BP 2011 Annual Report Download - page 90

88 BP Annual Report and Form 20-F 2011
Business review
Midstream activities
Oil and natural gas transportation
The group has direct or indirect interests in certain crude oil and natural
gas transportation systems. The following narrative details the significant
events that occurred during 2011 by country.
BP’s onshore US crude oil and product pipelines and related
transportation assets are included under Refining and Marketing (see
page 94).
Alaska
BP owns a 46.9% interest in the Trans-Alaska Pipeline System (TAPS),
with the balance owned by four other companies. The TAPS transports
crude oil from Prudhoe Bay on the Alaska North Slope to the port of
Valdez in south-east Alaska. BP also owns a 50% interest in a joint venture
company called ‘Denali – The Alaska Gas Pipeline’ (Denali).
• On 16 May 2011, Denali announced that its open season efforts did not
result in the commitments necessary to continue work on the Alaska
North Slope gas pipeline project. Denali also indicated that it planned to
close out its operations over the remainder of 2011. As a 50% owner in
Denali, BP, along with co-owner ConocoPhillips, was directly involved
in the decision to terminate Denali’s activities. BP’s focus as an owner
in Denali was to create a viable alternative for the owners of the North
Slope gas resource to commercialize their gas. BP has determined that
the North American natural gas market does not support the project at
this time. The Denali effort marked an important step in advancing the
industry understanding of the gas pipeline opportunity in Alaska. BP will
continue to pursue ways to commercialize our Alaskan gas resource.
North Sea
In the UK sector of the North Sea, BP operates the Forties Pipeline System
(FPS) (BP 100%), an integrated oil and NGLs transportation and processing
system that handles production from more than 50 fields in the central
North Sea. The system has a capacity of more than 1 million barrels per
day, with average throughput in 2011 of 473mboe/d. BP also operates
and has a 36% interest in the Central Area Transmission System (CATS),
a 400-kilometre natural gas pipeline system in the central UK sector of
the North Sea. The pipeline has a transportation capacity of 293mboe/d
to a natural gas terminal at Teesside in north-east England. Average
throughput in 2011 was 39mboe/d. CATS offers natural gas transportation
and processing services. In addition, BP operates the Sullom Voe oil
and gas terminal in Shetland and the Dimlington/Easington Terminals in
Humberside. Dimlington and Easington form part of the southern gas
assets that BP announced its intention to sell in February 2011 (see
Disposals on page 83).
Asia
BP, as operator, holds a 30.1% interest in and manages the Baku-Tbilisi-
Ceyhan (BTC) oil pipeline. The 1,768-kilometre pipeline transports oil
from the BP-operated ACG oilfield in the Caspian Sea to the eastern
Mediterranean port of Ceyhan and has a capacity of 1.2 million barrels
per day. BP is technical operator of, and holds a 25.5% interest in, the
693-kilometre South Caucasus Pipeline, which takes gas from Azerbaijan
through Georgia to the Turkish border and has a capacity of 780mmscf/d.
In addition, BP operates the Azerbaijan section of the Western Export
Route Pipeline between Azerbaijan and the Black Sea coast of Georgia
(as operator of Azerbaijan International Operating Company).
Liquefied natural gas
Our LNG activities are focused on building competitively advantaged
liquefaction projects, establishing diversified market positions to create
maximum value for our upstream natural gas resources and capturing third-
party LNG supply to complement our equity flows. Assets and significant
events in 2011 included:
• In Trinidad, BP’s net share of the capacity of Atlantic LNG trainsa 1,
2, 3 and 4 is 6 million tonnes of LNG per year (292 billion cubic feet
equivalent regasified). All of the LNG from Atlantic train 1 and most of
the LNG from trains 2 and 3 is sold to third parties in the US and Spain
under long-term contracts. All of BP’s LNG entitlement from Atlantic
LNG train 4 and some of its entitlement from trains 2 and 3 is marketed
via BP’s LNG marketing and trading business to a variety of markets
including the US, the Dominican Republic, Spain, the UK, Japan, India
and South Korea.
• We have a 10% equity shareholding in the Abu Dhabi Gas Liquefaction
Company, which in 2011 supplied 5.76 million tonnes of LNG (297 billion
cubic feet equivalent regasified).
• BP has a 13.6% share in the Angola LNG project, which is expected to
receive approximately 1 billion cubic feet of associated gas per day from
offshore producing blocks and to produce 5.2 million tonnes per annum
of LNG (gross), as well as related gas liquids products. Construction and
implementation of the project is proceeding and the plant is expected to
start up in 2012.
• In Indonesia, BP is involved in two of the three LNG centres in the
country. BP participates in Indonesia’s LNG exports through its holdings
in the Sanga-Sanga PSA (BP 38%). Sanga-Sanga currently delivers
around 13% of the total gas feed to Bontang, one of the world’s largest
LNG plants. The Bontang plant produced more than 15 million tonnes of
LNG in 2011.
• Also in Indonesia, BP has its first operated LNG plant, Tangguh (BP
37.16%), in Papua Barat. The asset comprises of 14 producing wells,
two offshore platforms, two pipelines and an LNG plant with two
production trains with a total capacity of 7.6 million tonnes per annum.
Tangguh supplies LNG to customers in China, South Korea, Mexico and
Japan through long-term contracts. BP is currently progressing options to
expand the Tangguh facilities.
• In Australia, BP is one of seven partners in the NWS venture. The joint
venture operation covers offshore production platforms, trunklines,
onshore gas and LNG processing plants and LNG carriers. BP’s net share
of the capacity of NWS LNG trains 1-5 is 2.7 million tonnes per annum
of LNG. BP is one of five partners in the Browse LNG venture (operated
by Woodside) and holds approximately a 17% interest. A greenfield
LNG development at a proposed state government LNG precinct in
the Kimberley region is currently in the early design stage and remains
subject to regulatory, company and partner approvals.
• BP has a 30% equity stake in the 7mtpa capacity Guangdong LNG
regasification and pipeline project in south-east China, making it the
only foreign partner in China’s LNG import business. The terminal is
also supplied under a long-term contract with Australia’s NWS project in
which BP has an interest.
• In both the Atlantic and Asian regions, BP is marketing LNG using BP
LNG shipping and contractual rights to access import terminal capacity in
the liquid markets of the US (via Cove Point and Elba Island), the UK (via
the Isle of Grain) and Italy (Rovigo), and is supplying Asian customers in
Japan, South Korea and Taiwan.
Gas marketing and trading activities
Gas and power marketing and trading activity is undertaken primarily in
the US, Canada and Europe to market both BP production and third-party
natural gas, to support group LNG activities and manage market price risk,
as well as to create incremental trading opportunities through the use of
commodity derivative contracts. Additionally, this activity generates fee
income and enhances margins from sources such as the management of
price risk on behalf of third-party customers. These markets are large, liquid
and volatile. Market conditions have become more challenging over the
past few years due to the availability of shale gas and increased pipeline
builds in North America. This has resulted in limited basis differentials and
faster changes in production volumes in response to price movements.
However, new markets are continuing to develop with continental
European markets opening up and LNG becoming more liquid. The
business (including support functions) operates primarily from offices in
Houston and London and employs around 1,500 people.
In connection with its trading activities, the group uses a range
of commodity derivative contracts and storage and transport contracts.
These include commodity derivatives such as futures, swaps and options
to manage price risk and forward contracts used to buy and sell gas and
power in the marketplace. Using these contracts, in combination with
rights to access storage and transportation capacity, allows the group to
a See footnote a on page 87.