BG Group to Sub Egypt with Qatari LNG Supplies

on Jul 29, 2013
Listen, Monday, July 29th: UK natural gas producer BG Group Plc (LON:BG) has reported that it will rely on Qatari supplies of liquefied natural gas (LNG) to counter lower export volumes from Egypt, with authorities there diverting gas produced by the British company to the cheaper domestic market. BG

Group’s share price which closed marginally higher on Friday fell in early morning trading in London today.
**Qatar to Supply Liquefied Natural Gas**
BG Group said on Friday that it would be taking two of five Qatari LNG shipments between July and mid-September following an agreement between Qatar and Egypt. In addition, talks between the two countries could result in up to eight more shipments being supplied to the company.

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BG Group chief executive Chris Finlayson described Egypt’s deal with Qatar as a “positive development” and said that the company “would clearly welcome” additional shipments. Last year, Egyptian gas accounted for about a fifth of BG Group’s production and 15 percent of earnings.
The Times quoted the UK natural gas supplier as saying that the two Qatari LNG shipments would offset the loss in Egyptian product and would ensure performance of the company’s supply obligations. The terms of the agreement between Egypt and Qatar are not known, though it’s understood that BG Group won’t be paying for transportation.

As The Times reported, BG Group had a deal with the recently-ousted Egyptian government under which the amount of gas allocated for domestic use would not increase before September this year. The government had also promised that it would reduce the amount diverted for domestic consumption in the fourth quarter, but BG Group has so far been unable to confirm whether either agreement will be honoured by the new regime.

CEO Finlayson reported in the company’s second-quarter results statement, that while offshore operations continued unaffected as a result of the regime change, higher than agreed gas volumes were being diverted into the cheaper domestic market, impacting the volumes available for LNG export. He noted that while the Egyptian LNG plant continued to operate, production was down.

**Investment Concerns**
The Times quoted Jefferies analyst Brendan Warn as describing Egypt as “BG’s No 1 concern at the moment”.
“No one knows how long this situation will last,” he added.
!m[Egyptian Authorities Diverting BG Group-Produced Gas to Domestic Market](/uploads/story/4397/thumbs/pic1_inline.png)
BG Group reported that at the end of the second quarter it was owed $1.3 billion (£846 million) by the state-owned Egypt General Petroleum Corporation for the gas sold onto the domestic market. While the company was pressing ahead with a $1.5 billion programme to develop its offshore field, it warned that “given the current situation in Egypt, the group’s investment programme is under continuous review”.
The book value of BG Group’s investment in Egypt, including receivables, accounts for about 12 percent of the company’s net assets.
**BG Group’s share price was 0.17 percent down at 1,188.00p in London as of 08:39 BST on 29 July 2013.**


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