BP 2007 Annual Report Download - page 39

BP ANNUAL REPORT AND ACCOUNTS 2007 37
owned by BP and those contractually accessed through agreements with
third parties such as pipelines and terminals.
Europe
The natural gas market in the UK is significant in size and is one of the
most progressive in terms of deregulation when compared with other
European markets. BP is one of the largest producers of natural gas in
the UK, based on volumes, with the majority of BP’s volumes being sold
to power generation companies and to other gas wholesalers via long-
term supply deals.
In addition to the marketing of BP gas, commodity derivative contracts
are used in combination with access to storage, transport flow and
assets to generate trading opportunities. This may include storing
physical gas to sell in future periods or moving gas between markets to
access higher prices. Commodity contracts such as OTC forward
contracts can be used to achieve this, while other commodity contracts
such as futures and options can be used to manage the market risk
relating to changes in prices.
In Europe, we maintain a marketing presence in Spain, but are
increasingly focused on wholesale transactions at the existing and new
gas trading hubs and exchanges in Belgium, The Netherlands, Germany
and France.
Liquefied natural gas
Our LNG and new market development activities are focused on
establishing international market positions to create maximum value from
our upstream natural gas resources and on capturing third-party LNG
supply to complement our equity flows.
BP Exploration and Production has interests in a number of major
existing LNG supply projects: Atlantic LNG in Trinidad & Tobago, Bontang
in Indonesia and the North West Shelf (NWS) project in Australia.
Additional LNG supplies are being pursued through an expansion of the
existing LNG facilities at the NWS project in Australia and green-field
developments in Indonesia (Tangguh) and Angola.
We continue to access major growth markets for the group’s equity
gas in the Pacific region. During 2007, development continued on the
Tangguh LNG project (BP 37.2% and operator) from which the first
commercial delivery is expected in early 2009. Tangguh will be the third
LNG centre in Indonesia and has signed sales contracts for delivery to
customers in China, South Korea and the west coast of Mexico. During
2007, further progress was made in securing contracts for LNG to be
derived from the remaining uncontracted reserves at the NWS project.
Agreements for the supply of LNG to Japan have been signed with
Chugoku Electric, Kyushu Electric, Tohuku Electric and Toho Gas and for
the supply of LNG to South Korea with the Korean Gas Corporation
(KOGAS). The Guangdong LNG re-gasification and pipeline project in
south-east China, in which BP is the only foreign partner, completed
installation of its third storage tank in the third quarter of 2007, increasing
its throughput to 7 million tonnes per annum. In addition to LNG supplied
under a long-term contract with the NWS project, the terminal took
delivery of an additional seven spot cargoes during the year, to meet
rapidly growing local demand for gas.
In the Atlantic and Mediterranean regions, BP is creating opportunities
to supply LNG to North American and European gas markets. The fourth
LNG train at Atlantic LNG in Trinidad, with a capacity of 5.2 million tonnes
per annum (253,000mmcf), began operations in late 2005. These BP-
marketed volumes supplement a 2005 long-term agreement with EGAS
of Egypt to purchase 1.45 billion cubic metres per year of LNG from the
Spanish Egyptian Gas Company (SEGAS) plant at Damietta, and a short-
term contract to purchase LNG from Oman and periodic spot purchases
of LNG. BP is marketing its LNG entitlement directly, utilizing BP-
controlled LNG shipping and contractual rights to access import terminal
capacity in the liquid markets of the US (via Cove Point and Elba Island)
and the UK (via the Isle of Grain). In Spain, environmental permits have
been issued to allow an expansion of the Bilbao re-gasification terminal in
which BP has a 25% equity stake.
In Nigeria, discussions are ongoing following the 2006 signing of a
memorandum of understanding for the purchase of LNG from Brass
River LNG. A final investment decision is expected in 2008 and could
lead to first LNG in 2012.
BP continues to seek approvals for a new terminal development in the
US. The proposed 1.2 billion cubic feet per day (bcf/d) Crown Landing
terminal is to be located on the Delaware River in New Jersey. The
Federal Energy Regulatory Commission (FERC) granted its approval for
the siting, construction and operation of this project during 2006. BP
continues to work with state agencies in New Jersey to complete state
permitting requirements and with the relevant federal, state and local
authorities to put in place security plans for the facility and associated
shipping activities. BP is also monitoring the progress of a proceeding
filed by the State of New Jersey against the State of Delaware in the US
Supreme Court concerning New Jersey’s jurisdiction over developments
on its shores, including the project’s loading jetty that extends into the
Delaware River. The US Supreme Court heard the New Jersey versus
Delaware case on 27 November 2007 and a decision from the court is
expected in 2008.
Natural gas liquids
Based on sales volumes, we are one of the largest producers and
marketers of NGLs in North America and hold interests for NGL volumes
in the UK and Egypt.
NGLs produced in North America from gas chiefly sourced out of
Alberta, Canada and the US onshore and Gulf Coast, are used as a
heating fuel and as a feedstock for refineries and chemicals plants. In
addition, a significant amount of NGLs are marketed on a wholesale basis
under annual supply contracts that provide for price re-determination
basedonprevailingmarketprices.
In North America, BP operates or has interests in NGL extraction
plants with a processing capacity of 6.4bcf/d. These facilities are located
in major production areas across North America, including Alberta,
Canada, the US Rockies, the San Juan basin and the Gulf of Mexico. We
also own or have an interest in fractionation plants (that separate the
NGL into its component products) in Canada and the US, and own or
lease storage capacity in Alberta, eastern Canada, and the US Gulf Coast,
as well as the US west coast and mid-continent regions. Our North
American NGLs processing capacity utilization in 2007 was 72%. In
2006, we entered into a long-term supply contract with Aux Sable Liquid
Products to secure additional NGLs to supply our customers in the US
Midwest. A major three-year programme to inspect, assess and repair or
replace equipment is under way in BP’s North American NGLs business.
On 20 March 2007, we completed the sale of BP’s 50% equity and
operating interest in the Cochin pipeline system to Kinder Morgan Energy
Partners.
BP operates one NGLs plant (Central Area Transmission System, 30%
owner and operator with a capacity of 1.2bcf/d) in the UK and we are a
partner (33.33%) in a gas processing plant in Egypt with 1.1bcf/d of gas
processing capacity. We have also secured access to the Abibes LPG
terminal in Cremona, northern Italy.
Alternative energy
BP Alternative Energy, launched in November 2005, combines all of BP’s
interests in businesses that provide low-carbon energy solutions for
power generation: solar, wind, gas-fired power generation and hydrogen
power with carbon capture and storage (CCS).
Solar
BP Solar’s main production facilities are located in Maryland (US), Madrid
(Spain), Sydney (Australia), Xi’an (China) and Bangalore (India). During
2007, expansion of cell capacity continued at our Madrid and Bangalore
facilities, alongside a $100-million project to expand casting capacity at
Maryland, increasing our annual manufacturing capacity to 228MW.
BP Solar achieved sales of 115MW in 2007 (93MW in 2006 and
105MW in 2005).
In 2007, BP Solar and Banco Santander installed 14 Megawatts peak
(MWp) of the planned 20MWp installations in Spain, while in the US,
BP Solar won a bid to develop 4.3MW of solar energy systems for seven
Wal-Mart Stores in California, with the first three installations completed
by the end of December.