Europe
The major export markets for NCS gas are Germany, France, the United Kingdom, Belgium, Italy, the Netherlands and Spain. Our main customers are large national or regional gas companies such as E.ON Ruhrgas, Gaz de France, ENI Gas & Power, British Gas Trading (a subsidiary of Centrica), Distrigaz and Gasunie. In addition, we sell to large end users, mostly through long-term take-or-pay contracts.
In the United Kingdom, we market our gas to large industrial customers, power generators and wholesalers, in addition to participating in the UK spot market. NG also has an end user sales business based in Belgium, serving large customers in Belgium, the Netherlands and France. Our group-wide gas trading activity is mainly focused on the UK gas market, which is a significant market in terms of size and the most liberalised market in Europe. We are also increasingly taking part in other liquid trading points such as the TTF (Title Transfer Facility) in the Netherlands and at Zeebrugge Hub in Belgium.
In 2004, Statoil (UK) Limited and SSE Hornsea Limited (subsidiaries of StatoilHydro and Scottish and Southern Energy Plc, respectively) entered into a joint venture for the development, operation and maintenance of a salt cavern gas storage facility near Aldbrough, on the east coast of Yorkshire and close to the Easington terminal. On completion, the storage facility will comprise nine underground caverns. Statoil (UK) Limited owns one third of the storage capacity being developed, of which the SDFI has a 48.3% share. The facility has been developed and will be operated by SSE Hornsea Limited. The storage facility is expected to begin commercial operation during 2009, with full commercial operation of the nine cavern facility achieved during 2011. The design capacity for the storage facility is expected to be 420 mmcm. StatoilHydro's share of the total development cost is estimated to be NOK 0.7 billion.
In Germany, we hold a 30.8% stake in the Norddeutsche Erdgas-Transversale, or Netra, overland gas transmission pipeline, and a 23.7% stake in Etzel Gas Storage through our subsidiary StatoilHydro Deutschland. Currently, Etzel Gas Storage is increasing the working gas capacity with nine additional caverns. All partners in Etzel Gas Storage are participating in this project. The project is expected to be finalised within the calendar year 2009, according to schedule.
US
In the US, Statoil Natural Gas LLC (SNG) markets gas to local distribution companies, industrial customers and power generators. We have a long-term contract with the operator of Cove Point, Dominion Resources Inc., securing us capacity rights of 2.4 bcm per year at the Cove Point regasification terminal in Maryland on the US east coast. The terminal interconnects with three interstate pipelines, allowing gas to be directed to the Mid-Atlantic and North-East markets. The SDFI participates with a 56.5% share of our capacity in the terminal and pipeline. LNG is sourced from our Snøhvit LNG facilities in Norway and from third party suppliers, both spot and mid-term arrangements. In 2008 we delivered cargo number 100 of LNG to the Cove Point terminal. SNG also markets the equity production from our assets in the US Gulf of Mexico in addition to sourcing some pipeline gas domestically, mainly for optimisation purposes.
In 2005 StatoilHydro entered into contractual commitments with Dominion for 100% of the expansion of the Cove Point terminal with a capacity of approximate 7.7 bcm annually of gas for a 20-year period, with planned start-up in early 2009. The expansion reflects our focus on the growing liquefied natural gas market in the US, at the same time as market access through Cove Point is strategically important to a potential Snøhvit phase 2 and other LNG projects under consideration by StatoilHydro. In addition it gives us more flexibility in sourcing third party LNG to the terminal.
The respective future shares of StatoilHydro and the SDFI on the Cove Point terminal, in addition to extra capacity and related commitments, are subject to further consideration, and the outcome may therefore have an impact on the extent of future commitments assumed and reported by StatoilHydro.
In 2008 we entered into a strategic agreement with Chesapeake Energy Corporation. The agreement is particularly important for NG in several ways. Firstly, it adds a major building block to our gas value chain position already established in the US - the world's largest and most liquid gas market, and secondly, we gain access to large reserves produced close to the highest paying market in the US. Also, it significantly strengthens our US gas position, building on our existing Cove Point LNG position and our well-established gas marketing and trading organisation in Stamford and the competence in our organisation. The agreement entails that over time, we will market and trade significantly higher volumes compared to the volumes today.
Azerbaijan
StatoilHydro has a 25.5% share in the Shah Deniz field in Azerbaijan and is the commercial operator for gas transportation and sales activities for Stage 1 development and heading the partners sales committee for the Stage 2 development. Turkey is the main market for gas from Stage 1 of the Shah Deniz development, and in addition Georgia and Azerbaijan are also part of the gas sales portfolio. Gas is transported to customers through the South Caucasus Pipeline (SCP) running from Azerbaijan via Georgia to the Georgian/Turkish border. Shah Deniz Stage 1 production and the related gas transport in SCP were ramped up throughout 2008 and is expected to reach the plateau production in 2009 (8.6 bcm annually).
The Stage 2 development of Shah Deniz is currently in the Concept Selection phase of the operator BP's Capital Value Process. Field reserves support a significant Stage 2 production and are likely to be larger than in Stage 1. Key activities for NG in this respect are related to the commercialisation of Stage 2 through organisation, planning and conduct of gas market/transport evaluations and negotiations with counterparties in the Caspian region, Turkey, the European Union and Russia. The progress of the marketing activities has been hampered by the lack of an intergovernmental agreement between Turkey and Azerbaijan on volumes for transit and sales into the Turkish market.
In February 2008, StatoilHydro signed an agreement with the Swiss EGL Group to establish a joint venture to develop, build and operate the Trans Adriatic Pipeline (TAP) from Greece, through Albania to Italy. StatoilHydro joined the TAP project as part of our efforts to provide attractive export options and ensure competition for the Shah Deniz gas in the European market, hence TAP will be competing with other pipelines to attract potential customers for gas from Shah Deniz. A final investment decision is linked to the Shah Deniz Stage 2 development.
LNG
In 2007, the first vessel with a cargo of liquefied natural gas from the Snøhvit field left port at Melkøya. As well as pipeline-based supply, StatoilHydro now also supplies gas for export from the Norwegian continental shelf in a cooled state, as LNG, by ship. LNG gives us increased flexibility in terms of marketing gas globally. During 2008, LNG cargoes have been delivered to customers in Europe, the US and Japan. The plant at Melkøya is the first LNG production facility in Europe and it is a key component in StatoilHydro's focus on LNG, which is one of the fastest growing gas markets in the world. Snøhvit LNG is a pioneering and technologically innovative project. Since the scheduled shutdown during the summer 2008, Snøhvit has maintained a stable production at around 80% of the planned capacity. Our contractual delivery commitments to our customers Iberdrola and SNG commenced on 1 October 2006. To meet our obligations, we have put into effect mitigation activities, such as purchasing of replacement LNG and piped gas, to supplement available Snøhvit LNG.
