BG Group, Petrobras Team Up in Santos Basin FLNG Venture

BG Group has signed a Joint Venture Agreement (JVA) with the Brazilian oil company Petrobras focused on developing Floating Liquefied Natural Gas (FLNG) as an additional option to commercialize the material associated natural gas reserves in the Santos Basin pre-salt, offshore Brazil.

Under the agreement, Front-End Engineering and Design (FEED) contracts will be awarded for a new FLNG vessel.

This FLNG vessel will operate close to the planned Santos Basin Floating Production, Storage and Off-Loading (FPSO) vessels. The vessel will process and liquefy the associated natural gas from the pre-salt fields before offloading to LNG ships.

The FLNG processing capacity is anticipated to be up to 14 million cubic meters per day of associated gas. The 3.0 million tonnes per annum (mtpa) LNG produced would be shipped either to Petrobras-operated regasification terminals at Pecém and Guanabara Bay to supply the Brazilian domestic market or exported to other global markets. BG Group is a significant participant in the Brazilian domestic market, holding a majority interest (60.1%) in Comgás, Brazil's largest gas distribution company. In 2008, Comgás supplied gas to 1 000 industrial, 9 000 commercial and 650 000 residential customers in São Paulo state. Average daily volumes increased almost five-fold between 1999 and 2008, from 3.0 million cubic metres per day (mmcmd) to 14.6 mmcmd.

BG Group has developed a leading position in the global LNG industry, supplying customers in 20 LNG importing countries worldwide, with a flexible global supply portfolio, a fleet of modern ships and international commercial and logistical capabilities. This enables the Group to respond quickly to opportunities to secure greater margins. Petrobras operates 22% of the global deep waters oil production and holds the world's largest number of offshore production units (FPS and ships).

BG Group Chief Executive Frank Chapman said, "We are delighted to extend our already close working relationship with Petrobras as we jointly consider options to develop the very material associated natural gas potential of the Santos Basin pre-salt. This agreement draws on a range of strengths within each company, combining Petrobras' expertise in ultra-deepwater exploration and development with BG Group's proven skills at all points of the global gas value chain."

Indicative timeline

The tender for the development of the FLNG FEED project was issued in August 2009. In October 2009, several consortia consisting of international suppliers with liquefaction and FPSO construction experience were invited to present their initial proposals.

In December 2009, FEED contracts will be awarded to up to three of the consortia invited to bid, in accordance with the qualification criteria established for the tender process. The decision to develop separate FEED projects in parallel is intended to foster competition between the consortia, contributing to a reduction in the overall cost of the FLNG vessel.

The successful bidders will prepare their FEED proposals through 2010. BG Group and Petrobras anticipate making the Final Investment Decision (FID) in 2011. The FID outcome will be based on technical and economic feasibility studies of each of the FLNG FEED projects presented. It will also take into account an assessment of the viability of alternative development options such as the installation of new subsea pipelines connecting the Santos Basin pre-salt to onshore gas processing facilities.