IOG plc has announced the execution of a gas sales agreement (GSA) with Gazprom Marketing & Trading Limited (GM&T). The news follows a competitive offtake process involving more than 10 bidders over recent months.

The GSA relates to IOG’s equity production for the first two years from the Elgood and Southwark fields (part of IOG’s Phase 1 development) and the Nailsworth and Elland fields (part of IOG’s Phase 2 development), with a mutual extension option. All of the fields are located in the UK Southern North Sea.

Gas will be sold on a day-ahead daily nomination basis at a price linked to the National Balancing Point (NBP, the UK traded gas benchmark).

A separate gas sales agreement with BP Gas Marketing Limited was signed on 24 February 2014 for Blythe, the other Phase 1 field.

Following a two-month period to establish consistent production, the GSA incorporates the potential for physical gas hedging, which IOG intends to undertake as part of its overall risk management programme.

GM&T is the London-based energy marketing and trading subsidiary of Gazprom, the world’s largest gas producer. It has been active in the UK gas market for over two decades and has around 900 employees based in London and eight other international offices.

CEO of IOG, Andrew Hockey, said the company was pleased at the strong interest in offtake rights for its gas, which helped to secure attractive terms for IOG.

“As we will be delivering all of our gas into the Bacton terminal complex, an important UK gas hub relatively close to major demand centres, we expect to benefit from favourable pricing. We look forward to developing a good working relationship with GM&T over the coming years,” Mr Hockey said.

“In that context we also note the significant strengthening of the UK gas market over 2021 to date as we progress towards gas production, expected in Q4 this year. Forward pricing for the six-month Winter 2021 gas period closed yesterday at over 101 pence per therm – 96 per cent ahead of our central planning case for that period. Forward pricing for Summer 2022 closed yesterday at over 59 pence per therm, 49 per cent ahead of our central planning case for that period.”