Santos and BG Group's gas deal

Oil and gas giants agree to share infrastructure

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »