LNG demand may not meet forecast: Osaka Gas

Liquefied natural gas demand may fail to meet growth forecasts as rising prices make the fuel less competitive relative to coal and crude oil, said Osaka Gas Co., Japan?s second-biggest gas distributor as reported by The Jakarta Post on Wednesday.

The gain in LNG prices means that some projections for the growth in consumption won?t be met, Hisaichi Yoneyama, general manager of market developing at Osaka Gas?s energy resource business unit, said in Seoul Monday.

Higher crude-oil prices, rising demand and limited supply have pushed LNG prices up from record low levels in 2002, when China agreed to buy the fuel. Royal Dutch Shell Plc, the biggest non-government owner of LNG production capacity, said yesterday it expects LNG demand to increase about 10 percent a year to reach 460 million metric tons by 2020.

?LNG is losing competitiveness with alternative fuels like coal and pipeline gas under high oil prices, ?Yoneyama said at the LNG Asia Pacific 2006 conference in Seoul, organized by Marcus Evans, a U.K.-based business information provider. ?Unless LNG keeps its competitiveness, the industry may not enjoy growth in the market.?

Korea Gas Corp., the world?s biggest LNG buyer, said its LNG buying costs rose 24 percent last year. Prices have risen to between US$5 and $10 per million British thermal units today from $3 to $4 about three years ago, estimates Andy Flower, a London- based LNG consultant.

The increase in LNG prices has started to erode forecast demand growth in lower-priced gas markets such as China and India, said Susan Farmer, head of the LNG group at London-based law firm Watson, Farley & Williams.

LNG sales negotiations stalled last, year between Chevron Corp.?s proposed A$11 billion ($8.1 billion) Gorgon LNG venture in Australia and China National Offshore Oil Corp. after the parties failed to agree on pricing.

China National is also in talks with Indonesia on a possible re-pricing of gas it agreed to buy from the BP Plc-led Tangguh LNG project, while Iran has signaled that a pricing cap based on $31 a-barrel Brent crude oil negotiated by Indian gas buyers last June must be revised, Farmer said.

?The question is, how many buyers are there outside of the liquid markets - and indeed even there - can afford to commit at the current high prices,? Farmer said at the conference. So far, demand from ?traditional? buyers in northern Europe and Europe is remaining ?quite firm?,? she said.

Edinburgh-based Wood Mackenzie Consultants Ltd. late last year cut its forecast for Chinese LNG imports in 2010 by about a third to 6.6 million tons a year because the higher prices is deterring Chinese buyers, Frank Harris, a consultant at the company, said last week.

The start-up of new large LNG plants and competition from pipeline gas should limit further price increases, Oliver Matschke, senior LNG marketing manager at Total SA, Europe?s third-largest oil company, said Tuesday. About 100 million tons a year of LNG capacity is due to start up by 2010, Flower said. (*)