IOG plc has signed a gas sales agreement (GSA) with Gazprom Marketing & Trading Ltd (GM&T) for its reserves in the UK Southern North Sea.
The deal, which encloses a mutual extension option, followed a competitive off-take process involving more than 10 bidders over recent months.
AGREEMENT
The GSA relates to IOG’s equity production for the first two years from the Elgood and Southwark fields, part of the company’s Phase 1 development, and the Nailsworth and Elland fields (part of its Phase 2 development).
IOG said that gas would be sold on a day-ahead daily nomination basis at a price linked to the UK traded gas benchmark NPB (National Balancing Point).
Following a two-month period to establish consistent production, the GSA incorporates the potential for physical gas hedging, which IOG aims to undertake as part of its overall risk management programme.
GM&T is the London-based energy marketing and trading subsidiary of Russian majority state-owned Gazprom, the world’s largest gas producer.
It has been active in the UK gas market for more than two decades and has some 900 employees in London and eight other international offices.
A separate gas sales agreement with BP Gas Marketing Ltd was signed on 24 February 2014 for the other Phase 1 field, Blythe.
MARKET CONDITIONS
IOG chief executive Andrew Hockey said that the strong interest in off-take rights for the gas had helped to secure attractive terms for the company.
“As we will be delivering all of our gas into the Bacton terminal complex, an important UK gas hub relatively close to major demand centres, we expect to benefit from favourable pricing.
“We look forward to developing a good working relationship with GM&T over the coming years.
“In that context we also note the significant strengthening of the UK gas market over 2021 to date as we progress towards gas production, expected in Q4 this year.
“Forward pricing for the six-month Winter 2021 gas period closed yesterday [28 July] at over 101 pence per therm – 96% ahead of our central planning case for that period.
“Forward pricing for Summer 2022 closed yesterday at over 59 pence per therm, 49% ahead of our central planning case for that period.”