BP 2012 Annual Report Download - page 73

Business review: BP in more depth
Business review: BP in more depth
BP Annual Report and Form 20-F 2012
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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 also one of five partners in the Browse LNG venture (operated
by Woodside) and holds a 17% interest. A proposed greenfield LNG
development for Browse hydrocarbons is being considered by the Browse
joint venture and is currently in the early design stage. The proposed
development remains subject to regulatory, joint-venture and internal BP
approvals.
In China, BP has a 30% equity stake in the 7 million tonnes per annum
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 described above.
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
16% of the total gas feed to Bontang, one of the world’s largest LNG
plants. The Bontang plant has a capacity of 22 million tonnes per annum
of LNG and produced more than 11 million tonnes of LNG in 2012. Also in
Indonesia, BP has its first operated LNG plant, Tangguh (BP 37.16%), in
Papua Barat. The asset comprises 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 a
combination of long-, medium- and short-term contracts.
t In December 2012 BP and partners received government approval for
the Tangguh expansion project plan of development for a third LNG
train at Tangguh, which would increase capacity by 3.8 million tonnes
per annum. The new train is expected to be scheduled for
commissioning in late 2018.
In Trinidad, BPs net share of the capacity of Atlantic LNG trains 1, 2, 3 and
4 is 6 million tonnes of LNG per year. 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 Dominican Republic, India, Japan, South Korea,
Spain, the UK and the US.
Gas marketing and trading activities
Marketing and trading of natural gas, power and NGLs provide routes into
liquid markets for BP’s produced gas, and generate margins and fees
associated with the provision of physical products and derivatives to third
parties and income from asset optimization and trading.
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 in North America
and an excess of supply on long-term contracts from producers coupled
with recession-led demand reduction in Europe. The business (including
support functions) operates primarily from offices in Houston and London
and employs around 1,200 people.
In connection with its trading activities, the group uses a range of
commodity derivative contracts, 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
access advantageous pricing differences between locations, time periods
and arbitrage between markets. Natural gas futures and options are
traded through exchanges, while over-the-counter (OTC) options and
swaps are used for both gas and power transactions through bilateral and/
or centrally cleared arrangements. Futures and options are primarily used
to trade the key index prices, such as Henry Hub, while swaps can be
tailored to price with reference to specific delivery locations where gas
and power can be bought and sold. OTC forward contracts have evolved
in both the US and UK markets, enabling gas and power to be sold
forward in a variety of locations and future periods. These contracts are
used both to sell production into the wholesale markets and as trading
instruments to buy and sell gas and power in future periods. Storage and
transportation contracts allow the group to store and transport gas, and
transmit power between these locations. The group has developed a risk
governance framework that seeks to manage and oversee the financial
risks associated with this trading activity, which is described in Note 26 to
the Financial statements on page 220. The group’s trading activities in
natural gas are managed by the integrated supply and trading function.
The range of contracts that the group enters into is described in Certain
definitions – commodity trading contracts, on page 98.