009, Woodside said.
Woodside is raising $1 billion via a corporate bond
issue in the US to help it fund this project, it said
February 25. The bonds will be issued by Woodside
Finance, which is a wholly owned subsidiary of Woodside
Petroleum. It will consist of $400 million worth of five-
year bonds with a coupon of 8.125% and $600 million
of 1-year bonds with a coupon of 8.75%. The bonds will
be guaranteed by Woodside.
Woodside had indicated it was looking to raise $1-
$1.7 billion above its existing undrawn credit line of
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
$1.85 billion in 2009. The company needs funds to
refinance old debt and to fund the development of the
4.3 million mt/year Pluto LNG project in which it has a
90% stake. Sophia Rodrigues
Thai PTTEP gives Clough contract
Thailands PTT Exploration & Production has awarded a
$75 million contract to Clough, to install offshore
facilities for its Montara oil and gas development
scheme in northwest Australia.
The Perth-based engineering and construction firm
won the contract as PTTEP is moving strenuously to
develop its new Australian resources, barely two months
after it acquired the unlisted Coogee Resources. It paid
$170 million for Coogees assets (IGR 615/34).
The work involves transporting and installing the 750-
mt Montara wellhead platform deck, the 285-mt mooring
buoy with nine associated mooring legs, 26 km of infield
pipelines, and the 100-mt Swift subsea manifold.
According to Clough, the installation is scheduled to
start towards the end of the second quarter of 2009, and
it will keep the derrick pipelay barge Java Constructor
engaged on the project for about four months in total.
The development includes the Montara, Swift and
Skua fields which are located 690 km west of Darwin
in the Ashmore Cartier permit area of the Timor Sea
within the AC/L7 and AC/L8 production licences in 80
metres of water.
The Thai state-controlled PTTEP expects the Montara
to start producing crude and gas in the fourth quarter of
this year. Estimated combined proved oil reserves at
Montara, along with the two other fields lying in the
permits Jabiru and Challis are at 32 million barrels.
Clough looks at expansion
Clough is reviewing acquisition targets in the oil and
gas sector as it plans to strengthen its business in
that area. It so far has an agreement with Indika
Energy to collaborate on future ventures in offshore oil
and gas projects in Indonesia, through Tripatra, a
subsidiary of Indika Energy.
Clough has also sold its 82% stake in Indonesian
engineering, construction and mining company Petrosea
to Indika Energy for $83.8 million. The sale is expected
to be completed in May.
Russias Gazprom wins Kamchatka
Russian gas giant Gazprom will reportedly replace state-
owned oil major Rosneft in a joint venture with the Korea
National Oil Corp to develop a far eastern field. Russian
business daily Kommersant cited senior officials in the
Russian government saying Gazprom would work with
KNOC on a block off Kamchatka. KNOC will remain
involved in the project, while other gas projects in the
region may be developed by state-run Korea Gas Corp,
said Russian deputy prime minister Igor Sechin, who led
the Russian delegation to Korea.
13
ASIA-PACIFIC
South Korea seeks own gas
South Korea plans spend a total of Won 1.1 trillion
($659 million) to exploit oil and gas reserves in its
continental shelf, with just under half that going on 20
exploratory wells over the next decade. It is hoping to
find more than 100 million barrels of oil equivalent,
based on past assessments and updated data on
underwater topography (see page 5).
South Korea discovered in 1998 a gas field off the
east coast, named Donghae-1, which has a total
estimate deposit of 265 Bcf (IGR 615/13). The nearby
Gorae-8 structure discovered in 2005 and the Gorae-14
structure found in 2006 are estimated to hold 25 Bcf
and 10 Bcf, respectively. The country also plans to
invest Won 400 billion to start commercial production of
gas hydrates off the east coast by 2015 (IGR 606/9).
South Korea has confirmed about 600 million mt of
gas hydrate deposits off its east coast, which can meet
the countrys natural gas needs for some 30 years.
Based on new assessments, we expect the deposit to
reach up to 1 billion mt, a ministry official said.
Gas hydrates, ice-like deposits of water and natural
gas, are located deep underwater where cold
temperatures and extreme pressure causes the gas to
condense into a semi-solid form. But they are bulky to
transport since much of the volume is just ice.
The government plans to spend additional Won 200
billion to develop technology and train engineers, which
will be used to exploit the continental shelf region, the
ministry said. Energy-poor South Korea is the worlds
second-largest LNG buyer after Japan, and depends
entirely imports for its supplies. Charles Lee
The Koreans suppose that Gazprom would have
two partners KNOC and Kogas, the paper quoted
Sechin as saying, adding that a format of cooperation
had not yet been finalized but talks on the matter
would be brief.
The West Kamchatka block in the Ohkotka Sea
covers 62,000 sq km and has resources estimated at
3.8 billion mt of hydrocarbons. The two state-energy
giants are competing for the the right to develop Far
Eastern offshore reserves, with Gazprom arguing the
reserves in the area mainly contain gas.
To date the Kamchatka reserves have been
developed by Rosneft and KNOC. The companies hold
60% and 40% stakes in the project respectively.
However, in 2008 the Russian government refused to
extend the five-year license that had expired in August,
claiming Rosneft had failed to meet certain conditions.
Gazprom immediately expressed interest in the block,
claiming its gas reserves amounted to 86%.
In January, Russias natural resources ministry
submitted to the government a list of 15 offshore oil and
gas fields that will be transferred to state companies
without auctions, including the license for the West
Kamchatka shelf.
Under Russian legislation, licenses for offshore fields
can only be granted to companies in which the state
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
controls over 50% and which have at least five years of
operating history in Russias offshore industry, leaving
only Gazprom and Rosneft eligible.
Gazprom needs resources to fill the planned local
gas pipeline in Kamchatka, which under a government
decision, is due to be commissioned in 2010.
Rosneft and KNOC have not yet given up the project
and in December signed a new deal on the joint
development of the block in the expectation of being
granted a new license ahead of the signing of a final
deal this year. KNOC officials have warned that if the
Russian government does not issue a new license, the
company will pursue legal action for compensation for
losses incurred from the project, which it estimates at
$212 million. Anna Shiryaevskaya
Indias Gujarat starts up Dahej line
Indias Gujarat State Petroleum Corporation has
commissioned a pipeline that gives it direct access
to regasified LNG from the Dahej import terminal.
Hitherto, only state-owned transporter GAIL had
direct access, a senior GSPC official told Platts
February 16. We have commissioned a new pipeline
and even started using it, said GSPC managing
director D J Pandian.
The new pipeline would be used mainly to import
spot LNG, thus increasing the companys flexibility in its
spot transactions, said another GSPC official.
GSPC will use the new pipeline mostly to
transport additional volume of gas that it would import
as spot LNG through the Dahej terminal, the GSPC
official said. The new pipeline would give us flexibility
in terms of changing our margins to accommodate
more customers, as we wont have to take into
account GAILs margin when we calculate our enduser
price for the customers, the official explained. GSPC
has earlier stated its intentions of importing one to
two spot LNG cargoes a month, from March, through
the Dahej terminal.
However, the existing arrangement under which
the company gets 3 million cu m/d of long-term
Australian Arrow to develop coal seam methane in Indonesia
Australias coal seam methane developer Arrow Energy
is going to explore and develop CSM in Indonesia,
according to an agreement signed with asset owner
Medco Energi Internasional.
Arrow Energy said February 18 that its international
subsidiary Arrow Energy (Indonesia) Holdings and PT
Medco Energi CBM Indonesia would each have a 50%
interest in the deal, which will require approval from the
Indonesian regulatory authorities before the exploration
operations begin.
The SSE1 block, which covers an area of 1,889 sq
km in south Sumatra and has an active conventional
oil and gas producing area with existing infrastructure
14
ASIA-PACIFIC
supply from Dahej through GAILs pipeline would
continue, the official said. GAIL transports RLNG, for
a fee, through a 24-inch pipeline from within the
Dahej terminal to GSPCs gas receiving station less
than 2 km away. The gas receiving station then
delivers the supply to GSPCs own customers through
a pipeline network. The new GSPC pipeline would
enable RLNG from Dahej to be delivered directly to
the gas receiving station.
The new pipeline laid by GSPC has given us an
alternative for uninterrupted transportation of RLNG in
case GAILs pipeline is not functional for some reason,
said Finance director of Petronet LNG, A Sengupta, which
operates the Dahej terminal.
GAILs pipeline also transports RLNG from Dahej
to the Dabhol power project managed by Ratnagiri
Gas and Power. As of the end of February, the
nameplate capacity of Dahej was due to double, from
5 million mt/year to 10 million mt/year, and actual
achievable capacity to reach 11.5 million mt/year
very happily, according to the boss of LNG importer
Petronet Prosad Dasgupta. Petronet imports 5 million
mt/year of LNG from RasGas at Dahej under a 25-
year contract with the Qatari supplier. Volumes under
this agreement will rise to 7.5 million mt/year from
the fourth quarter of this year. The company also
imports spot cargoes to meet short-term supply
commitments to the Dabhol plant.
GAIL signs deals with fertilizer companies
GAIL has signed a number of long-term gas supply
agreements with two fertilizer producers, totalling
278.2 million cubic feet/d. The contracts will see GAIL
supply natural gas to the Barauni fertilizer plant of
Urvarak Videsh and to the National Fertilizers-owned
Bhatinda, Panipat and Nangal plants for a period of 15
years, said the company.
Sales to UVLs Barauni plant will start between
October 2012 and June 2013, while those to NFLs
plants will begin some time between June and December
2012, it said February 26.
For the fiscal year 2009-2010 (April-March), the
Indian government will prioritize increased demand for
in place, surrounds the Rambutan project area where
the Indonesian governments energy research
institution Lemigas has been carrying out a trial CSM
pilot project, Arrow said.
In the statement, Medco Chairman Hilmi Panigoro
said he hoped the government would recognize the
importance of this project as a major milestone in getting
the Indonesian CBM business moving and advancing the
initial trial program carried out by Lemigas. The latest
venture follows Arrows deal in January with Ephindo-
Ilthabi CBM Holding, a subsidiary of Indonesias Ephindo
group of companies for a farm-in to its Sangatta CSM
block in East Kalimantan.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
gas supplies from fertilizer plants which has come as a
result of the de-bottlenecking and expansion, conversion
from naphtha and fuel oil feedstock to gas, and the
revival of mothballed units.
GAIL said it would source gas from upcoming fields
in the eastern offshore Krishna-Godavari basin, blocks
elsewhere in the country, and from re-gasified LNG.
GAIL is inviting expressions of interest for long-term
LNG supply into Dabhol on the countrys west coast.
GAIL said the EOI should state the volume of LNG
available for long-term supply to GAIL, the possible
contract period, the LNG project from which the
cargoes will be shipped, and the role of the party
registering its interest.
Huskys Liwan 3-1 strikes gas
The first appraisal well on the Liwan 3-1 prospect in the
South China Sea encountered 36 feet of net gas pay,
the field partners, Chinas CNOOC and Canadas Husky
Energy, said February 23 (IGR 717/3). Test results
showed the well flowed at a restricted rate of 53 million
cubic feet/d; at its peak, the well is expected to deliver
more than 150 million cubic feet/d, the partners said in
separate statements.
The well, Liwan 3-1-2, is about 350 km southeast
of Hong Kong on Block 29/26. The well was drilled
to a total depth of 3,887 meters in water depths of
1,345 meters.
To clarify the extent of the discovery and
determine the flow capacity of the reservoir, further
evaluation will be conducted in the near future,
CNOOC said. Husky operates the block. CNOOC has
the right to take up to a 51% stake in the block
during the development period.
Chevron evacuates Sichuan homes
Chevron has started relocating local residents so that it
can develop the gas reserves in the Chuandongbei
natural gas field. The field, in southwestern Chinas
Sichuan province, contains high-sulfur gas.
The plan requires Chevron to relocate 43 local rural
families in order to ensure the operational safety of the
development, a PetroChina official said late February.
The plan has been submitted to Chinas land managing
agency the Ministry of Land and Resources, but the
ministry has not approved Chevrons relocation scheme
yet, the official said. Even before the development has
started, safety issues have been a worry for Chevron,
according to Sichuans local media.
On February 10, Chevrons Chinese subsidiary agreed
with the local Xuanhan county government to temporarily
evacuate residents near the Du-2 gas well, an old
inactive well Chevron is working over. It has been leaking
in recent months. Workover started February 22 and
since February 17, Chevron has had to relocate 803
farmers living near Du-2 to places of safety each day.
Chevron has paid compensation.
15
ASIA-PACIFIC
Panna-Mukta-Tapti under-perform
A consortium of companies operating the Panna, Mukta
and Tapti oil and gas fields offshore western India has
declared partial force maje on gas supplies following
problems in the subsea infrastructure, state-owned
offtaker GAIL said February 22.
Owing to a technical problem in the sub-sea
facilities, the PMT partners Oil and Natural Gas Corp.,
Reliance Industries Limited and British gas major BG
had reduced production from the PMT fields from 17.3
million cubic meters/day to 15 million cu m/day for the
past few weeks, GAIL said.
GAIL, which takes delivery of the entire natural gas
output of the PMT fields at the Hazira gas processing
complex in western Gujarat and sells it on to end-
users, said the reduction in supply had forced it to
declare force maje to its customer Gujarat Gas, a
subsidiary of BG.
ONGC holds a 40% interest in the PMT consortium,
with RIL and BG holding a 30% stake each. BG has
managed the technical operations of the fields for the
past few years. Vandana Hari
The then operator, PetroChina, shut Du- 2 for
safety reasons in 1995 after a gas explosion at the
nearby well Du-1. The explosion lasted 10 days, with
hydrogen sulfide spreading 5 square km. It killed a
large number of livestock and forced 15,000
farmers to evacuate. Frustrated with repeated gas
blasts at the sour gas wells in Sichuan province,
PetroChina signed a production sharing contract with
Chevron late 2007 in the hope of improving its poor
safety record.
The Chuandongbei project covers 1969 square km
and contains several high-sulfur gas fields including
Tieshanpo, Dukouhe and Luojiazhai, with combined
estimated reserves of 5 trillion cubic feet.
Chevron and PetroChina are spending up to $4 billion
on building two gas treatment facilities.
Chevrons main Chinese subsidiary will operate the
project with a 49% interest and PetroChina will hold the
remaining majority stake in the 30-year production-
sharing contract.
According to PetroChina, the field is due on stream in
2010 with initial output of 2 billion cubic meters/year,
increasing to 6 Bcm by 2013.
The total Chuandongbei region is estimated to hold
about 142 Bcm and lies in the Xuanhan and Wanyuan
counties of Sichuan province and Kaixian county in the
Chongqing municipal city.
The sulfur content in the region ranges from 102g to
150g/cu m, more than three times higher than the
Chinese governments definition of high-sulfur gas.
PetroChina had to find a foreign buyer with the
right expertise for developing Chuandongbei after
several fatalities exposed its inability in handling
high sulphur gas.
Development on these prospects was put on
hold after a gas leak in 2006 that forced the
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
evacuation of 15,000 people. The worst incident,
the December 2003 blowout that led to a toxic gas
escape at the Luojia 16H well in Chuandongbei,
killed 243 people. After the 2003 blast, Ma Fucai,
PetroChinas then chairman was forced to resign and
six PetroChina engineers were put behind bars for
between three and six years.
Foreigners top in Bangladesh
International oil companies are now producing more gas
than state-run companies for the first time in the
Bangladeshs history.
Their combined output reached 963 million cubic
feet/d on February 19, which is over 51% of the
countrys total 1.87Bcf/d gas.
We have time to time requested the IOCs to raise
gas production to cope with the mounting gas demand
as the local companies could not keep pace with the
rise, Petrobangla director Muqtadir Ali told Platts.
Ali, who deals with the operations of the IOCs, said
gas production by local companies had been stagnant
over the past few years owing to inadequate
exploration activities. This was the consequence of
Cairn quits onshore Bangladesh block
UK Cairn Energy and its partners have relinquished their
rights to hunt oil and gas in Bangladeshs onshore block
no. 5, after poor seismic results.
Cairn and its Australian partner Santos found the block
near barren after wasting $9.5 million in exploration
activities including a 400-line km seismic survey.
Both the companies came to the conclusion that the
block in the greater Khulna district was non-
prospective, a Cairn official told Platts February 22.
State oil company Petrobanglas chairman Jalal
Ahmed said that this is in line with the terms of the
production sharing contract, but it is the first time in
Bangladeshs hydrocarbon exploration history that a
contractor has given up its block rights.
Earlier, the government took back block 22 from the
little-known US oil company Ocean Energy as it failed to
conduct the work agreed in its PSC.
The government also took over block 8 from
Pangea Energy and handed it over to state-owned
exploration company BAPEX as the company pulled out
from signing a PSC.
Similarly block 11 was set aside for BAPEX, as its
joint bid winners Tullow, Petronas and Mobil did not sign
a PSC with Petrobangla.
Cairn Energy won the exploration rights for block 5
jointly with Shell following the countrys second round
of gas bidding which began in 1997. Oil giant Shell
later sold its entire Bangladesh stakes to Cairn Energy
in 2003. Australias largest oil company Santos
purchased 45% from Cairn in October 2007. State-
owned BAPEX was the third partner of the block,
holding a mandatory 10%. M Azizur Rahman
16
ASIA-PACIFIC
insufficient funding and indecisiveness by the
successive governments.
US major Chevron is the biggest IOC active,
producing 704 million cubic feet/d; Irish Tullow is next
with 100 million cu ft/d; third is UKs Cairn Energy with
56 million cu ft/d and in fourth place is Canadian Niko
Resources with 2 million cu ft/d.
The IOCs gas was only 24% of the total in the 2004,
when their combined gas output was 300 million cu ft/d.
State-run companies produced 939 million cu ft/d.
This percentage rose to 36% in 2007 year with their
output reaching 557 million cu ft/d of the countrywide
total output of 1.53 Bcf/d.
Bangladesh, however, is winning from the IOCs
extra gas output as the portion of its profit gas is
substantial, the Petrobangla director said, averaging
over 70%.
The country most recently also asked the US
Chevron to raise gas output further from Jalalabad gas
field to meet the ever-increasing demand.
It has also recently allocated around $500 million for
state-owned Bangladesh Petroleum Exploration and
Production Company to boost gas output.
Bangladesh is now in dire energy crisis. The
government forecasts the nations gas reserves will run
out by 2014-2015 at present consumption rates.
The countrys economy has been growing at an
average of 6% since the 2003-2004 fiscal year the
highest rate of growth since its independence in 1971.
Booming industry has resulted in a daily shortage of
gas, forcing Petrobangla to suspend gas supplies to
new industries.
Chevron to boost Jalalabad field
Chevron will raise gas output at its Jalalabad field in
block 13 onshore Bangladesh by around 30% from 160
million cu ft/d to 210 million cu ft/d. With the summer
season fast approaching, the state-run oil company
PetroBangla asked Chevron to lift output for supplies to
power companies. The country has a power deficit of
around 600 MW.
The Jalalabad field has excess production capacity
and is capable of meeting Petrobanglas request for
additional gas, Chevrons Bangladesh president Steve
Wilson told Platts.
He could not say when the additional capacity
would come on stream. We are constructing a spur
line from the field. Once the line is operational,
Chevron will be in a position to raise gas supply, he
said. A senior government official said the company
had been asked to raise supply within the next couple
of weeks. The Jalalabad field has capacity to supply
230 million cu ft/d of gas.
Chevron holds interests in three production
sharing contracts in Bangladesh, covering more than
10,000 sq km (2.47 million acres). Chevron
Bangladesh has a 98% working interest in the
Bibiyana field located in block 12 in the northeastern
part of the country, as well as in the Jalalabad and
Moulavi Bazar fields. The US major also has a 43%
interest in block 7 in southern Bangladesh.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
EUROPE, MIDDLE EAST & AFRICA
Norway slashes Troll work plan
Norways StatoilHydro has slashed planned
redevelopment work on the giant North Sea Troll oil
and gas field by more than a third. The slump in oil
prices and higher costs have forced it to reassess the
profitability of the investment, the company said
February 18.
The company has cut its planned investment in the
project by NOK3.8 billion ($540 million), having
previously been planning to spend almost NOK10 billion,
it said. The adjustments are necessary because of
changes in framework conditions, such as lower oil
prices and high costs, StatoilHydro said.
StatoilHydro submitted its plans for further
development work on Troll in June last year, when oil
prices were still heading up toward record levels. Since
then prices have slumped sharply, forcing the partners to
reassess the economics of the project, a StatoilHydro
spokesman said.
The original plan consisted of three main elements: a
gas reinjection system on Troll B to increase oil recovery;
a new gas export pipeline from Troll A to the Kollsnes
processing plant in western Norway; and the
replacement of production lines in the gas wells on Troll
A to allow greater recovery.
The first two of these three elements are still
going ahead, but the third project to change the
production lines has now been totally dropped.
Replacement of the flowlines will be reconsidered at
a later date, StatoilHydro said, and would likely not
be for a few years.
Troll produced 35.78 billion cubic meters of gas in
2007 and is expected to continue to provide gas for
another 70 years. The redevelopment work is to allow
the fields current gas export capacity of 120 million
cubic meters/day to be maintained going forward.
The decision not to go ahead with part of the
planned work will not have any impact on the targets for
gas production or exports, the spokesman said. The new
gas reinjection plant on Troll B should increase oil
reserves at Troll by 17 million barrels, and this is also
unaffected by the scaling back of the project, he said.
In addition to its huge gas reserves, Troll is also a
major oil-producing field. Its oil production peaked at
over 400,000 b/d in 2002, since when it has fallen to
the current level of around 150,000 b/d.
Despite the spending cut, the company said the work
which is still going ahead would help to secure the Troll
fields position as a reliable, long-term source of supply
for gas to Europe.
StatoilHydros head of reserves on the Norwegian
Continental Shelf, Hege Marie Norheim, said the field
had been in continual development since it started up,
and we are now making Troll more robust in order to
meet the future on the basis of todays framework
conditions. StatoilHydro operates the Troll field with a
17
EUROPE, MIDDLE EAST & AFRICA
30.59% stake and is partnered by state-run Petoro 56%,
Shell 8.1%, Total 3.69% and ConocoPhillips 1.62%.
The StatoilHydro spokesman said the cut in spending
at Troll would not have any impact on the companys
overall planned capital spending in 2009 of around
$13.5 billion. Stuart Elliott, Richard Swann
Nigeria reviews contracts
Nigeria is going to review the memoranda of
understanding it signed with companies for new oil and
gas projects, the head of state-owned Nigerian National
Petroleum Corp said February 24.
NNPC head Mohammed Barkindo told attendees at
the CWC-organized industry conference in the Nigerian
capital, Abuja, that because of the economic crunch,
NNPC would have to rationalize its capital expenditures
and review all project costs. Clearly, the business
environment today is challenging, more than it has ever
been. The NNPC will carry out a major review of projects.
Existing MOUs are to be reviewed, Barkindo said.
NNPCs move is similar to that of other national oil
companies, Barkindo said, pointing to Brazils Petrobras,
Venezuelas PDVSA and Petronas of Malaysia, all of
which were taking steps to rationalize their project
portfolio in light of global economic woes, he said.
Barkindo said the cost-cutting measure was NNPCs
short-term survival strategy to weather the storm, which
had seen crude oil prices plunge. NNPC has often
experienced funding shortfalls in its joint ventures with
foreign oil companies, including Anglo-Dutch major Shell
and the US majors ExxonMobil and Chevron, which has
delayed ongoing projects and hampered investment in
new developments. Low oil prices have created cash
call challenges, said the NNPC boss, referring to the
request by oil companies to the Nigerian government to
pay its own share of the cost of oil production.
Barkindo, an OPEC veteran, said the oil
supply/demand balance indicates that there would be
excess supply capacity extending to the year 2013,
because of the weak economic outlook. He added that
US energy policy under President Barack Obamas
administration would have a significant impact on
Nigerias oil supply. The US is Nigerias largest oil
customer and with the focus in the US shifting to
renewable fuels, Nigerian industry officials have
expressed fear of a drop in US imports.
Separately, Barkindo visited some key oil gas
installations in southern Nigeria, including the oil fields
operated by state-owned Nigerian Petroleum Development
Company and the Shell-operated Utorogu gas plant in Delta
state, which was attacked last week by armed militants.
The Utorogu plant provided nearly 70% of the gas
feedstock for three of Nigerias thermal power plants,
and the damage to the plant has significantly cut
electricity generation.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
Barkindo said that NPDC, which is the E&P arm of the
NNPC, was being re-positioned to take active part in the oil
exploration in the deepwater region offshore. Our main
objective is to transform the NPDC. We are rapidly
articulating a strategy for our participation in the deepwater
of Nigeria and within the African region, he said.
NPDC is going to be capitalized and therefore would
be removed from the encumbrances of bureaucracy, the
NNPC CEO added.
NNPC operates joint venture partnerships with five
Western multinationals the three above and Italian Eni
and Frances Total which account for the bulk of
Nigerias 2 million b/d of oil output.
Shell to lend over $3 billion
Shell plans to lend Nigeria more than $3 billion as part
of an alternative funding package to finance its oil and
gas projects this year, which have been threatened by
the lack of government funding.
It is a total package of the alternative funding for
Shell projects this year, a Shell official said on the
sidelines of the conference. The source said the
package was not a loan as such. It is meant to take
care of the shortfall and delay in payment of the cash
Turkmenistan plans to double gas output in coming years
Turkmenistan is planning to double its natural gas output but
even so it will not have any to send to the European Union,
according to a consultant with Gaffney, Cline & Associates.
Jim Gillett, whose company carried out the independent
audit of the supergiant South Yolotan/Osman field, said
in London February 19 that the EU came after Russia,
China and Iran on the central Asian states list of buyers.
Turkmenistan produced about 70 billion cubic meters
in 2008, of which it exported 50 Bcm to Russia. Iran
also takes about 8 Bcm/year. But in the next few years,
he said, Turkmenistan has contracted to sell up to 80
Bcm/year to Russia, between 8 Bcm/year and 18
Bcm/year to Iran, up to 40 Bcm/year to China (IGR
606/11), and use 20 Bcm/year at home.
Doubling production is a huge ask, especially when
many fields are off plateau, and that leaves nothing for
Nabucco. Turkmenistan is going to have to more than
double production before it has a molecule for Nabucco,
he said, referring to the planned 30 Bcm/year line which a
consortium of European and Turkish companies want to
build from Turkey to Austria.
That is even without considering the problems of building
a pipeline across the Caspian Sea. Pipelines across the
Caspian unless all five littoral states agree cannot be built,
and Iran and Russia would both lose out if Turkmen gas was
sent Europe, Gillett is doubtful that such a line can be built
soon. Do not underestimate the export challenges and the
pricing issues to be resolved, if Turkmen gas is to reach
Nabucco, he said. He said it would be tough for Nabucco to
compete with the amounts bid by China ($195/000 cu m,
which includes some $40/Mcm for transport, reducing the
netback) or even Russia ($150/000 cu m).
18
EUROPE, MIDDLE EAST & AFRICA
call, he said. The cash calls are the request by oil
companies to the Nigerian government to pay its own
share of the cost of oil production.
Oil companies say Nigerias inability to fund its
share of joint venture oil projects has hampered the
development of such projects and means it could
struggle to keep output at current levels in coming
years.
The companies also say that is one of the reasons
they have been unable to eliminate the flaring of natural
gas associated with the extraction of crude.
The Financial Times reported last week that Shell has
cut flaring in half but needs a further $3 billion of
investment to stop it altogether. To fill that gap, Shell is
offering Nigeria $3.1 billion in bridging loans at very low
interest rates and project finance.
Some $1.1 billion of the loan has already been
agreed, and the remaining $2 billion are expected to be
confirmed soon, the UK paper said.
The FT said that Shells unusual decision reflected
its reliance on Nigeria, its largest source of oil and gas
after the US. In 2007, Nigeria provided more than one-
tenth of Shells global production of about 3.3 million
b/d of oil equivalent.
Much of Turmenistans new gas will come from the
South Yolotan/Osman field, where the independent audit
has shown the amount of gas initially in place to be
between 140 and 490 Tcf (4 and 14 trillion cubic
meters) with a best estimate of 210 Tcf. Gillett
suggested that the development might involve trains
each of 10 Bcm/year capacity.
But the field poses difficulties: it is deep some of the
wells have been over 4,000 meters and it is a high-
pressure, high-temperature field, with plenty of sulfur
tooeach 10 Bcm/year train would produce also 1,000 mt
of sulfur, he said. Iran has expressed interest in working
on the field.
He said the size of the field it extends for some 75
km would allow for at least seven trains, but it was for
the government to decide on the timeframe and the
duration of the plateau production.
Another field is Yashlar, which has only 25 Tcf in
place as a best estimate within a range of 11 Tcf and 53
Tcf. Gas recovery rates are expected to lie in the range of
50% and 80%, with some long-term well-testing providing
better estimates later. Two South Yolotan/Osman wells are
testing now, he said.
The EU is trying to reduce its dependence on Russian
gas imports, and so has supported the Nabucco gas line
idea. Nabucco does not depend on Turkmen gas, as it starts
in the middle of Turkey. But nor has Nabucco yet lined up
any other contracts.
The EU energy commissioner and other EU officials have
courted the president of Turkmenistan in order to buy some
of his countrys gas, and so too have senior Russian
politicians and gas executives, with the same objective.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
UK supply needs $334bn spend
The UK energy supply industry will have to invest over
233 ($334) billion by 2025 to ensure security of
supply and meeting environmental targets, according to
consultants Ernst & Young (see table below). In a study
for UK utility Centrica, E&Y said the level of investment
needed was double the value of the UKs total energy
supply asset base. But on the bright side, if the return
on capital employed remained at 12% after those
investments were made which is the percentage it
earned from 2005 to 2007 that would cover the
equity share of the 7 billion spent.
The landscape in which this investment must be
raised has altered fundamentally as the credit crunch and
economic downturn take hold, the report said. Centrica
commissioned Ernst & Young to update its 2008 Costing
the Earth study, published last summer, which looked at
the cost implications for UK energy customers of meeting
carbon emissions and renewable energy targets by 2020.
In that report, the estimate came to 165 billion.
The new study, Securing the UKs energy
futuremeeting the financing challenge, reflects
increased development costs for energy projects over an
extended period to 2025. It includes capital costs for
new nuclear and renewables capacity, plus the cost of
increased levels of gas storage and import
infrastructure, which have gone up with the perceived
need to prepare for more gas from countries other than
Russia and general fears about supply.
The head of Ernst & Youngs power and utilities team
Steve Jennings said securing the investment will rely
upon energy companies ability to access debt and
equity finance. They must be able to persuade their
lenders and shareholders that income on new assets
will be enough to service and repay the debt and provide
sustainable shareholder returns.
There was a risk that investment could migrate to
other sectors and/or other countries, Jennings said.
The energy supply industry would need to play its role
in funding the new investment in the most efficient way,
Old and revised need for investment ( billion)
Incremental spend
Investment type from 2009-25
Nuclear plant 38.4
Gas-fired plant 6.4
Coal-fired plant with CCS 7.6
Renewable plant 112.5
Transmission offshore 12
Transmission onshore 12
Distribution enhancement 4.2
Smart metering 13.4
Carbon emissions reduction target 15.7
Gas storage 8.4
LNG import terminals 1 1
Pipelines 0.2
Pipelines for CCS 2 2
Spend assumed made in 2008
Total 233.8
Source: Ernst & Young
19
EUROPE, MIDDLE EAST & AFRICA
EC will sit out Russia-Ukraine talks
The European Commission has no plans to intervene in
talks between Russia and Ukraine on late payment for
gas supplies, its energy spokesman said February 26.
Russian daily Kommersant reported that Russias gas
giant Gazprom had threatened to cut off supplies again
to Ukraine on March 8 if the $400 million owed for
February supplies is not paid by March 7.
A commercial dispute between the two countries in
January led to a halt of all transit gas supplies via
Ukraine to the EU for two weeks, causing severe
problems for some EU countries (IGR 615/1).
The EC is following very closely the situation on the
bilateral commercial relations between Ukraine and
Russia because they may have an impact on supplies to
the EU, said rhe spokesman. The EU still has a team of
monitors on the ground to evaluate any problem with
supplies. The monitors were sent to Ukraine and Russia
during the January supply crisis in an attempt to bring
more transparency to the dispute, although they did not
actually do anything concrete.
Kommersant quoted Gazprom CFO Andrey Kruglov
making the threat, the day after a board meeting was
held to discuss Ukraines payments. Ukraines national
oil and gas company Naftogaz Ukrayiny said the payment
would be made by the deadline. Ukraines central bank
agreed late February to sell foreign exchange reserves
to Naftogaz to make sure the company paid Gazprom for
its February natural gas supplies (IGR 606/22).
he said, for example through optimizing financing costs,
operating expenditure, tax liabilities and capital
expenditure programs.
The updated report assumes, among other things, a
26% cut in carbon emissions by 2020 relative to 1990;
that 40% of UK electricity will come from renewables;
by 2025 there will be no nuclear plants operating that
are operational now; and at least 8GW of coal-fired
plant has been retired.
Change from CTE assumptions Description
30.3 additional 8GW by 2025
0.5 additional 0.5 GW of OCGT
3.6 additional 1.6 GW
27 costs re-evaluated
3.8 costs re-evaluated
7.1 costs re-evaluated
0.2
-7.3
68.2
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
UK LNG importers miss winter
Delays at the building phase of the South Hook and
Dragon liquefied natural gas import terminals have cost
the capacity holders the chance to make money in the
first quarter northwest Europe has proved to be the
consistently highest value market this winter, as prices
in Asia fell from last years exceptional highs.
It would not be surprising, a consultant told Platts, if
the operators of the two Welsh terminals had
consciously decided to ease up on completing the
facilities while they made higher-value sales elsewhere.
Once the plant has been commissioned, the costs of
keeping it cold and in sound working order mount up
continuously. But now prices in the UK are falling too as
spring approaches, putting into question the profits to be
made from commissioning the plants in March.
And when the LNG does arrive, it will likely come
into an oversupplied market. The UK has become a
major supply point for Europe, exporting gas almost
constantly since May to more expensive markets. Apart
from a few days of imports immediately after the high
export period during the Ukraine-Russia crisis, and one
Exports (positive) to Belgium through IUK
(million cu m/day)
60
50
40
30
20
10
0 UAEs Dana Gas last month found around 120 Bcf of dry
-10
-20
-30
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Source: IUK
EC puts more money into interconnectors
The European Commission has revised a 3.5 ($4.44)
billion plan to support strategic energy projects by
upping the money available for natural gas
interconnectors (IGR 617/19). The investments will
make the EU more resilient in the event of another
east-west supply problem as they focus on flows from
west to east.
Following the increase, gas interconnectors will receive
another 340 million, and can now expect 1.025 billion
to 1.365 billion.
The EC has cut the proposed allocation for the
Nabucco gas pipeline from Turkey to the EU from 250
million to 200 million. But it has added four new gas
interconnector projects: Slovakia-Poland (20 million),
Hungary-Croatia (20 million), Bulgaria-Romania (10
million), and the Algeria-Italy Galsi pipeline (100 million).
20
EUROPE, MIDDLE EAST & AFRICA
or two in December, the Interconnector has been taking
gas out of the country (negative values are imports).
Some of this gas would be from Norway, ultimately,
as its pipeline system can use the UK to move gas out
to the Continent if its other, direct pipelines are full.
So when the gas does arrive, the question is where
will it go. The most Interconnector UK exported over the
period was the daily equivalent of 18.7 billion cubic
meters/year, while its maximum is 20 Bcm/year in that
direction. And on 22 days it exported over 14 Bcm/year
equivalent, which leaves 6 Bcm/year. That would mean
that South Hook would have to displace another 4
Bcm/year to run at full although it is not likely to be
cheaper than Norwegian gas. That could mean West
Wales LNG being backed out. The decision of Centrica to
turn off the swing Morecambe Bay fields mid-February
shows one company reacting to the low prices, but the
market has still been long: few fields are that flexible.
A trader told Platts that some LNG might be headed
for Dragon or South Hook, if it had been earmarked for
sale at the UKs national balancing point this spring,
and at a better price than is available now. And none of
the supply issues have gone away, with Russia and
Ukraine apparently squaring up for another clash this
spring, he said. Furthermore, the very high prices of
last year, and the very low prices of this year, while of
interest to short-term traders like himself, did not occur
to the types of personalities involved in these
questions, he said.
Dana finds more gas in Nile Delta
gas in its concession in the Nile Delta. It found 100
billion cubic feet, as a preliminary estimate, with the
Azhar-1 well, and further drilling is planned into potential
hydrocarbon zones.
And its West Manzala-2 well, drilled to a total depth
of 1,510 meters in the Kafr al-Sheikh formation, found
There are also an extra 20 million for a Bulgaria-
Greece gas interconnector (40 million in total), an extra
10 million for expanding Czech gas storage (35 million
total), and an extra 60 million for enabling west to east
gas flows (80 million in total).
There is an extra 50 million to reinforce the French
gas grid for taking gas through Spain (200 million total),
and an extra 100 million for a France-Belgium gas
interconnector (200 million total). There are 20 million
for a new power interconnector project from Malta to Italy,
while the allocation for small island projects has been cut
from 20 million to 10 million.
Meanwhile, the total available for carbon capture and
storage projects has been cut from 1.25 billion to 1.15
billion, while the allocation for offshore wind projects
remains 500 million.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
Gas producers build more storage
Two major European gas producers, the UK and the
Netherlands, are pursuing projects to enhance security of
supply as their own peak supply begins to gutter.
The UKs dominant utility Centrica has taken a
controlling stake in Perenco's Baird depleted gas field
storage project, potentially the UK's second-largest.
Centrica has acquired a 70% stake in the 60 Bcf project,
with Perenco retaining 30%. The utility said it was making
an initial payment of GBP25 ($36.45) million, and would
manage the design and project development at a cost of
GBP12 million before making the final investment decision.
The company's total potential investment would be
GBP1.2 billion, it added, including cushion gas. Operations
could start in 2013. It would be just over half the size of
Rough, the UK's biggest storage, also operated by
Centrica. But "it will be a faster and more
flexible asset than Rough with the capability to capture
more value from market volatility," Centrica said.
Baird would take 90 days to fill and 60 days to
withdraw all the gas, compared with 175 and 76 for
Rough. That would give Baird 2.4 storage cycles per year
(365 days divided by 150) compared with 1.4 for Rough.
Pre-development studies on the Baird project would run
until Q3 2010, it added, before a final investment decision
was made. Centrica would be the operator.
20 Bcf. The well was a few hundred meters from the gas
sales pipeline from the companys South Manzala gas
processing facility and production testing in the lower
sand only flowed dry gas at a rate of 11 million cubic
feet/d. Production on the well is scheduled to begin in
the second quarter of 2009.
Drilling of additional appraisal and production wells
within the Haggag prospect is also considered.
Dana Gas, the Middle Easts largest regional private
sector natural gas company, is the sixth largest natural
gas producer in Egypt, having made a number of
discoveries in the country.
The company has a stated goal to increase both
production rates and asset valuations in Egypt this year,
and in January it said it had made two gas discoveries,
at the El Basant-2 well on the West Manzala concession
and the Salma-1 well on the West Qantara concession,
adding up to 380 Bcf of gas plus associated liquids to
the companys reserves.
German E.ON buys Nile Delta stake
German utility E.ON Ruhrgas has acquired a 29%
stake in the NW Damietta exploration license in the
Nile Delta, offshore Egypt. The stake was purchased
from Shell Egypt, which now owns 61% of the
potentially gas prone license. The other partner is the
French GDF Suez with 10%.
We believe this licence offers significant gas
exploration potential, said E.ON Ruhrgas Jochen
Weise. An exploration well is planned to be drilled
later this year.
21
EUROPE, MIDDLE EAST & AFRICA
And Dutch grid operator Gasunie and utility Nuon have
chosen construction company BAM to build the first
underground gas storage facility in salt caverns in the
Netherlands
The 180 million cubic meters.project will be built near
the village of Zuidwending in the Groningen province, the
constructor said.
Groningen is also host to the Netherlands' largest gas
resource with a capacity of 350 million cu m/day,
according to recent data by Gasunie. The natural gas
storage facility will be built, operated and maintained by
Zuidwening VOF, a joint venture between Gasunie and
Nuon. The project is estimated to cost Eur90 million, BAM
said.
The gas storage facility will consist of four salt caverns
with a total storage capacity of 180 million cu m and will
be used to balance "sudden fluctuations in the demand of
gas," the company said.
BAM Leidingen & Industrie, a subsidiary of BAM
Infratechniek, BAM Civiel and BAM Wegen are to build
the above-ground installations. These will include five
compressors to bring the gas up to pressure before it
is injected into the salt caverns, BAM said. The
company will also build installations required to extract
and dry the gas.
Egypt, which has two LNG plants, at Damietta and at
Idku, near Alexandria, is an important gas supplier to
Europe. E.ON Ruhrgas is likely to use the former to
liquefy its gas for shipment into European LNG
terminals, such as the UKs Isle of Grain site.
Damiettas majority stakeholder Egas, an Egyptian
subsidiary of Union Fenosa Gas of Spain itself 50%
owned by Italys Eni has signed agreements with UK
majors BP and BG to process gas from fields they
operate in Egypt and to permit them to lift LNG from the
Segas LNG project at Damietta.
A second train at Damietta is planned to double
capacity there, but Eni said that it had been
rescheduled with awarded contracts set to be
renegotiated.
Upstream gas is an important growth area for E.ON
Ruhrgas, which along with an increased focus on LNG,
contributes to long-term security of supply for our
customers throughout Europe. In this respect, Egypt is a
strategically important partner, Weise added.
E.ON Ruhrgas already has its own gas production
offshore Norway and the UK. The company plans to
expand into north and west Africa to secure further gas
and LNG supplies for European markets, it said. It is
also expecting a stake in the possibly-expanded LNG
plant in Equatorial Guinea.
In 2008, E.ON Ruhrgas was awarded an exploration
licence in Algeria where the company said it will drill
several wells over the next years. The utility has also set
up representative offices in Algeria, Libya and Nigeria in
order to its expand long-term gas production goals.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
AMERICAS
US plans to tax more from 2011
The Obama administration budget outline for fiscal year
2010 calls for a new excise tax on oil and gas
production in the Gulf of Mexico beginning in 2011.
The tax will close loopholes that have given oil
companies excessive royalty relief, the February 26
outline said, presumably referring to controversial leases
issued in the 1990s that provided for royalty relief
without taking into account oil and gas prices.
The administration is also proposing to charge user
fees to oil companies for processing oil and gas drilling
permits on federal lands. It also plans to take
administrative action, such as reforming royalties and
adjusting rates, aimed at increasing returns from
production on federal lands.
Drilling in the outer continental shelf remains a
controversial issue though (IGR 617/20). The American
Energy Alliance believes that allowing producers access
to the areas that had been off-limits could add $273
billion annually to the domestic economy and create 1.2
million jobs over the life of the fields.
AEA, which describes itself as an advocate for free-
market energy and environmental policies, said granting
industry access to the estimated 85 billion barrels of
recoverable oil and more than 440 Tcf of natural gas
would, over the life of project, contribute $8 trillion to US
GDP and increase federal tax receipts by $2.2 trillion.
Unlike the $790 billion stimulus package lawmakers
just passed, increased offshore activity would fuel our
economy without squandering taxpayer fund, AEA said,
referring to the giant bail-out plan (see below). In fact,
oil and gas is one of the US only industries in a position
to put money into... the governments piggybank.
AEAs president Thomas Pyle said that while polls
showed that a majority of Americans supported oil and
gas drilling in areas of the OCS formerly deemed off
limits, the fight for access to these natural resources
was not yet over. Unfortunately, theres growing evidence
that restricting OCS access will be one of the first
priorities of the 111th Congress.
The Bush administration last year lifted a
presidential moratorium on OCS development and
Congress, at a time when gasoline prices were near or
above the $4 mark and allowed a legislative moratorium
on offshore E&P to lapse. Some in Congress have since
then suggested that the moratoria should be reinstated
to ban development in some offshore areas.
Development already delayed for over 20 years
Weve already delayed development of our offshore
resources by over two decades, Larry Nichols, Devon
Energys CEO and chairman of the American Petroleum
Institute, said in a telephone press briefing. We cant
be happy about any further delays. The country needs
those resources and the sooner we get to work on it, the
sooner well get there. Nichols testified February 25
22
AMERICAS
before a House Natural Resources Committee hearing
on OCS development. Last month, the US Department of
Interior announced a six-month extension of the
comment period on a draft five-year leasing plan
proposed by the Bush administration, which included
sales in former OCS moratorium areas.
Senate approves $800bn spend
The US Senate has approved a massive economic
stimulus bill that would add $787 billion to the federal
budget deficit and make unprecedented new expenditure
on energy.
According to an analysis by the Congressional Budget
Office released earlier that same day February 13 the
bill would spend $45.2 billion on energy-related programs,
mostly dealing with renewable energy, energy efficiency
and transmission. Congressional estimates put the cost
of energy tax incentives at an additional $20 billion.
In debating the package, Republicans protested that
it mostly contained more in outlays than in tax cuts.
They also protested that they had not been included in
the drafting of the bill.
Allegations that this is a bipartisan bill are simply
inaccurate, said Senator John McCain, pointing out that
only Maine Republicans Susan Collins and Olympia
Snowe and Pennsylvania Republican Arlen Specter were
expected to support the bill.
We are on a spending spree of unprecedented
proportions, the Arizona Republican said, referencing
other recent spending legislation like a $700-billion Wall
Street bailout bill approved last fall.
The legislation calls for major new investment in
energy transmission, including $4.5 billion for a Smart
Grid Investment Program. It would also fund loans and
grants to develop advanced batteries for electric cars,
help states and local governments reduce energy use
and spur more renewable energy R&D.
It would provide $3.4 billion for fossil fuels research
and development. This sum includes $1 billion for fossil
energy research and development that could be used for
the FutureGen carbon sequestration pilot project.
The Department of Energy would get $1.6 billion for
research in climate science, biofuels, nuclear physics
and fusion energy. A House appropriations summary
shows an additional investment of $2.5 billion for energy
efficiency and renewable energy research. Another $400
million would go to DOEs Advanced Research Project
Agency-Energy to develop energy sources and efficiency
projects in collaboration with industry.
The bill would also increase a tax credit for service
stations which install alternative fuel pumps, such as
fuel pumps that dispense E85 fuel, electricity, hydrogen,
and natural gas. For 2009 and 2010, the bill would
increase the alternative refueling property credit for
businesses to 50%.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
Plan will be of no use for gas output
Obamas $790 million economic recovery plan will do
little to promote US natural gas production, according to
an oil and gas industry group.
In their rush to stimulate renewable energy,
Democrats in state and federal government have failed
to develop a comprehensive plan for achieving a new
energy economy in Colorado and the West, the boss of
the Independent Petroleum Association of Mountain
States Marc Smith said. Specifically, they have failed to
plan for the increased need for natural gas supply and
infrastructure that is required for backing up intermittent
renewable energy such as wind and solar.
Obama signed the bill at a Denver museum
equipped with solar panels. At the event, the president
reiterated his claims that the measure, with billions of
dollars in funds and other assistance for renewable
energy, would help double US reliance on such
resources in three years.
Smith also criticized Interior Secretary Ken Salazar
for rejecting oil and gas leases near national parks in
Utah and for saying he would reconsider a Bush
administration plan for expanded offshore development
of oil and gas resources.
ETP launches open season
Energy Transfer Partners has launched a binding open
season to gauge market interest in a proposed new 180-
mile, 42-inch pipeline. It is to bring gas from the
Carthage Hub in East Texas and the Haynesville Shale.
In the open season, which ends March 20, ETC Tiger
Pipeline is seeking bids from interested customers for
contract terms of 10 years or longer.
The Tiger Pipeline is expected to have an initial
throughput of at least 1.25 Bcf/d, which may be
increased to 2 Bcf/d based on the open season results,
Dallas-based ETP said February 20. The Tiger Pipeline
will connect to ETPs dual 42-inch pipeline system near
Carthage, Texas, extend through the Haynesville Shale
and end near Delhi, Louisiana. It will interconnect with at
least seven pipeline at various points in Louisiana. The
line is expected to be in service in the first half of 2011,
subject to necessary regulatory approvals.
The proposed line would provide takeaway capacity
from the Carthage Hub, which receives large volumes of
gas from several producing basins in Texas, including the
Barnett Shale, Bossier Sands and Permian Basin. It also
would provide takeaway capacity from the rapidly
expanding Haynesville Shale play in east Texas and
northern Louisiana.
Gulf Crossing line to start March 1
Developers of the Gulf Crossing project will bring the last
54 miles of the 357-mile pipeline into service on March
1, a company official told Platts February 23.
Boardwalk Pipeline Partners, the pipelines parent,
received US Federal Energy Regulatory Commission
23
AMERICAS
Texan output starts decline
A six-year-long expansion of the Texas upstream sector
ended late last year as the global recession bit, according
to an index published by a statewide producers group.
Economist Karr Ingham, who created the Texas Petro
Index in 2003 for the Texas Alliance of Energy
Producers, said February 23 that although the index
reached a record high in September 2008, leading
indicators such as wellhead prices, rig counts,
production values and drilling permits all have suffered
severe drops since the Petro Index peaked.
The most recent Petro Index, for the month of
December 2008, found that petroleum industry
employment declined for the second straight month,
indicating the Texas oil and gas industry is firmly in the
grasp of the US and global economic downturn and
really picking up negative momentum.
Clearly, the Texas oil and gas industry is only
beginning to work through this downturn, Ingham said.
We shouldnt be lulled into thinking we will escape
without notable industry job losses that typically come
with such a cyclical decline.
A composite index based upon a group of upstream
economic indicators, the Texas Petro Index in December
2008 declined to 271.8 from 278.6 in November and a
record 282.3 in September. The Petro Index in
December 2007 came in at 244.6.
According to the index, natural gas first-of-month
spot index prices in Texas averaged $5.94/Mcf
during December, up 20% from Novembers average
price of $4.95/Mcf but well below monthly averages
in the year-ago period. The average price of natural
gas sold in Texas during 2008 was $8.20/Mcf, up
about 28% compared with an average of $6.42/Mcf
during 2007.
The index recorded gas production in Texas in
December of more than 632.6 Bcf, or 20.4 Bcf/d, up 3.8%
from November and 3.5% more than in December 2007.
Texas gas output for all of 2008 totaled close to
7.4 Tcf, or 20.15 Bcf/d, up 7.3% from 6.87 Tcf, or
18.80 Bcf/d in 2007, and a 30% increase over the 5.7
Tcf, 15.6 Bcf/d, of gas produced in 1995, the first year
of the index. Jim Magill
authorization to complete the work February 20. The
pipe will move production mostly from the Barnett and
Woodford shales to markets. Key shippers include
producers Devon Gas Services, XTO Energy and
Chesapeake Energy, as well as Enterprise Gas Marketing
and Crosstex Gulf Coast Marketing.
Designed as a 1.7 Bcf/d line, the 303 miles in
service have only been flowing no more than 300 million
cubic feet/d for about a month, Boardwalks vice
president of regulatory affairs Kyle Stephens, said.
The final 54 miles will take supplies from the
pipelines Texas Gas Transmissions interconnect in
Louisiana to its termination point in Tallulah, Louisiana.
By March 1 it was due to be able to flow as much
as 450 million cf/d with points capacity set to
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
further increase March 6, the company said in a web
site posting.
Stephens said the line will only hit its full designed
capacity once construction on its compressor stations in
Paris, Texas, and Sterlington, Louisiana are completed by
the end of the first quarter. Samantha Santa Maria
Ice keeps LNG offshore Algonquin
An ice formation on the lateral line linking Algonquin Gas
Transmissions HubLine to the Northeast Gateway has
stopped a liquefied natural gas tanker making any
deliveries to the Algonquin city-gates. Ice in the pipeline
prevented the Excelerate tanker, moored off Boston, from
unloading its cargo.
According to Platts data, deliveries ceased
February 1. Flow data also indicated that the 3-Bcf
tanker has unloaded less than 15% of its capacity
since mid-January.
A spokeswoman for Spectra Energy, Algonquins
parent, said that an ice-type formation was found on
or around February 6. The formation is related to
residual water from hydrostatic testing from last year,
Mary Lee Hanley said. Hanley added that maintenance
was ongoing and deliveries have only been restricted
and not shut in.
Excelerate spokesman Jonathan Cook, however, said
the ship was not able to discharge LNG until the ice was
cleared. We are working closely with Spectra to
expedite the clearing of the blockage, but we cannot
comment on schedules, he said.
Excelerate has committed to firm transportation
capacity of 500 million cubic feet/day for 10 years,
according to US Federal Energy Regulatory Commission
documents. Although sources said the tanker can sit
offshore Boston for as long as six months, the window
of opportunity to capture premium prices, typically
evident during winter heating months, is swiftly closing.
On February 12, the Algonquin city-gates spot price
averaged in the low $6.00s/MMBtu, the highest average
price on the Eastern Seaboard on the day, Platts
historical price data showed. On previous days, however,
Algonquin cash has averaged a few cents below
Transcontinental Gas Pipe Lines zone 6-New York. From
a forward basis perspective, Platts assessments of the
Algonquin city-gates market indicate prices with $5
handles through the summer, although sources say that
might change as the market reacts to expectations of
dwindling storage pulls over the next few weeks.
Samantha Santa Maria
Argentina eyes gas-for-power swaps
Gas-strapped Argentina is hoping to swap gas for
power imports from Brazil during the critical winter
months of May through August, when energy demand
is the highest. The gas that Argentina hopes to export
would supply the 639-MW Uruguaiana combined-cycle
gas turbine plant in Brazil.
24
AMERICAS
Although Argentina and Brazil signed an agreement in
the end of 2005 to double gas supplies to 2 million cu
m/d to the CCGT at the border city of Uruguaiana, gas
supplies to Argentinas neighbor have been erratic.
According to Enagas, gas supplies to Uruguaiana
were halted in May-August last year but resumed in
September. In 2008, Argentine gas exports to Brazil
stood at 131.593 million cu m, down 19.07% from
162.614 million cu m the previous year, according to
Argentine gas regulator Enagas.
Gas supplies to the Uruguaiana power during
September stood at 167,000 cu m, in October 328,000
cu m, November 19.443 million cu m and in December
41.573 million cu m.
Even though the Uruguaiana CCGT requires 2.8
million cu m/d, Argentine authorities are proposing to
supply 1.2 million cu m/d, which would help Brazilian
hydropower plants in the south of the country
accumulate water, which could later generate electricity
that could be sold to Argentina.
The president of non-profit NGO Instituto Argentino
de la Energia General Mosconi Jorge Lapena told
Platts that any gas export agreement to Brazil hinged on
a special agreement for a fixed period and for a special
purpose like swapping energy. Even though economic
growth is slowing in Argentina, it does not mean that
there is now excess gas to export, he said. In the mid-
1990s Argentina exported 24 million cu m/d to its
neighbors. Today it only exports 4%-5% of that amount.
Lapena said that a worrying trend in Argentine gas
production was in December, when output retreated by
4% to 4.077 billion cubic meters despite a sharp fall in
economic growth. For the whole of 2008, gas output
stood at 50.271 Bcm, down 1.5% from 50.891 Bcm in
2007, according to the latest IAE data.
An Argentine power spot market operator Cammesa
official told Platts that power consumption in January
and February was flat from a year ago owing to slower
economic growth. We do not know if this is a general
trend for the year or because of the holiday season, the
source said. It is highly possible that Argentina may
reduce diesel and heavy fuel oil imports this year due to
the economic slowdown. Enrique Tessieri
Peru to award 30-yr pipe contract
Perus energy ministry is due to award a 30-year
upstream concession to Colombias Transportadora de
Gas Internacional to operate in the department of Ica.
The project manager of investment agency Proinversion
Luis E Ortigas Cuneo manager, confirmed to Platts that
the agreement would be signed on March 7. TGI was
named the winner of the concession, after beating
Promigas of Colombia and Suez-G&M last April.
Ortigas Cuneo said that the reason for the delay was
uncertainty over a petrochemical companys plans to
build a plant in the department and the size of the
pipeline it would need. That has now been resolved with
CFI Industries. TGI has pledged to invest $200 million in
gas infrastructure projects in Ica department, which will
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
Bolivia secures pledge for investment from Russia
President Evo Morales, who paid an official visit to Russias
president Dimitry Medvedev mid-February, secured a pledge
that Gazprom would continue to invest in Bolivias energy
sector. Total of France had announced in September plans
to join Gazprom and YPFB in proving up reserves at the
Azero block in gas-rich Tarija department (IGR 608/26).
A Total spokesperson told Platts that the energy major
planned to move ahead with the agreement it signed in
September with Gazprom and YPFB.That project is moving
ahead, the spokesperson said. Morales met with Frances
president Nicolas Sarkozy, a day later after holding talks
with Mevedev on February 16.
Neither Total or Gazprom have given figures but the
Bolivian media has confidently cited over $3 billion.
We examined the energy sector as one of the most
important areas in which we can work together, an area in
which we could make a real breakthrough in cooperation,
said Medvedev. The idea is for Russia to help our Bolivian
colleagues carry out fossil fuels exploration and build a
gas transport system in Bolivia.
Regulatory uncertainty has deterred investors in recent
years. The Bolivian government has turned to countries such
as France, Russia and Brazil to help boost reserves and
output. The hydrocarbons ministry has set out an ambitious
plan to increase gas output from 41.21 million cu m/d in
2008 to 100 million cu m/d in 2015 (IGR 613-614/9).
Meanwhile, Bolivias industrial association CNI said on
February 21 that over the last three weekends, industries
include building a pipeline from Humay to Marcona in
southern Ica, where the ammonia nitrate plant will be
built. Some 50,000 households will also be connected
to a gas grid by the end of 2011. It will be supplied by
the Camisea gasfield (IGR 588-589/29). Peru has
launched distribution concessions previously in
departments such as Junin but with little success. One
of the biggest challenges has been low demand. The
construction of the petrochemical plant in Ica was
crucial for TGI to sign the concession agreement,
according to some analysts.
Tender to bring gas from Cusco
The countrys president, Alan Garcia, announced that his
country was on the verge of launching a tender to build a
pipeline that would transport gas from northern Cusco
department to the city Chimbote,about 400km north of
the capital Lima in Ancash department.
Garcia said that Proinversion was days away from
launching a tender to build a pipeline to connect
northern Cusco with Chimbote or even further [north].
He said the pipeline would play an important role in
linking Perus northern and central mining region to the
Camisea gasfield.
Apart from the Cusco-Chimbote gasline, Kuntur
Transportadora de Gas is planning to supply Camisea
gas to the south of the country through a 1,085km
trunkline that is expected to become operational by
2012 (IGR 607/23).
25
AMERICAS
in the departments of Cochabamba, La Paz and Oruro had
suffered from gas rationing. This had dented their output.
CNI said that the GAA pipeline, which brings gas to
central and western Bolivia (IGR 565/24), has a normal
throughput capacity of 73.15 million cu ft/d but demand
exceeds 99 million cu ft/d. CNI said that higher demand
forces a fall in pressure, which in turn impacts gravely
consumers.
Bolivias president blames the CIA for YPFB woes
Bolivias president Evo Morales has blamed US Central
Intelligence Agency infiltration for YPFBs corruption woes.
At the end of January, the companys president Santos
Ramirez resigned in disgrace (IGR 617/24).
Morales said that the CIA had attempted to defeat his
government in Januarys referendum (IGR 616/28) and by
a civil coup as well as through intervention of YPFB.
Morales named two YPFB officials with alleged links to the
CIA plot. Former YPFB head Ramirez was imprisoned last
month after he was accused of being the main suspect in
a corruption scandal that involved the death of energy
official Jorge OConner. Morales has vowed to take a tough
stand against corruption. Some analysts believe the
corruption scandal at YPFB shows how widespread the
problem is in the country. A Santa Cruz analyst told Platts
that not only is the scandal a stain on the governments
nationalization policy, but it also shows that corruption can
be found in all political parties.
Peru tries to claw back gas from Hunt
And fearing that too much gas will leave the country,
Perus energy ministry is to begin talks with Peru LNG to
free up some 150 million cu ft/d to ensure supplies for
the domestic market. That is about a quarter of the
capacity of the liquefaction plant that the Hunt Oil-led
consortium is building. It will take 625 million cu ft/d. Of
Perus 14Tcf of proved reserves, 4.2Tcf are required by
Peru LNG (IGR 606/27). Peru LNGs liquefaction plant
will become operational in 2010.
Energy minister Pedro Sanchez said that under no
circumstances are we demanding that we are going to
renegotiate the contract [with Peru LNG as some
analysts have claimed]. That would be counterproductive
right at a moment when Peru has won a reputation for
being a country that honors its contracts.
Some analysts blame the ongoing gas-supply
crisis last year on rocketing demand, which has been
fueled by cheap gas. According to Lima-based
Macroconsult, gas-fired plants in Peru pay wellhead
prices of $1/MMBtu. Another factor that has caused
severe headaches is that Peru has not proved up
reserves fast enough.
Under a general agreement, the original aim was for
the Camisea fields to exclusively supply the domestic
market with Block 56 (Pagoreni) supplying Peru LNG.
Pagorenis proved reserves stand at 3Tcf. The
government is hopeful that new reserves will be found
this year at Blocks 57 and 58 (IGR 606/29).
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
LIQUEFIED NATURAL GAS
Chevrons finds support two trains
Chevrons Wheatstone and Iago gas fields off Western
Australia hold sufficient reserves to support a two-train
LNG project as well as a domestic gas facility. The US
major has just completed a seven-well exploration and
appraisal program.
The success with the recent appraisal program
moves the Wheatstone project a step closer to
commercialization, said the executive vice president
of Chevron Global Upstream and Gas, George
Kirkland. The Wheatstone project offers a strategic
opportunity for Chevron and third parties to develop
natural gas resources in the western Carnarvon
Basin, as well as deliver energy, jobs and economic
benefits to Australia.
Chevron selected Ashburton North near Onslow in
Western Australia as the site for its Wheatstone project
in late 2008, and is planning for the facilities to form
the basis of a regional LNG hub.
The company is seeking approvals for a 25 million
mt/year LNG and domestic gas complex and associated
offshore infrastructure. The initial development would
consist of two LNG processing trains with a nominal
capacity of 5 million mt/year each and a separate, but
co-located domestic gas plant designed to process up to
250 million cubic feet/d.
Chevron is planning to enter the front-end
engineering and design phase for the project in the
second half of 2009. A final investment decision is
targeted for the third quarter of 2010 and first gas
would be expected in 2015, according to the companys
submission to local environmental authorities.
The Wheatstone project, together with Gorgon, is an
important part of Chevrons strategy to develop its large
natural gas resource base in Australia and be a leading
supplier of LNG, Kirkland said. In support of these two
major capital projects, the company intends to undertake
its largest-ever drilling campaign in Australia.
NWS one of Chevrons four focus areas
Australias North West Shelf is one of four exploration
focus areas for Chevron. This year, the company plans to
conduct an extensive program with two rigs scheduled to
drill multiple exploration and appraisal wells in its
operated acreage.
Chevrons wholly owned Wheatstone field was
discovered in 2004 in the WA-253-P and WA-17-R
permit areas. The field is 125 miles (200 km) north
of Onslow in water depths of around 650 feet (200
meters). The adjacent Iago field was discovered in
2000 and spans two retention permits, WA-17-R,
which is wholly owned by Chevron, and WA-16-R, in
which Shell has a one-third share, with Chevron
holding the remainder.
Chevron operates and holds a 50% stake in the
massive Gorgon field off Western Australia, with
26
LIQUEFIED NATURAL GAS
ExxonMobil and Shell holding 25% each. The
company is seeking approvals for a 15 million
mt/year LNG project and 275 million cf/d domestic
gas plant based on Gorgon. It hopes to make a final
investment decision on the project late this year.
Christine Forster
Aussia Arrow renews LNGL deals
Australias Arrow Energy has renewed and extended
a heads of agreement with Liquefied Natural Gas
Limited for the supply of gas to the Fishermans
Landing LNG project at Gladstone. The deal was
enabled by the decision of Norwegian Golar LNG to
buy all the plants output, and take a 40% stake in
the project.
The new agreement includes provisions for a
possible second train at the project and outlines the
project timetable for the remainder of 2009.
Golar has already progressed discussions to sell
its offtake on a delivered, long-term basis to a credit-
worthy LNG buyer, it said, without giving details as to
possible partners.
The Norwegian company would use one or two of its
own carriers for delivery of the LNG, it said. In addition
to financing to be raised at the project level, the
company would also be able to raise financing in
connection with the offtake arrangements and thereby
limit the requirement for new equity that may be required
by Golar LNG, it said.
Golar Managements CEO Gary Smith said:
Gladstone has in recent months been a hot spot for the
LNG industry and Golar is proud to have secured this
early position along with LNG Ltd. The Gladstone project
has the potential to materially enhance the earning
capacity and profile of the company.
Arrow said that the revised heads of agreement gave
it the exclusive right to supply gas to the proposed 1.5
million mt/year LNG train and to supply gas to a
subsequent train of similar capacity. The supplies would
come from Arrows coal seam gas deposits central
Queensland, the company added.
LNGL CEO Maurice Brand said at a media conference
that the cost of the Fishermans Landing project had
also been increased from $400 million to $500 million.
That was due to an increase in the planned output of
the first train from an earlier figure of 1.3 million
mt/year, he added.
More gas means target is viable
The decision to raise the target production to 1.5 million
mt was due to the availability of more gas and to ensure
that the project was viable and not dependent on
subsequent trains to make profits, he said. Brand said
the project cost would be funded via 50% equity and the
balance via debt. The company was in talks with five
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
lenders for raising the debt portion of the total
requirement, he added.
Of the equity portion, $100 million would come from
Golar LNG, $100 million from LNGL and the balance $50
million from Arrow if it exercised an option the partners
have granted it for a 20% stake.
The new Arrow/LNGL heads of agreement also
includes key milestones and timing, Arrow said. The
companies would execute a gas sales agreement,
targeted for September/October, and a final investment
decision, on both proposed trains, targeted for the fourth
quarter of 2009, Arrow said.
Arrow said: We have potentially an ideal solution
by having a front-end plant with one or two smaller LNG
trains of 1.5 mt/year each at Fishermans Landing and,
through Shells initiatives, a large scale plant to follow
on Curtis Island where there is space for multiple,
larger LNG trains.
Anglo-Dutch major Shell had previously voiced
interest in the Fishermans Landing project, but said
earlier in February that it was considering a much larger
project at Curtis Island, also at Gladstone. Shell has
acquired 30% of Arrows Queensland assets.
In early February, an Arrow spokesman said the Shell-
Arrow alliance held a total 70 Tcf or 70,000 petajoules
of gross of gas resources. The Fishermans Landing
project would require only 90 PJ/year of gas, leaving
ample resources to supply another facility on Curtis
Island, the spokesman said.
Arrow targets first LNG in 2012
Arrow said it was targeting first LNG from Fishermans
Landing in 2012 and later, larger quantities from a
potential world-scale plant on Curtis Island. We
believe this approach significantly mitigates the rampup
risk of CSM to LNG and will ultimately provide sufficient
outlet for our 70 Tcf of gross gas resource potential, it
added.
Brand said all government approvals for the
Fishermans Landing project were expected around July,
and port agreements around September. Unlike any of
the other LNG projects planned in Gladstone, the
Fishermans Landing project already has a pipeline
license in place to get gas from Moranbah to Gladstone.
He added that this boosted confidence in the projects
aggressive timeline for first gas offtake in late 2012.
The Fishermans Landing and Curtis Island projects
are part of a long list of coal seam gas-based LNG
projects proposed for Gladstone.
In addition, UK-based gas major BG Group is
planning a 7.5 million mt/year LNG plant; Australias
Santos and Malaysian state-owned Petronas are working
on a 3.5 million mt/year facility; US major
ConocoPhillips has teamed up with Origin Energy on a 7
million mt/year project; and a partnership between
Sunshine Gas and Japans Sojitz Corporation is looking
at building a 500,000 mt/year plant.
Separately, Canadas LNG Impel has tabled a
proposal for an open-access liquefaction plant with up
to three trains, each of between 700,000 and 1.3
million mt/year capacity.
27
LIQUEFIED NATURAL GAS
Indian Petronet doubles Dahej
Indian LNG importer Petronet expects to double the
nameplate capacity of its terminal at Dahej in the
western state of Gujarat to 10 million mt/year by the
end of February.
The terminal has in recent months added two LNG
storage tanks to its existing two and vaporizers. All the
construction work for the capacity expansion is over, and
the entire structure is being cooled down, Petronet CEO
Prosad Dasgupta said.
The cooling process was to be completed by
February 28, doubling the terminals nameplate capacity
from 5 to 10 million mt/year, Dasgupta added. Although
the new nameplate capacity is 10 million mt/year, we
can very happily process 11.5 million mt/year, the
executive said, explaining that the excess capacity was
built into the terminals design.
While the terminals existing nameplate capacity is 5
million mt/year, it has been able to process up to 6.7
million mt/year, he added. The terminal added two LNG
storage tanks of 165,000 cubic meters gross capacity
each, doubling its storage capacity.
Petronet imports 5 million mt/year of LNG from
RasGas at Dahej under a 25-year contract with the
Qatari supplier. Volumes under this agreement will rise
to 7.5 million mt/year from the fourth quarter of this
year. The company also imports spot cargoes to meet
short-term supply commitments to Ratnagiri Gas and
Powers Dabhol power plant in the neighboring state of
Maharashtra and to plug any supply shortfalls in
domestic gas. Vandana Hari
Russia inaugurates Sakhalin LNG
Russia has started up its first gas liquefaction plant as
part of the Sakhalin 2 oil and gas project in the Russian
Far East, and a second one is being proposed for the
mainland.
The inauguration ceremony of the plant, which was
mostly built by Anglo-Dutch major Shell, was attended by
Russias president Dmitry Medvedev and the Japanese
prime minister Taro Aso.
Sakhalin Energy, the Gazprom-led consortium
developing Sakhalin 2, started up the first 4.8 million
mt/year train for the 9.6 million mt/year LNG plant on
Sakhalin Island. The other 4.8 million mt/year train is to
be commissioned sometime in the first half of the year.
Speaking at the event, Medvedev said the project
was of strategic importance to Russia and other
countries, and would account for up to 5% of global LNG
supplies once the plant reaches the full capacity.
Aso said the project would help diversify suppliers in
the Asia-Pacific region and further strengthens relations
with Russia.
About 50 tankers with the capacity of 145,000 cu m
each of LNG will be loaded this year, Sakhalin Energy
CEO Ian Craig said on the eve of the plants
inauguration. Based on this figure, the volume carried by
the tankers was expected to make up about 3.2 million
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
mt of LNG. About 160 tankers of this size were expected
to be loaded each year when the plant reaches its 9.6
million mt/year capacity. The first LNG shipment is
scheduled for the end of March, following a number of
previous delays.
The LNG plant will be receiving some 13.8 billion
cubic meters/year of gas mainly from the Lunskoye field,
one of the two offshore fields being developed by
Sakhalin Energy.
All output from the first two trains at the site is
already contracted for long-term export, with 65% going to
Japanese customers and the remained to South Korea
and the US West Coast. Russias Gazprom holds a 50%
plus one share stake in Sakhalin 2 following a major
government-orchestrated reshuffle of shareholding in the
project in late 2006. Former operator Shell now holds
27.5% and the remaining equity is owned by Japanese
companies Mitsui (12.5%) and Mitsubishi (10%).
More onshore LNG planned
The Primorye region government said February 26 that
the technical parameters of the second plant were being
considered. Even now we can say that the LNG plant in
Primorye will be one of the biggest by capacity in the
Asia Pacific region, governor Sergei Darkin said. It
would include processing facilities.
Taiwan import monopoly cuts purchases on low power demand
Taiwans CPC Corp the monopoly importer will likely
import only 8 million mt of LNG in 2009. This is down by
over a tenth on last years 9.03 million mt, the companys
general manager for LNG CS Lin, said February 23. Lin
said the drop was due to a severe drop in power demand.
In early January, a spokeswoman for state-owned
generator Taipower said electricity generation in 2008
was already down 0.6% year-on-year. At that time, she
said LNG consumption might grow at a slower rate than
in 2009, or remain flat. LNG imports by CPC rose by
10.7% year-on-year over January-October 2008, to 7.76
million mt. Almost 80% of that volume was consumed by
the power generation sector. It imported 8.29 million mt
for the full year in 2007. While CPC has been active in
procuring spot and short-term LNG cargoes in the past
two years, it would be unlikely to do so in 2009, a CPC
source told Platts.
CPC has long-term contracts totaling around 8.67
million mt/year from suppliers in Qatar, Indonesia and
Malaysia. However, one of its two contracts with Indonesia
is to expire this year and Indonesia, whose LNG output is
declining, has said it will not renew the contract for 1.58
million mt/year.
Lin said CPC would seek to reduce imports under long-
term contracts, from both Indonesia and Malaysia.
Indonesian government officials told Platts earlier in
February that CPC was seeking to reduce its offtake from
that country by six cargoes in the first half of 2009. It had
already deferred one cargo, from January, to 2011, and
may defer a March cargo until that date as well. The other
28
LIQUEFIED NATURAL GAS
Gazprom in June 2008 announced plans to consider
the construction of an LNG plant near Vladivostok in
Primorye that could use gas from the nearby Sakhalin
Island as well as fields in East Siberia, and ship LNG to
Japan. A gas pipeline from Sakhalin to Primorye is to be
commissioned in 2011.
Mitsui, Mitsubishi eye Yamal LNG
Japans Mitsui and Mitsubishi are interested in
participating in a proposed gas liquefaction plant in
the remote Yamal Peninsula in Russias north.
Gazproms deputy CEO Alexander Medvedev said the
company had taken into consideration the interest of
[Sakhalin 2 participants] Shell, Mitsui, Mitsubishi
in participating in this project, when asked about the
progress in talks on the project between Shell and
Gazprom. Preliminary consultations are already
underway, he said.
Gazprom is continuing a preliminary feasibility
study for the Yamal project, which it expects to
complete by the end of the year, Medvedev told
reporters at a joint briefing by Sakhalin 2
participants. The switch to the next stage will
depend on the results of the study, he said.
Speaking at the same briefing, Shell CEO Jeroen van
der Veer said he was confident that his company would
four cargoes were still under discussion, the officials said.
Indonesia has a commitment to supply CPC with 49
cargoes this year from its Bontang LNG plant in East
Kalimantan. Asked whether CPC saw LNG imports
increasing in 2010, Lin said: I have no idea, but added
that they may stay flat with 2009.
Taiwan imported 545,000 mt (1.2 million kl) of LNG in
December, down 17.5% from the year-ago volume as its
industrial sector struggled with a drastic fall in demand,
latest statistics from the bureau of energy showed.
In December, Taiwans key information technology and
electronics industry saw a year-on-year plunge of 42.10%
in output, as export markets shrank amid the global
financial crisis, according to information released this
week from the ministry of economic affairs.
Total export orders during December amounted to only
$20.8 billion, tumbling by 33%, or $10.2 billion, from a
year ago, the economic ministry said. The heftiest export
order reduction was for electronics goods, which saw a
30.8%, or $2.2 billion, year-on-year contraction.
During December, Taipower saw a 6.6% year-on-year drop
in demand to 14.43 TWh, a company source said. Taipower
accounts for about 80% of Taiwans total generation.
However, for the whole of last year, Taiwans LNG
imports still rose by 9% from the previous year to 9 million
mt, as the island nation increased its reliance on gas-fired
power generation. Taipower has been bringing online its
new six-unit, gas-fired 4,272-MW Tatan power plant in
stages since 2007, resulting in higher LNG consumption in
the past two years. Jonty Rushforth, KimFeng Wong
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
have other projects in Russia, possibly together with
Mitsui and Mitsubishi.
Yes, other projects will happen in Russia...but the
reality of course is that the timing is in the hands of the
Russian government and Gazprom. In June, der Veer
said Shell had already started talks with Gazprom about
the Yamal project, which would be based on the Yuzhno-
Tambeiskoye and Sever-Tambeiskoye fields.
In November 2008, Medvedev said all key oil and
gas majors had expressed their interest in taking
part in the Yamal LNG plant, while the list of
partners was still being defined. The Russian gas
giant is looking to become a major LNG player and
expects to have about a quarter of the world market,
or 90 million mt/year, by 2030.
Shells losses mount in Nigeria
Anglo Dutch major Shell is losing about 1.1 billion cubic
feet/day of gas owing to the shutdown of its Soku gas
plant in Rivers State, southern Nigeria, resulting in a
shortfall in LNG supply to the global market of an
estimated 1.6 million mt, Shell's executive director for
Africa Ann Pickard said February 26.
"We are losing about 1.1 bcf/d of gas to the
shutdown because of people trying to steal condensate
from the pipelines," Pickard told a CWC-organized
conference in the capital Abuja.
The closure of the plant in November 2008, following
repeated vandalism, led to Shell declaring force majeure
on gas supplies to the Bonny LNG plant.
In her address, Pickard urged the Nigerian
government to help clean up the area following arson
attacks on the lines in order that gas supplies can be
resumed. She said that Nigeria and its partners were
losing an estimated $180 million/month to the violence
in the Nigeria's southern oil path.
OMV, Total see no change in Iran
The change of administration in the US has not yet
opened the floodgates for projects still awaiting final
investment decisions in Iran. Two major European
companies, Austrian OMV and French Total, have both
made plain their skepticism about a change in their
companies policies. On February 18, Total contradicted
an Iranian official quoted in the Iranian press about
plans for Iranian liquefied natural gas projects, saying it
was not in a position to sign an agreement with Iran for
a $5 billion LNG project by March 20 and it would not
be making a final investment decision by that date.
Total said its position on the project had not changed
and that talks with the Iranian side were continuing,
but that there were no immediate plans to proceed with
the Pars LNG project.
There is nothing new...we will proceed when the
time is right, the spokeswoman said. The managing
director of the National Iranian Oil Company, Seifollah
Jashnsaz, was quoted February 18 saying that Iran
29
LIQUEFIED NATURAL GAS
Japanese Inpex to select Timor FEED
Japanese upstream player Inpex Corporation will soon
begin the process of picking contractors for the front-end
engineering and design process of its wholly owned
Masela block in the Timor Sea. The Inpex source
declined to identify potential FEED contractors, but said
February 24 that the company aimed to start its FEED
process in late 2009. Inpex signed an in principle
agreement in January with the Indonesian government
on the proposed development of an LNG project based
on its wholly owned Masela block.
Inpex and Indonesia have agreed to target a final
investment decision on a 4.5 million mt/year floating
LNG project at Masela by 2011. First production from
the development would be scheduled for 2016.
Inpex had previously estimated Masela held
sufficient reserves to support the proposed floating LNG
facility, but the company is still firming up the total. A
final reserves estimate is now expected to be released
in the second half of 2009 before Inpex starts its
FEED process delayed from an earlier estimate of end-
June, the official said. In May 2008, a senior official
Indonesias upstream regulator BPMigas said Masela
had potential gas reserves of up to 14 Tcf as big as
the BP-led 7.6 million mt/year Tangguh LNG project in
Bintuni Bay, West Papua.
A number of major oil companies have expressed
interest in cooperating with Inpex on the Masela
project, including Norwegian major StatoilHydro,
ConocoPhillips, Total, Shell and Indonesias state-
owned Pertamina, which has previously said it would
like 30%. Takeo Kumagai
expected to sign the agreement on development of
phase 11 of the South Pars gas field, including an LNG
plant, before the end of this Iranian calendar year, which
ends March 20.
Total has never cut its negotiation and relation
with NIOC, Jashnsaz said. Most of these talks have
been about phase 11 of South Pars and [negotiations]
are going to reach a conclusion, Jashnsaz said. The
negotiations will result in a contract worth about $5
billion by the end of the current [Iranian] year with
French Total, he added. Based on this contract, Total
will carry out the upstream sector of phase 11 of
South Pars and in the downstream it will be in charge
of the construction of the LNG plant, Jashnsaz said.
Last July, Iran said Total had pulled out of the LNG
project for political reasons.
And OMV said it did not expect to reach an
agreement on taking a stake in the Iran LNG project
soon, the companys CEO Wolfgang Ruttenstorfer said a
week later. We are still negotiating regarding LNG in
Iran, but dont see a conclusion to the talks in the
foreseeable future, he said on a conference call with
journalists. Iran has said it plans to give up half the
$4.35 billion Iran LNG project to foreign companies,
including a 10% stake to OMV.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
COMPANIES
Spains Repsol seeks YPF buyer
Spains Repsol YPF is talking to potential partners
about taking up to a 25% stake in its Argentine
subsidiary YPF. This would be an alternative to a
delayed initial public offering for the unit, company CEO
Antonio Brufau said February 26.
We have had conversations with people who may be
interested in joining us in Argentina...this could be either
a local or international partner, Brufau told analysts in a
quarterly earnings call.
YPF was formerly wholly owned by Repsol, but the
company concluded the sale of a 14.9% stake in the
unit to Argentinas Petersen Energia for $2.235 billion on
February 21. The deal to sell part of YPF was first
agreed in early 2008, and gives Petersen an option to
increase its stake to 25% within the next four years.
Repsol had planned to sell a further 25% in an IPO
last year, but shelved the plan because of the weakening
global economy. We know the IPO may not take place
right now, its not time for this deal to happen, Brufau
said. We are thinking of alternative ways to make this
happen...the goal is that in two years, well do this at
the right price and the right conditions. YPF accounts
for more than half of Repsol YPFs output, but faces
declining output at some of its fields.
Spains GN launches Fenosa bid
Spanish utility Gas Natural has launched a full
takeover bid for power utility Union Fenosa, having
completed a deal to buy a 35% stake in the company.
Gas Natural said Febraury 26 that it now has a 50%
stake in Union Fenosa.
Under Spanish takeover law, having taken over 35%
of the company from construction company Acciona
added to the 9.9% stake it bought last year Gas
Natural is legally obliged to launch a full takeover bid for
the remainder.
Gas Natural will send the appropriate documentation
related to the bid to Spains Competition Commission
(CNMV) for its approval within the next five days, it said.
The CNMV cleared Gas Naturals 35.3% purchase of
Union Fenosa shares on February 12. The clearance
involved the Barcelona-based natural gas distributor
committing to divest various gas and power sector
assets and maintain an arms length relation with
certain Union Fenosa energy holdings.
More specifically, Gas Natural agreed to sell
various gas distribution networks with a total customer
base of around 600,000, representing about 9% of
domestic demand, and 2 GW of operational gas-fired,
combined-cycle plants.
Gas Natural acquired an initial 9.9% stake in Union
Fenosa from ACS in mid-2008 and made a commitment
to buy the remaining 35.3% held by ACS. Sophie Davies
30
COMPANIES
Italys Eni to raise output 3.5%
Italys Eni intends to raise its oil and gas production
by an average of 3.5%/year over the period from
2009-12 despite slightly trimming its expected
investment. The growth rate compares with a
previous target of 4.5%/year production growth over
2008-11.
Eni said it would also grow its oil and gas reserves
over the next four years, aiming for a reserve
replacement ratio of 130%, well up from a previous
target of more than 100% over the 2008-11 period.
Eni expects to strengthen its position in the
European gas market, growing its sales outside Italy by
7%/year and reaching total gas sales of 124 billion
cubic meters by 2012.
Enis oil and gas output will be more than 2 million
b/d of oil equivalent by 2012, the company said,
assuming an oil price of $55/barrel. Production this year
should exceed 1.8 million boe/d at an oil price of
$43/b, up from 1.797 million boe/d in 2008. Beyond
the four-year plan, Eni expects to be able to raise output
at a rate of 3%/year to 2015. Most of Enis production
growth is expected to come from Africa, OECD countries
and the former Soviet Union.
Eni said its portfolio was largely in low cost
production areas and based upon giant projects with
economy of scale benefits. In the next four years Eni
expects more than 500,000 boe/d of new production to
come on stream, of which 85% comes from projects
which are profitable even at oil prices of less than
$45/b. Eni said it planned to invest a total of 48.8
($62.8) billion over 2009-12, slightly less than the
49.8 billion previously forecast for 2008-11.
Snam Rete Gas buys distributor Italgas, Stogit
Italian gas transporter Snam Rete Gas has bought 100%
of Italian gas distributor Italgas and Italian storage firm
Stogit from Eni. Eni, which owns 50.03% of SRG,
approved the sale February 12.
Eni CEO Paolo Scaroni said that the deal would
enable Eni to build a strong integrated player in the
European regulated [gas] markets and create synergies
between Snam, Italgas and Stogit.
The price was 3.070 billion for Italgas and 1.650
billion for Stogit. The deal will be funded by a rights
issue for a maximum of 3.6 billion and new loans of
1.3 billion.
Eni said the deal was consistent with the Italian
regulators target for the company to unbundle its
operations: meaning splitting its trading and supply
operations from its physical pipe and storage operations.
But the company said it had already met legal
unbundling requirements before the deal and was not
looking to sell its remaining 50.03% stake in Snam.
As a result of the deal, Snam will manage gas
transport and distribution networks of 31,000 km
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
and 58,000 km respectively, and have a storage
capacity of 14 billion cubic meters, including 5 Bcm
of strategic reserves.
Italgas, together with its subsidiaries, provides
distribution services to about 1,600 municipalities,
including Rome, Turin, Naples, Florence and Venice and
transports 9 Bcm of gas through a distribution system of
over 58,000 km, managing a total of 7 million installed
gas meters. Stogit provides natural gas storage and
balancing services.
Thai PTTEP eyes acquisitions
With Baht 20 billion ($550 million) cash in hand and a
low debt to equity ratio of 0.16, Thailands PTTEP plans
to accelerate merger and acquisition activities in 2009.
This is a time of cheap assets, the company said at a
recent analyst briefing in Bangkok, as its parent, PTT,
announced its first quarterly net loss since listing in
2001 in the fourth quarter and saw the first annual
profit drop in nine years last year.
PTTEP on the other hand saw its fourth-quarter
profit fall 9.23% year-on-year, but better results in
the preceding quarters resulted in a 21% jump for
the year as a whole.
Last quarter profit was 6.79 billion baht ($193
million), versus 7.48 billion baht in the same period
of the previous year, as it was hit by lower oil and
gas prices as a result of the economic slowdown.
PTTEP in December acquired Australias Coogee
Resources and is looking for more M&A
opportunities that fit with the companys long-term
strategy, it said. Earlier in 2008, PTTEP also tied up
with Golar LNG to jointly invest in floating LNG
projects around the world.
Excluding future M&A, PTTEP said it expected its
output to grow at an annual rate of 6% for the next five
years, mainly driven by existing projects. The company
produced a record 219,314 b/d of oil equivalent in
2008, up 22% from 2007, and is targeting 235,000
boe/d in 2009 with a gradual increase to around
300,000 boe/d by 2013.
Last year also saw PTTEP post a record net profit of
Baht 41.6 ($1.15) billion, up 46% from 2007.
PTTEP expects to begin gas production from its
100%-owned M9 block offshore Myanmar in the third
quarter of 2013, later than the original start-up date of
2012. The company did not explain the delay. The block
is targeted to produce 300 million cf/d of gas, of which
PTTE&Ps parent PTT will lift 240 million cf/d and the
remaining 60 million cf/d will be sold to state-run
Myanma Oil and Gas Enterprise. A gas sales agreement
to this effect is expected to be signed in the first half of
2009, PTTEP said.
Meanwhile, Arthit North is expected to start up at
100 million cf/d of gas and 1,500 b/d of condensate in
the first quarter of 2009, the company said. Production
was delayed from August 2008 because of corrosion
inside a gas metering tube on the floating production,
storage and offloading vessel, it explained.
31
COMPANIES
PTTEP began production from the main Arthit field in
the Gulf of Thailand in March 2008. Arthit is producing
330 million cf/d.
Separately, PTTEP said it was on track to produce
gas from block B-17 in the Malaysia Thailand Joint
Development Area in the Gulf of Thailand at the end of
2009. The company expects to produce 270 million cf/d
with the potential to produce an additional 65 million
cf/d in 2010. Block B-17 is operated by Carigali-PTTEP
Operating Company, a 50:50 joint venture between
PTTEP and Malaysias Petronas.
Meanwhile, the Bongkot South project, also in the
Gulf of Thailand, is expected to start production in Q4
2011 at the rate of 320 million cf/d, PTTEP said. This
will add to Bongkots 490 million cf/d produced now.
Analysts shocked
PTTs results were much worse than analysts feared, and
PTT faces weaker earnings this year as the economic
meltdown reduces demand for energy and petrochemical
products as well as dragging prices down.
Analysts suggested that inventory loss in 2009 is
unlikely to be as much as last year. But slow gas
demand may put pressure on earnings, while its
exploration subsidiary PTT E&P contributes lower profit.
PTT share prices shrank 23% in October-December,
versus a 25% fall in the broader Thai stock market.
Thai regulator keeps lid on prices
Thailands Energy Regulatory Commission has agreed to
allow PTT to raise the natural gas throughput charge by
only 10.23% instead of the 14.33% hike the gas
transmission monopoly asked for.
The baht 2.02 ($0.05) increase from 19.74
baht/MMbtu to 21.76 baht is expected to go into
effect in April for one year after a public hearing. The
new rate will only applied for those who use natural gas
for power generation and not other industrial users,
according to ERC chairman Direk Lawansiri.
The substantial portion of natural gas supplies in
Thailand is used for power generation. Natural gas
generates about 70% of Thai electricity.
The increase fell short of the 2.83 baht/MMtu the
state-controlled energy group proposed, in order to cover
additional investment costs required for laying the
countrys third gas trunk line.
PTT is doing an environmental impact assessment
for the 39-billion baht fourth gas pipeline project running
onshore from Rayong to Saraburi.
An ERC member Pallapa Ruangruang said the
permissible increase of 2.02 baht was fair to users and
investors and took account of the demand charge of
20.6553 baht/MMbtu. ERC said the hike in throughput
charge will result a 1 satang/kWh increase in generating
cost, which the Electricity Generating Authority of
Thailand disputed, saying the increase would have only a
modest affect on generating costs. The expected fall in
the price of natural gas in the second half would offset
the increase in the throughput charge.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
M&A deals fall 59% in Q4 2008
The value of oil and gas mergers and acquisitions deals
worldwide in the fourth quarter of 2008 was down 59%
on 2007 levels and down 72% compared with Q4 2006,
according to consultants PwC.
Deal values reduced progressively during 2008 but it
was in the final quarter, with the intensification of the
economic crisis, that oil and gas M&A activity followed
the oil price over the cliff, the company said in a
statement published with its new report O&G Deals.
Even prior to the economic crisis and oil price
plunge, big deals were in retreat, said the
companys UK energy transactions partner Rick
Roberge. There were only two deals that topped the
$5 billion mark compared with 10 such deals in
2007... The hiatus in big deals was especially
evident in the oilfield sector, Roberge said.
The number of oil and gas deals in Europe in the
whole of 2008 increased despite the economic
downturn, but the value of these deals was down
compared with a year earlier, PwC said. Deal numbers
rose 64% in Europe from 77 in 2007 to 126 in 2008.
But total deal value in Europe was down 15% from a
year earlier, compared to a 38% drop worldwide, the
company said. Activity in Europe was relatively
resilient compared to the big fall in volume
elsewhere, PwC said.
Deal volume in North America and Russia, unlike in
Europe, was down. The total number of deals in Russia
in 2008 was 33, down from 41 in 2007, a 20% drop,
the company said. Deal value was 66% down. In North
America, there were 518 deals, down from 563 a year
earlier, an 8% drop, PwC said. Deal value in North
America was 43% down in 2008, according to the report.
The biggest deals of 2008 were US major
ConocoPhillips investment in Origin Energys coal seam
methane gas assets and Anglo-Dutch Shells
acquisition of Canadian company Duvernay Oil, PwC
said. The outlook for oil and gas deal-making in the
early part of 2009 is bleak but the picture could
change later in the year, PwC said.
It is difficult to see stronger players remaining on
the sidelines for the whole of 2009 given the
opportunities for acquisitions at low valuations, the
company added.
Norways profits delight
Norways StatoilHydro reported better than expected
operating earnings for the fourth quarter of 2008 but
said it replaced just 34% of its production with new
reserves during the year.
StatoilHydro reported a 68% drop in its net profit to
NOK2 billion ($290.7 million) for the quarter from
NOK6.2 billion in Q4 2007 led by weaker oil prices and
currency losses. For the full year, the company reported
a 2.9% year-on-year drop in net profit to NOK43.3 billion.
Adjusted for currency effects and items,
StatoilHydros underlying net operating income in the
32
COMPANIES
quarter fell to NOK43.7 billion, down 3% from NOK45.1
billion, beating consensus estimates by about 10%.
The decrease in adjusted earnings was mainly due to
an increase in overall operating expenses and a drop in
prices of liquids, partly offset by an increase in both
prices and volumes of natural gas, Statoil said.
I am pleased with what our people achieved in
2008, CEO Helge Lund said in a statement.
StatoilHydro is well positioned to manage through the
global economic downturn. A strong balance sheet and
active cost management will enable us to pursue our
long term strategic direction.
In the fourth quarter of 2008, StatoilHydro delivered
total liquids and gas entitlement production of 1.857
million barrels/day of oil equivalent, up 2% from the
1.818 million boe/d in the fourth quarter of 2007. Total
equity oil and gas production rose by 3% year on year to
2.023 million boe/d. Meanwhile, total equity production
of liquids and gas in 2008 was 1.925 million barrels of
boe/d, up 5% from 2007.
The increase in entitlement production mainly stems
from ramp-up in production from new fields coming on
stream, and was only partly offset by maintenance
activity, shutdowns and declining production from
maturing fields, the company said. The company
reiterated its 2009 equity production target of 1.95
million boe/d as well as its 2009 capital expenditure
budget of $13.5 billion. Statoil said its proved reserves
at the end of 2008 stood at 5.584 billion boe,
compared to 6.010 billion boe at the end of 2007, a
decrease of 426 million boe.
US Constellation loses $1.4bn
Constellation Energy reported a loss of $1.4 billion in
the fourth quarter, compared with a profit of $258
million in the fourth quarter of 2007. Much of the loss
was attributable to merger expenses and related items
associated with it scrapping a merger with MidAmerican
Energy Holdings and accepting a deal in which EDF
Development gains a 50% interest in Constellations
nuclear assets.
The company lost $7.75/share in the fourth quarter,
compared with a gain of $1.42/share in Q4 2007. The
Baltimore-based parent of Baltimore Gas and Electric
and wholesale and retail supply assets did not meet
Wall Street analyst expectations, with a consensus
estimate of $1.24/share compiled by Thomson One
Analytics. For all of 2008, Constellation reported a loss
of $1.314 billion, or $7.34/share, compared with net
income of $821.5 million, or $4.50/share in 2007.
The rapid deterioration of the global credit and
financial markets, coupled with one of the most volatile
commodities markets in our history, made 2008 an
extremely challenging year for our company, the CEO of
Constellation Mayo Shattuck said. The company made
several moves to improve its balance sheet and reduce
its commodity businesses, including selling some trading
assets and entering into a more desirable merger with
EDF. Unfortunately, these necessary steps came at the
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 NEWS
expense of significant near-term losses and earnings
dilution, Shattuck said.
Electricity deliveries were down to 7.58 TWh in the
fourth quarter, compared with 7.77 TWh in the fourth
quarter of 2007. Gas distribution volumes were down
slightly to 34.05 million Dt in the fourth quarter
compared with 34.33 million Dt in Q4 2007.
BP gives Dudley the Americas, Asia
BP has appointed the former head of its Russian venture
TNK-BP Robert Dudley as managing director for BPs
Americas and Asia business. Dudley, who led TNK-BP
from 2003 to 2008, will join BPs board in his new
position with effect from April 6, BP said.
All of us in BP will benefit from Bobs extensive
experience. During his time at TNK-BP he improved the
companys governance and its safety and environmental
performance while greatly increasing reserves and
production, BP CEO Tony Hayward said.
Dudley stepped down as head of TNK-BP last year as
part of a key request made by TNKs Russian
shareholders AAR in a months-long bitter conflict with BP
over control of the venture.
The dispute forced Dudley to leave Russia at the end
of July due to sustained harassment, BP had said.
Dudley was having problems over his work visa, with TNK-
BPs Russian shareholders claiming he had no valid work
contract as required by Russian migration authorities.
Prior to joining TNK-BP, Dudley served as the group
vice president responsible for BPs upstream businesses
in Russia, the Caspian region, Angola, Algeria and Egypt.
He was previously the group vice president for BPs
Renewables and Alternative Energy activities within the
Gas, Power & Renewables stream in London, with
responsibilities for BPs global solar business and wind
and hydrogen activities.
UK Centrica profit rises 45%
UK-listed gas and power supplier Centricas adjusted
net profit for the second half of 2008 rose 45% on the
corresponding period of 2007 to 487 million
($694.19 million). Sales rose to 11.4 billion from
7.7 billion the previous year.
But including mark to market re-measurement of
trading activities, the company made a net loss of 1.9
billion in H2 2008 compared with a profit of 500
million in H2 2007. Wholesale gas prices plunged in H2
2008 which would have altered the value of the
companys energy trades. For the full year 2008, the
company made a profit before re-measurements of 904
million, down 20% from the previous year. The financial
performance in 2008 was good despite a much tougher
environment, Centrica chief executive Sam Laidlaw said
in a statement. Strong progress was made against the
strategic priorities the company set out at the start of
2007, he said. British Gas Residential profits slipped to
379 million, down from 571 million in 2007.
33
COMPANIES
Whilst the overall economic climate in 2009 is
clearly very challenging, the operational and structural
progress we have made over the last two years has
strengthened the Group and positioned us well to
continue to invest for our customers and our
shareholders, Laidlaw said.
Centrica said that the year started well alongside
higher demand. But upstream, the falling gas price was
having a negative impact on gas production and storage,
and lower spark spreads were impacting the power
generation business.
Production up, storage down
Centricas operating profit from gas production rose to
1.164 billion from 429 million in 2007. Gas sales
rose by 7% to 2.418 billion therms as Morecambe
produced consistently and the Rose and Statfjord fields
produced more. In total hydrocarbon volumes increased
by 8% to 46.8 million barrels of oil equivalent. The
average gas selling price achieved rose from 30.4 p/th
to 59.1p/th. Storage made an operating profit of 195
million, down 19% on the year, from revenue of 280
million which was down 14%, mainly owing to reduced
seasonality and the lower price of a standard bundled
unit: 43.8p, compared with 57.4p in 2007. This was
partly offset by 26 million from the sale of cushion gas
in the last quarter of the year, although this did result in
lower additional space sales and fewer gas optimization
opportunities. Trading arm Accord saw its profits almost
quadruple from 9 million in 2007 to 37 million.
Cadogan falls on Ukraine woes...
Shares in UK-listed Cadogan Petroleum, which is
developing a number of gas fields in Ukraine, continued
to be battered late February. A Ukraine court cancelled a
decision in favor of Cadogan by a previous court
regarding the validity of its Pirkovskoe field license.
Cadogan's shares fell February 27 to 4.5p/share,
having already lost almost half their value in late trading
the previous day. Cadogan has been involved in a long-
running dispute over the validity of its Ukraine licenses.
In September, Cadogan said it had won its appeal to
overturn the Poltava courts cancellation of its licenses
but on February 25, the Higher Administrative Court of
Ukraine canceled the September resolution and upheld
the June resolution of the Poltava court, Cadogan said.
...but better news for Regal
UK upstream junior Regal Petroleum said February 27 it
is close to securing an additional $100 million bank
loan from Macquarie to fund ongoing development
drilling in its Ukrainian gas fields. Regal, which holds
licenses to develop two large gas fields in Ukraine, has
cash of $88 million enough to complete the drilling of
the ongoing MEX-106 and SV-58 development wells and
helpfund further wells.
The company said it expected that the two wells will
each take half the time of previous wells, and will allow
a "significant" increase in production from its gas fields.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 MARKET FOCUS
Japanese long-term import prices to fall further as oil feeds in
Japanese LNG long-term contract prices have yet to
reflect the full force of 2008s plunge in global crude
oil prices as a result of lags built into contract
formulae, an analysis of data from Japans industry
ministry shows.
Utilities in Japan tend to import LNG under long-
term contracts that are linked to the price of crude
oil, but use the locally-published Japan Customs
Cleared price for oil, published by METI to calculate
the price payable.
The JCC is a volume-weighted average price that tends
to lag global crude prices by around a month. It is a
physical import price of cargoes which will often have
been traded several weeks before.
The JCC crude price hit its all-time peak of
$135.18/barrel in August 2008, a month after Dated
Brent and other global oil contracts hit their highs.
Since that time it has steadily declined, in line with
oil prices elsewhere, reaching $54.85/b in
December, its lowest level since December 2005,
and down 59.4% from its high.
There is a similar JCC price for LNG which reflects
the actual prices paid for imported cargoes. Most of
those cargoes are imported under long-term
contracts using oil-indexed formulae, but the price
reflects all cargoes so includes spot purchases,
while the formulae themselves vary fairly widely.
In contrast to the JCC crude price, the JCC price for
LNG only hit its all-time high in November 2008, three
months after the JCC, at $15.06/MMBtu. The
following month, it dropped 11.4% to $13.35/MMBtu,
but that still leaves significant room for it to catch up
with the magnitude of the drop in oil.
Although the exact formulae used in long-term contracts
are confidential, utility traders say they tend to take an
average of three months of the JCC, lagged by a month.
So the contract price for January reflects the JCC oil
prices published for September, October and November.
Effect of JCC price on LNG term prices
($/barrel)
150
JCC Crude
120 JCC LNG
Notional Term Formula
90
60
30
Feb-04 Nov-04 Aug-05 May-06
Source: Platts
34
That would mean that contract LNG prices are likely to
continue falling fairly rapidly until at least April.
The formulae themselves reportedly include a slope,
linking the price to oil, and a separate, fixed constant.
The slope and constant also change to minimize the
effects of very low and very high prices for oil,
creating an s-curve. This has disappeared from some
contracts lately although with oil prices now low, this
phenomenon is of less interest.
Most formulae reportedly shift to a gentler slope at oil
prices above the 30s, meaning that most have likely
been using that version of the formulae for some time.
Although the formulae vary significantly between
contracts, historic data can be used to give a rough
idea of what an average formula would look like, for
oil prices above about $30/barrel.
Using published JCC crude and LNG prices since
2004, a slope of about 0.11 and a constant of about
1.25 gives a fairly good fit.
Using those figures, average long-term LNG contract
prices are likely to drop to around $12.10/MMBtu for
January, just under $10/MMBtu for February, and
about $7.60/MMBtu in March. (see graph)
Assuming JCC crude prices of $40/b for February and
March, then LNG contract prices could stabilize at
about $6/MMBtu from April.
For sellers, it then makes more sense to keep
supplying cargoes under term contracts rather than
shifting to the cheaper spot market (see map overleaf).
However, with demand falling and more supplies coming
online, the likelihood of excess cargoes is growing.
For Japanese power companies to take those excess
cargoes, the spot price would have to be under the
fuel oil price, to encourage fuel switching. Current fuel
oil prices are around $277/mt for a CIF Japan cargo,
which equates to $6.93/MMBtu. Jonty Rushforth
($/MMBtu)
20
15
10
5
0
Feb-07 Dec-07 Sep-08 Jun-09
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 CONTRACTS AND TENDERS
CONTRACTS AND TENDERS
Indias Gail seeks linepipe for gas pipeline
Mecon on behalf Gail invites bids on international
competitive bidding basis for supply of 20 inch NB C.S bare
linepipe for the Jhajjar-Hissar Gas Pipeline Project. Bid
deadline is April 3, 2009 with a pre-bid conference
scheduled for March 6. Contact: Deputy General Manager
I/C (Contracts) at Mecon. Tel: +91 11 22401129
Fax: +91 11 22041214 Email: mecondly@bol.net.in
Pipeline laying, and metering system
Gail is also seeking e-bids, via Suez-Tractebel for pipeline
laying and associated works for the 610 kilometer 48 inch
diameter Dahej-Vijaipur Pipeline Project. The deadline for
this is April 14, 2009, with a pre-bid meeting scheduled for
March 17. Suez is separately seeking bids, for Gail, for the
supply of a USM-based metering system. The deadline for
this is April 8, with pre-bid meeting scheduled for March 10.
The contact for both tenders is: Project Manager (DVPL-11)
Tel: +91 11 47012200 Email: pmdvpl@tractebleindia.com
Gail seeks LNG for Dabhol terminal
Indias Gail is separately seeking expressions of interest for
the supply of liquefied natural gas on a long-term basis for
Ratnagiri Gas & Powers LNG terminal at Dabhol in
Maharashtra state. Expressions of interest should include
volume of LNG available for long term tie up with Gail,
possible period of contract, LNG project from which this
volume will be sourced and role of the party in that project.
No deadline has been set: Contact: Rajeev Mathur.
Tel: +91 11 41455528 Fax: +91 11 26185941.
Email: igsingh@gain.co.in
Italian provincial council seeks gas supplies
Provincia di Pistoia, a provincial government authority in
Tuscany, north west Italy, has published a call for tenders
for gas supplies. Full details of the contract and additional
documents, including for a competitive dialogue and a
dynamic purchasing system) are available upon request. The
deadline for tenders or requests to participate is 12 pm
CET on March 6, 2009. Bids or requests for more
information should be sent, in Italian, to Maurizio Bardini.
Tel: +39 573374252. Fax: +39 573374290. Email:
mbardini@provincia.pistoia.it. www.provincia.pistoia.it.
Mexicos Pemex invites bids for cryogenic plant
Mexico's Pemex seeks bids for the construction of a
200,000 Mcf/d-capacity cryogenic plant at its gas
processing center at Poza Rica in the southern Gulf state of
Veracruz. The natural gas to be processed will come from
the onshore Chicontepec development, where Pemex has
recently tendered for the drilling of some 1,000
development wells.The turnkey project must be designed so
that ethane recovery will be possible in the future, Pemex
said. Bids are due March 12. Work on the project is
expected to start May 14. Pemex did not give an estimated
cost for the project. Cryogenic plants are used to chill gas
and extract natural gas liquids. Visit: www.pemex.com.
35
Spains Regasnosa contracts for gas
Spanish LNG regasification company Regasnosa has
published a call for tenders for gas supplies. Specifications
and additional documents (including documents for
competitive dialogue and a dynamic purchasing system) are
available upon request. The deadline for requests for
documents is February 21, 2009, and the deadline for bids
or requests to participate is March 10 2009. Bids or
requests for more information should be sent, in Spanish
to: Begona Guerra Rodriguez. Tel: +34 981575244. Fax:
+34 09123000. Email: guerra@incis.net.
Dutch leisure company seeks gas, power supplies
Dutch sports and leisure services company SRO seeks
tenders for natural gas and electricity supplies to its
premises in Amersfoort. Additional documents, including
documents for a competitive dialogue and a dynamic
purchasing system are available upon request. The deadline
for tenders or for requests for information is March 23.
Tenders or requests for more information should be sent, in
Dutch, to Ragna Schapendonk. Tel: +31 334225110. Fax:
+31 334615025. Email: rschapendonk@sro.nl.
Spanish environmental body seeks gas supplies
Sogama, the environmental agency owned by the Galicia
regional government in northwest Spain has published a call
for tenders for gas supplies. Further information and
additional documents are available upon request. The
deadline for bids or requests to participate, which should be
sent, in Spanish or Galician, is 1 pm CET on March 5,
2009. Tel: +34 981588938. Fax: +34 981588938.
Email: mar@sogama.es.
Italian municipality contracts for gas
The municipality of Tolmezzo in Italy seeks offers for gas
supplies. Further information is available on the
municipalitys website at: www.comune.tolmezzo.ud.it.
Documents for a competitive dialogue and dynamic
purchasing system are available upon request. The deadline
for bids or requests to participate is 12:30 pm CET on
March 3, 2009. Bids or requests for further information
should be sent, in Italian, to Dr. Salamone Francesca at the
Ufficio Contratti e Acquisit. Tel: +39 4334 4900. Fax : +39
43344910. E-mail: cc.tolmezzo@giustizia.it.
UK social housing group seeks gas supplies.
Eldon Housing Association, a social housing provider seeks
gas tenders for gas supplies to five sites in southeast
England. A full buyer profile is available online at:
http://www.mytenders.org/search/Search_AuthProfile.aspx?
ID=AA4042. Specifications and additional documents are
available upon request. The deadline for tenders or
requests to participate is 12pm GMT on March 19, 2009.
Tenders or requests for more information should be sent, in
English, to David Rasey at the Monarch Partnership.
Tel: +44 2088353535. Fax: +44 2088353536.
www. monarchpartnership.co.uk.
INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009
 EVENTS

EVENTS

Global LNG & LPG logistics Queensland LNG Developments

March 4-5, 2009 March 26,2009
Rotterdam, Netherlands Brisbane, Queensland, Australia
Organizer: Vibe Energy Events Organizer: IIR Conferences
Tel: +44 (0)207 753 4268 Tel: +61 (0) 2 9080 4090
Email: events@vibevents.com Email: info@iir.com.au
www.vibenergy-events.com www.iir.com.au/qldlng

Flame Energy in Eastern & Central Europe

March 9-13, 2009 March 30-31, 2009
Amsterdam, Netherlands Prague, Czech Republic
Organizer: ICBI Organizer: Marketforce
Tel: +44 (0) 20 7017 7200 Tel: 44 (0)20 7760 8699
Email: info@icbi.co.uk Email: conferences@marketforce.eu.com
www.icbi-flame.com www.marketforceeu.com/energycee

Turkish International Oil & Gas conference 3rd Annual Rockies Gas & Oil
March 11-12, 2009 April 16-17, 2009
Ankara, Turkey Westminster, Colorado, USA
Organizer: ITE Exhibitions Organizer: Platts
Tel +44 (0) 207 596 5008 Tel: +1 781-430-2105
Email: vg@ite-exhibitions.com Email:cynthia_rugg@platts.com
www.turoge.com www.platts.com/Events

IV Euro Mediterranean Energy Forum Oil & Gas Outlook Brasil

March 11-13, 2009 May 11-13, 2009
Barcelona, Spain Rio de Janiero, Brazil
Organizer: Enerclub, Spain Organizer: Terrapinn
Tel: +91 323 03 89 Tel: +1 212 379 6320
Email: inscripciones@enerclub.es Email: michael.weinberg@terrapinn.com
www.enerclub.es www.terrapinn.com/2009/brasiloil/

Towards Energy Independence (India) 2nd Annual Iraq Oil & Gas Summit
March 12-14, 2009 May 13-14, 2009
New Delhi, India Houston, Texas, USA
Organizer: Ecoseminars Organizer: New Fields Exhibitions
Tel: n/a Tel: +1 202 536 5000
Email: ecoseminar2003_association@yahoo.co.in Email: inquiry@new-fields.com
ecoseminar2003_association@yahoo.co.in http://new-fields.com/2ndIOGS/

Middle East Oil & Gas show and conference CSM and CMM conference & exhibition
March 15-18, 2009 May 25, 2009
Manama, Bahrain Brisbane, Queensland, Australia
Organizer: Arabian Exhibition Management Organizer: IIR Conferences
Tel: + 973 17 55 00 33 Tel: +61 (0) 2 9080 4090
Email: fawzi@aeminfo.com.bh Email: info@iir.com.au
www.aeminfo.com.bh www.csmsummit.com.au

Global Oil & Gas Pipeline Congress Oil & Gas Outlook LatAm Conference
March 18, 2009 October 2009
Beijing, China Houston, Texas, USA
Organizer: ARA International Conferences Organizer:Terrapinn
Tel: +86 21 6652 3700 ext 3695 Tel: + 1 646 619-1786
Email: energydialogue@araworldwide.com Email: +1 646 619-1786
www.globalpipelinecongress.com www.terrapinn.com/2009/latoil

36 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 DATA

Global gas market wallows in oversupply

Asia
Asian spot LNG prices continued their steady decline
in the last fortnight of February, as demand fell there
and in Europe. Platts' April Japan Korea Marker was
assessed at 6.30/MMBtu February 16, but had
fallen to just $5.00/MMBtu two weeks' later. Trades
dealt at higher than $10.00/MMBtu had been heard
in January, when the last signs of regional demand
were still visible, with reports of cargoes delivered
into Korea and China.
With some utilities preparing for the start of their
annual delivery program in April and the chance
to revise their nominations downwards, contract
offtakes could fall by up to 10% and add to the
oversupply.
Australian producer North West Shelf was said to
have already offered a strip of six cargoes for the
summer in a closed tender and further offers were
expected due to healthy production levels.

But prices declined as it became clear that US

Japanese buyers would not be looking for short-
term supplies for several months to come. Power
demand in Japan plummeted as the country's
recession hit.
One Korean buyer was in the market in late February
for a mid-March delivered cargo, taking advantage of
a gap in local terminal capacity and the drop in spot
prices. That company was said to be looking at a
price around $5.00/MMBtu. That was the only sign
of firm demand in north Asia, and kept the H2 March
assessment price firmer than April, at a premium of
just under 50 cents.
Bears tightened their grip on both the spot and
futures markets, as traders wrestled with ample
supplies of gas, a dwindling number of winter days
on which to burn that gas, and what appeared to be
fewer and fewer consumers. Bursts of winter weather
provided only minimal support to spot markets and
had little to no impact on futures.
The March NYMEX gas futures contract hit its
highest close of the fortnight on February 12, at
$4.485/MMBtu. The Presidents' Day holiday on
February 16 did nothing to restore the contract's
strength; instead, the contract sank toward its

Gas price snapshot February 25, 2009 $/MMBtu

$5.01 $9.87
$4.96 Dutch TTF Japanese customs cleared

Algonquin

$3.26 $5.05 $8.57 $5.50*

UK NBP Japan
Italian PSV
So Cal

$7.60*
China
EUROPE
U N I T E D S TAT E S ASIA

$5.59 $5.50*
$4.10 Germany EGT South Korea
Nymex Henry Hub
$6.70*
India

Exchange rates
* Indicative. This is a developing market where there is not yet sufcient
$1 = 0.69 liquidity for Platts to conduct a full assessment
1= $1.28
All prices are front month except for Japanese customs cleared

Source: Platts

37 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 DATA

US vs UK gas futures $/MMbtu $4.00/MMBtu support, slipping briefly below it

on February 20.
8

7
US Hen Hub UK NBP The March contract expired at $4.056/MMBtu on
February 25, and the April contract spent its first
6 morning a few cents above its previous
$4.029/MMBtu close.
5

4
Colder weather briefly boosted prices at certain
Northeast, Rockies and Gulf Coast pricing points.
3 But in line with this season's patterns, none of
15-Apr 15-Jun 15-Aug 15-Oct 15-Dec
those points could sustain higher prices for long.
In the Rockies, Colorado Interstate Gas and
Source: Platts European Power Alert / Platts Gas Daily
Northwest Pipeline's south of Green River station
each settled below $3.00/MMBtu on February 18
US gas: Henry Hub front month $/MMbtu and by February 25, many Rockies points had
fallen closer to $2.50/MMBtu.
* equivalent period
10
An explosion at the DCP Midstream East Texas
9
gas-processing complex on February 11 kept the
8 Carthage Hub trading point in Louisiana shut
Mar 09 Feb 09* Mar 08*
7 down for several days, impacting dealmaking on
6 several area pipelines. Carthage returned to
5
some limited trading on February 24, with prices
averaging in the $3.30s/MMBtu.
4

3 The US Energy Information Administration reported

13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
gas storage withdrawals of 24 Bcf during the week
Source: Platts/NYMEX
ending February 13 well below expectations
and 101 Bcf during the week ending February 20,
within expectations. Storage supplies now hold a
US gas: Transco zone 6 front month $/MMbtu 233 Bcf surplus compared to a year ago, and a
* equivalent period 199 Bcf surplus to the five-year average.
11

10 UK NBP
UK gas contracts for delivery at the National
9
Balancing Point all lost value over the last
8
fortnight of February. Day-ahead prices, which
7 Mar 09 Feb 09* Mar 08* started off at around 46.5 p/therm on February
6 12, ended the two-week period significantly lower
5 at 35 p/th, with some traders expecting it t go
below 30 p/th.
4
13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
Source: Platts Gas Daily The downward run on the day-ahead was broken only
once on 16 February, when it rose from 39 p/th to
around 43 p/th. Outages at Bacton Seal cut UK
US gas: Chicago front month $/MMbtu supply and restarted heavy withdrawals from Rough
storage, helping to push day-ahead and March back
above 40 p/th.
* equivalent period
10
The second-quarter contract kept time with day-ahead
9
movements. It which started off at 41 p/th on
8
February 12, settled at around 35 p/th by February
Mar 09 Feb 09* Mar 08*
7 25. Day-ahead, March and the Q2 all converged at
6 35 p/th by February 25.
5
Unusually warm temperatures in the UK throughout
4
the last two-week period helped push demand
3
13-Feb 17-Feb 19-Feb 23-Feb 25-Feb further below seasonal levels to around 327 million
cubic meters/day by 26 February, 23 million cu m/d
Source: Platts Gas Daily below seasonal norms.

38 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 DATA

The overall healthy supply picture was checkered with US Gas: So Cal front month $/MMbtu
several outages affecting flows into Britain. Bacton * equivalent period
Seal suffered cuts as did Norway's Langeled 9
pipeline, due to ongoing repair work at Kollsnes,
8
cutting export capacities by around 18 million cu
m/d to 125 million cu m/d. Interrupted deliveries by 7

pipe were somewhat counter-balanced with greater 6 Mar 09 Feb 09* Mar 08*
shipments of LNG into Isle of Grain, which led to
5
confidence in flexibility of supply. Amid weakening
gas demand, Centrica turned off Barrow South. 4

3
StatoilHydro's decision to redirect gas flows away 13-Feb 17 Feb 19-Feb 23-Feb 25-Feb
from the UK to Germany rallied the prompt briefly, as
Source: Platts Gas Daily
it took gas to a higher-value market.

Netherlands TTF Henry Hub vs WTI Crude

Gas prices at the Dutch TTF hub during February 12
($/MMBtu) ($/bbl)
26 saw a gradual weakening of prices. Demand 4.6 42.0
for gas was largely driven by fundamentals. Within Hen Hub M+1
4.5 40.5
the period the prompt saw day-ahead trading as WTI M+1
high as 18.90/MWh on February 12 on the back 4.4 39.0
of milder weather and supply confidence. The day- 4.3 37.5
ahead contract continued to weaken during the
4.2 36.0
next two trading sessions, trading at 15.45/MWh
on February 16. 4.1 34.5

4.0 33.0
The contract then strengthened again over a brief 13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
period, gaining a Euro to reach 16.45/MWh on
Source: Platts/NYMEX
February 18. The short rally was due to an outage at
the Norwegian Heimdal platform in the North Sea
and subsequent supply cuts into the UK and UK gas: NBP front month $/MMbtu
Continental Europe.
* equivalent period
10
The trading sessions between February 18 and 25 Mar 09 Feb 09* Mar 08*
again saw the prompt trading downwards, breaking
under 15 MWh on February 20 to trade at 8
14.80/MWh its lowest level since September
2007. This trend continued and on February 25 day-
ahead was priced below March at 13.30/MWh. 6

On the near curve, prices largely followed

developments on the prompt. In the period the front 4
13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
month March contract peaked on February 12 to
trade at 17.75/MWh and reached its lowest level Source: Platts European Power Alert
on February 23, at 13.45/MWh. The far curve
largely tracked crude oil, but was reported to have
followed the prompt during its heavy sell-off period. Dutch gas: TTF front month $/MMbtu

Germany EGT, BEB

* equivalent period
German gas hubs saw prompt prices fall to 17- 10
month lows in late February, as the BEB and EGT Mar 09 Feb 09* Mar 08*
hubs mirrored the price plunge seen across
northwest Europe. 8

Dropping to around 15/MWh for EGT day-ahead and

March gas, prices had not been so low since early 6
September 2007. Prices had been stuck above
20/MWh for almost the entirety of 2008.
4
13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
The physical supply situation has looked healthy in
late February, with a lack of major offshore outages, Source: Platts European Power Alert

39 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 DATA

Zeebrugge Q4 gas vs Dated Brent Crude and demand lower owing to the economic recession.
And oil has been dropping since July 2008. Although
($/bbl) ($/MMBtu) the gas contracts have a six to nine-month time lag,
46 7.6
that is now feeding into expectations of pricing for
45 Zeebrugge Brent 7.5 daily and month-ahead gas.
44 7.4
Day-ahead EGT gas had been twice this level, almost
43 7.3 30/MWh in mid January 2009, at the height of the
42 7.2 Russia/Ukraine gas crisis.
41 7.1
On February 26 EGT June traded at 14.25/MWh,
40 7.0 Q3 at 13.50/MWh and summer 09 at
13-Feb 17-Feb 19-Feb 23-Feb 25-Feb
13.85/MWh. Cal 10 at the EGT was quoted at
Source: Platts Global Alert
19.70-20.65/MWh.

UK-Belgium interconnector flows GWh Italy PSV

Milder weather, ample supply and high prompt gas
250 price levels combined to depress trading at Italys
PSV gas trading hub over the fortnight.
200

150 At the end of the second week of February day-ahead

100 was holding steady at 27.00/MWh, making it easily
the highest priced prompt gas at any of the European
50
hubs, when the same contract at the Dutch TTF was
0 priced at half that.
-50
11-Feb 13-Feb 15-Feb 17-Feb 19-Feb 21-Feb 23-Feb 25-Feb At the same time, March was lower, around
23.00/MWh, having followed the rest of Europe
Source: Interconnector, UK
down. Though the price was more attractive for
buyers, they chased too few sellers.
European fuels vs C02 index
What is keeping these prices up is the strength of
Year-ahead CO2 Power Germany Year-ahead the Eni gas release price formula, one factor in which
Bunde TTF year-ahead Coal 90-day CIF ARA
is the oil price of nine months ago, and to which the
500
(15 Feb, 2005 = 100) majority of Italian long-term gas contracts are
400 indexed. It currently works out to 34 Euro cent/cubic
meter or around 32.00/MWh.
300

200 Stogit data showed that current projections by

storage users indicated national storage would
100
be 17.9% full by March 31, containing 1.51
0 billion cubic meters.
Feb-05 Feb-06 Feb-07 Feb-08 Feb-09

Source: Platts Emissions Daily France PEG Nord

Day-ahead at the French hub PEG Nord fell sharply on
February 20 in line with prices at other larger
Japan customs cleared $/MMbtu European gas hubs. PEG Nord day-ahead gas was at
around a Eur1.30/MWh premium to TTF gas at
midday, heard trading at Eur16.20/MWh. That was
Eur1.85/MWh down from the previous session. Front
25
month was more stable than day-ahead at PEG Nord,
with March losing only around Eur0.40/MWh day-on-
22 Fin CIF Est CIF
day at PEG Nord at close.

19 Prompt gas at PEG Nord stabilized by February 26,

after around a week of bearishness, while the curve
16 strengthened. Day-ahead at PEG Nord was heard
trading flat to the previous day at Eur14.50/MWh at
13
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08
12:00 GMT. The front month was heard trading at
Eur15/MWh at close, up Eur0.80/MWh from the
Source: Platts LNG Daily same time the previous day.

40 INTERNATIONAL GAS REPORT / ISSUE 618 / MARCH 2, 2009

 Buy it Now!
Visit www.udi.platts.com to view
all of Platts UDI directories.

Its not just who you know, its how you find them.

Available Now!
The 2009 UDI Whos Who at Electric Power Plants Directory

Accept no substitutes, buy the original!

The 2009 UDI Whos Who at Electric Power Plants Directory is shipping now.

Getting to the right person is critical for the success of your sales, marketing, and research efforts in the electric power industry.
You cant afford to waste time or resources trying to figure out who that person is.

The UDI Whos Who at Electric Power Plants Directory is the industrys leading resource for identifying contacts at thousands of
power plants in North America. You get up-to-date, accurate information to reach your target, plant-level audience.

The 2009 edition of the UDI Whos Who at Electric Power Plants Directory covers nearly 3,700 U.S. and Canadian generating
plants and includes:

8,500 plant management and support contact names, titles, and primary job functions
Power plant design characteristics
Basic plant operating statistics for 750 power stations including generation (MWh), availability (%), heat rate,
and capacity factor (%).

Ready to reach the right people? Purchase the UDI Whos Who at Electric Power Plants today or contact Platts directly!

Because smart business decisions Call 1-800-PLATTS8 (toll-free) +1-212-904-3070 (direct)

are based on reliable information or email support@platts.com for more information.