Last updated: February 8, 2011 4:06 pm

BG Group

After Big Oil, say hello to Big Gas. BG Group is creating the template: bulk-up in liquid natural gas, US shale gas, and pre-salt oil and gasfields in Brazil, and let the gas price go hang. BG is poised to expand LNG volumes 50 per cent by 2015, and by as much again by 2020.

Chief executive Frank Chapman has positioned BG as a long-term growth story. The question hanging over it is whether, in an oily world, it is too gassy. Oil is touching $100 a barrel; gas is nowhere. Mr Chapman insists there is no gas glut; he says demand should grow at 2.9 per cent a year to 2020, driven by oil substitution in emerging markets, and that supply constraints are the problem, not sluggish demand. The International Energy Agency is more cautious, arguing that there is – or has been – a glut that may be peaking but could dissipate slowly.

Either scenario should be bullish for gas prices, but that is hard to call given that the price is largely determined by local factors. BG was confident enough on Tuesday to issue a bullish strategy presentation alongside robust financial results for 2010 (a 9 per cent rise in operating profit to $6.9bn). BG estimates it can increase production by 7 per cent a year up to 2020 on current reserves.

Investors are starting to buy into that bullishness. BG shares are up 13 per cent so far in 2011 (ExxonMobil is up 15 per cent and BP 3.6 per cent), and now trade on a multiple of roughly 17.5 times 2011 earnings, more than twice the oil and gas sector average. That might be enough for now given the uncertainty over oil prices. Further upside could then depend on how Mr Chapman meets all those raised expectations.

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