BP and Sonatrach are to make full use of their Isle of Grain capacity this winter, with the partners this month pledging that they would use the full 3.3 million t/yr capacity at the UK LNG import terminal to help alleviate potential shortages and price hikes.

The two companies, which in October 2003 signed a 20-year contract to supply the terminal with Algerian gas, told the UK energy regulator Ofgem that they expected to be using the full capacity until the end of winter.

Together with National Grid Transco, which operates the terminal via its subsidiary Grain LNG, they also promised to improve transparency of their operations at the facility, and to "use it or lose it" as far as capacity is concerned. Sonatrach and BP each own half of the total capacity.The Isle of Grain was built to handle about one cargo a week of LNG, but has taken only four in five months (from July, when the terminal started accepting shipments, to the end of November). Some industry sources have recently suggested that this is because both BP and Sonatrach have preferred to prioritise the lucrative US market, where wholesale gas prices have been very high in the wake of the fuel disruptions resulting from the hurricane season.

Indeed, Sonatrach has just signed a number of LNG supply deals with US firms, including Sempra LNG and Occidental Petroleum (see Algeria Focus, November 2005, page 10, October 2005, page11). BP has its own US interests, including its stake in the Cove Point regasification terminal of the East Coast. In fact, it had always been the intention of both BP and Sonatrach to exploit the US market when they signed their joint venture in 2003.

However, in the light of UK developments, both companies now risk losing their generous capacity rights at Isle of Grain if they do not make full use of them. By 2008-09, when the terminal's capacity will be expanded, they will be joined by Gaz de France (GdF).

The agreement with Ofgem may help to alleviate some of the worries recently voiced by UK gas-reliant industries, as full capacity at the terminal meets at least 5% of the UK's gas demand. Isle of Grain, located on the river Medway, 36km east of London, is also strategically close to a number of the UK's gas-fired power stations and supplies homes and industry in the gas-hungry south-east. The 3.3 million tons/yr supply equates to an extra 12 mcm of gas entering the National Transmission System every day.

European issues
The terminal's key role has also been heightened as a result of the failure to attract more gas imports from Europe during this tense time. Ofgem has written to the European Commission, demanding to know why more gas from Europe has not been flowing in through the Interconnector pipelines when UK gas prices are well above European levels.

This is a debate that also has reverberations for Algeria, the second largest gas exporter to Europe after Russia. By 2008-09, when the Medgaz and Galsi pipelines are due to come onstream, a total of four pipelines will be carrying Algerian gas to European shores, and the issue of Britain's access to European supply becomes even more pertinent.

The UK's energy companies are already beginning to act on these commercial and strategic considerations. As Algeria Focus reported last month, North Sea producer Dana Petroleum has swapped its Mauritanian fields for GdF's Algerian concessions in the Sbaa basin, which are due to commence production in 2010 at rates of 560 million cubic feet/day.

While BP - now in joint venture with Norway's Statoil - has the lion's share, other companies are vying for Algerian gas projects, including Shell, one of three final contenders for the Tinrhert LNG scheme, due to be awarded mid-2006.

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© Menas Associates 2005