BHP Billiton Relies on the North American Gas Business Model to Project the Supply-Demand Balance of Specific Opportunities

Company Profile
BHP Billiton is one of the world's largest diversified resources companies. The company holds industry leading positions in several major commodity businesses, including aluminum, iron ore, copper, energy coal and metallurgical coal, with substantial interests in oil, gas, liquefied natural gas (LNG), nickel, diamonds and silver. It is the world's largest exporter of energy (thermal) coal and hard coking coal for the steel industry, and the third-largest producer of iron ore. Headquartered in Melbourne, Australia, it has offices in London, Johannesburg and Houston, with production activity on nearly every continent. BHP Billiton has market capitalization of $31 billion and revenue of $19 billion.

Business Needs
BHP Billiton's North American production efforts are focused in the Gulf of Mexico. To get an accurate picture of the supply-demand balance when assessing opportunities, BHP previously turned to a mix of outside consultants and various modeling tools. However, the analysis and information from these sources did not adequately cover the supply side. The available historical supply data was too outdated to enable effective projections of the supply-demand balance - making it challenging to forecast pricing and make decisions on specific projects.

The North American Gas Business Model
BHP Billiton turned to the North American Gas Business Model from IHS because of IHS's reputation for offering the most complete supply-side information, particularly with the strength of the PI/Dwights PLUS® databases on its side. "Those databases are probably the most comprehensive that exist today on the supply side for the North American market," explained Dan Sallee, Gas Marketing Manager for BHP Billiton.

Several departments at BHP Billiton use the Gas Business Model, including Marketing, Planning, and Business Development. At BHP Billiton, Marketing is charged with forecasting gas prices, so it relies on output from the Model to support a general forecast of the Henry Hub price. Additionally, the company engages the model for projections of future depletion, future development and reserve additions, and the balance of those against demand.

The Marketing Team benefits from the combination of analysis, information and software in the Gas Business Model to determine whether supply will keep up with demand at various prices. They can manipulate the data to analyze the supply of one basin versus another basin.

"The Gas Business Model offers a fairly broad, more global perspective of how quickly reserves are going to decline, so you can see gaps in the supply-demand curve and determine what market pricing will minimize those gaps," Sallee said.

As a supply company, BHP Billiton must assess whether supply will remain steady or decline in certain regions, and justify every project against a price curve. To that end, output from the Model has enabled the company to justify increasing gas prices in certain instances.

By having one tool for analysis and modeling, BHP Billiton has realized increased efficiency and has the information it needs for decision support more quickly.

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Resources
North American Gas Business Model Study - Description