THE UK's BG has struck it rich in Egypt with a major gas find and could be the first international company to deliver Middle East gas into India's burgeoning energy market. The company supplies 80 per cent of Tunisia's gas, runs the gas distribution network in Buenos Aires and is building one for India's commercial capital Mumbai. No longer a sleepy state sector utility, BG is starting to look more like the dynamic international energy company it wants to become.

Gas market deregulation in the UK, which has forced the company to spin off its UK consumer business, is driving BG's global strategy. Its virtual monopoly is being eroded and there is limited growth potential in a market that is already intensely developed. BG's global aspirations are nothing if not ambitious: it aspires to 'manage the development and operation of long-term capital assets across the gas chain from exploration and production to transmission, distribution, LNG manufacture and transportation, storage, power generation and gas market development.'

Such opportunities exist in profusion in the developing world, not least in the Middle East where BG has rapidly acquired interests. Ten years ago the company had almost no regional presence but it now has major investments in Egypt and Tunisia and an upstream presence in Qatar.

In Egypt BG is an operator in three offshore blocks - Rosetta, North Sinai and North Red Sea - and is moving into gas distribution in Upper Egypt. This year the company will drill its first exploration well in the offshore West Delta Deep Concession where a 3D seismic survey has revealed substantial gas reserves. 'It's the best prospect in the BG portfolio,' says Frank Chapman, executive director at BG Exploration & Production.

BG is supremely confident of the area's potential and has signed a memorandum of understanding with Egyptian General Petroleum Corporation (EGPC) to build a 250-kilometre extension of the national grid to Qena. BG will also participate in the Nile Valley Gas Company being set up to distribute gas in the area.

BG has carried out consultancy work on Egypt's gas masterplan and is the first foreign company, with its partner Edison International of Italy, to take advantage of legal changes which permit private investment in the transport and distribution of gas (MEED 13:2:98, Egypt). In addition to its gas interests, BG has a 25 per cent share in the Zaafarana development lease, which came on stream in 1994 and produces 13,000 barrels a day (b/d) of oil.

In Tunisia, BG is the largest foreign investor through its 100 per cent interest in the Miskar production concession which supplies 80 per cent of the country's daily gas demand. Development delays at the Hannibal processing plant caused early headaches for the project, but it hit 5.1 million cubic metres per day (cm/d) in late 1997, well above the contracted volume of 4.5 million cm/d to be delivered to state electricity and gas distribution company STEG. This volume will rise to 5.7 million cm/d after five years.

Pricing is another problem in current market conditions. The price for Miskar gas is indexed to high sulphur fuel oil, which has fallen sharply this year, eating into BG's projected returns from the project. Without a revision to the price formula, there will be little incentive to upgrade or debottleneck the Hannibal plant. In addition to Miskar, BG has a 50 per cent interest in the Amilcar and Ulysee offshore permits with state- owned partner ETAP. An appraisal well drilled at Amilcar in 1997, Hannibal-3, revealed gas but neither permit is in production.

A presence in Qatar has potentially huge implications for BG's strategy of acquiring interests along the entire gas chain. Qatar's North Field is the largest non-associated gas reservoir in the world and the country is developing large-scale liquefied natural gas (LNG) capabilities, targeting customers in the Far East, South Asia and Europe. BG has a 25 per cent interest in four offshore areas, although the Al-Rayan area operated by Arco is the only one in production, at a rate of 29,000 b/d of oil.

Within Block 2 is part of the North Field reservoir which is allocated for gas deliveries to other Gulf states. The consortium, in which BG is a 25 per cent stake holder, has the sole right to export this gas via pipeline, if it can secure contracts. Dubai faces the most acute needs but is also the target for gas sales from Abu Dhabi and Iran's Sirri field, being developed by a Total-led consortium. Although BG describes its gas export rights to other Gulf states as the 'most significant' aspect of its upstream interests in Qatar, actual deals have so far proved elusive.

BG is exploring several Middle East options for supplying up to 5 million tonnes a year (t/y) of LNG to its Gujarat scheme in India, starting in 2001-02 (see page 12). 'The obvious sources are Qatar and Oman. There's a Yemeni project and there's Abu Dhabi,' says Stephen Brandon, executive director of BG International Downstream. 'Our preference is that there is substantial common ownership along the supply chain.' Obvious candidates for collaboration are Mobil, Shell and Total which are leading LNG developments in Qatar, Oman and Yemen respectively. The US' Enron Corporation is also planning a 5 million t/y LNG plant in Qatar and needs to find off-take and investment partners.

With ground breaking likely to begin this year on the terminal at Pipavav which will receive gas for BG's Gujarat scheme, there is growing urgency to secure a source of supply. At this stage, the two projects already in development and with unsold capacity - Rasgas and Oman LNG - seem likelier partners than Enron Qatar or Yemen LNG.

Investments in India, Egypt and elsewhere are taking BG deeper into the downstream, selling its experience and counting on its expertise along the entire gas chain to strike the right balance between risks and rewards. There are hazards, as the Miskar price indexing has exposed, but the company is convinced that if anyone can get it right, BG can.