Thursday, February 7, 2008

LNG Project Too Risky for BG Group

BG Group deemed Alaska gas pipeline project too risky for bid

BG Group is the largest importer of liquefied natural gas (LNG) to the United States. This week David Keane, BG Group vice president for corporate and policy affairs explained why his firm did not submit a bid under the Alaska Gas Inducement Act.

In a nutshell the oil and gas business is a business. Keane gave several reasons but the chief reason was the uncertainty of the LNG selling price. LNG sells for a premium in Asia, and there is no guarantee the export licenses would be granted to export Alaskan LNG to Asia.

Without an export license qualified companies can't justify an Alaskan LNG project because they would not be free to ship Alaskan LNG to the highest bidder.

The current value of LNG ranges from $19/MMBTU in Japan to less than $8/MMBTU on the Gulf Coast. At the high end of the price range a Alaska Natural Gas Pipeline would almost build itself!

In retrospect the Alaska Gasline Inducement Act (AGIA) offer of a $500 Million inducement is was extremely naive. The can-do firms like ConocoPhillips, BG Group, and TransCanada don't want or need a big check. These are competent firms that know how to earn revenue. They have thier own list of "must haves" that the AGIA process managed to avoid.

All the discussion can be boiled down to economic certainty. $500 Million may sound like a whole lot of money, but it would evaporate if you engaged in the business of selling 4.5 Billion cubic feet per day of natural gas at a loss.

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