MENU

Santos and BG Group’s gas deal

Santos Limited (ASX:STO) has agreed to share gas infrastructure with BG Group, as the oil and gas majors attempt to cut costs.

Santos’ Gladstone LNG project and BG Group’s QCLNG projects will link their major pipelines in central Queensland as well as on Curtis Island, off the coast of Gladstone, to reduce costs and risks. Both multi-billion dollar projects are within hundreds of metres of each other, and a similar distance away from Origin Energy’s (ASX:ORG) Australia Pacific LNG project. All three projects have been criticised for failing to consolidate their operations and cooperate to reduce the giant capital costs.

With all three developing their own infrastructure, this has led to the duplication of infrastructure such as jetties, pipelines, as well as the actual processing plants. Santos boss David Knox is reported to have estimated that each venture could have saved more than $1 billion through consolidation.

The agreement is expected to be the first of many, and will allow both BG Group and Santos to run their LNG plants at maximum efficiency, with the pipeline connections allowing gas to flow from one project to the other when necessary, according to Santos’ Rod Duke. LNG plants are shut down occasionally for planned maintenance.

News reports also suggest BG Group is negotiating similar agreements with Origin and its APLNG project.

Santos’ GLNG project, in which it owns 30%, is expected to come on stream in 2015, while BG Group’s QCLNG is expected to ship its first LNG in 2014. Santos also has a 13.5% share in Oil Search’s (ASX:OSH) PNG LNG project, which is on track for first production in 2014.

While news reports have suggested that US shale gas looms as a threat to Australia’s LNG exports, long-term offtake agreements have already been signed for much of the LNG to be produced.

Foolish takeaway

The deal makes sense, but investors may be wondering why the companies developing three separate LNG plants on a single island off Gladstone didn’t collaborate from the start. At least the companies seem to have acknowledged the need to work together now.

Oil prices are set to rise dramatically over time. With limited supply — recent estimates suggest we only have enough oil to last 40 years — and growing demand from quickly expanding economies like India and China, oil prices can’t help but go up. Position yourself to profit from this trend now, with The Motley Fool’s brand-new FREE research report, 3 Oil Stocks to Send Your Portfolio Gushing Higher. Click here now, it’s FREE!

More reading


Motley Fool writer/analyst Mike King owns shares in Santos and Origin.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.