BG LNG Trading Strategy May Raise Investors’ Risk, Investec Says

Investor risk may increase should BG Group Plc, seeking to lead the world’s public companies as a seller of liquefied natural gas, go ahead with its flexible-trading strategy, Investec Securities Ltd. said.

BG plans to have about 30 percent of 24 million metric tons of LNG it expects to market in 2017 uncommitted or divertible, it said yesterday. That same year, BG will have the world’s largest “directly managed” portfolio and biggest volume of flexible LNG supply, said Matt Schatzman, executive vice president for marketing for the Reading, England-based company.

“While BG seeks to maximize profits, shareholders might instead perceive ‘risk,’ ‘trading,’ ‘arbitrage,’ ‘a black box,’” Neill Morton, a London-based analyst at Investec, wrote today in an e-mailed report. “The resulting lack of earnings visibility may be having a negative effect on the market’s implied valuation for BG’s LNG division.” Morton has a sell rating on the shares.

BG is considering new LNG projects in Australia, Tanzania, Canada and the U.S. as it expects the market to stay tight with demand exceeding supply through 2025. It plans to secure partners to share costs, including reducing its stake in British Columbia’s Prince Rupert LNG project to less than half, Chief Operating Officer Martin Houston said yesterday.

Asian gas demand in 2025 may be 25 percent higher than BG’s base forecast, resulting in about 100 million tons per annum of additional LNG demand driven by power generation and transport, Schatzman said yesterday. BG expects global supply to be about 400 million tons of LNG in 2025.

‘Expertise Gap’

“The key risk to supply growth is a current expertise gap across some of these new projects,” Schatzman said. About 47 percent of the new capacity proposed has “lead partners with no previous LNG development experience,” he said, citing PFC Energy data.

Global flexible LNG trade expanded to 17 percent of about 225 million tons total volume in 2012, from 4 percent in 2000, according to BG. It will shrink to a 15 percent share in 2025, the company forecast.

BG’s LNG “is not a trading business,” Chief Executive Officer Chris Finlayson said. “It is a physical business on a global scale with flexibility as the key differentiator.”

Before it's here, it's on the Bloomberg Terminal.