Regional LNG: Rising U.S. LNG imports challenge Asian market: Report

Within a decade, the U.S. will overtake Japan to become the world's largest liquefied natural gas importer, which will have price and supply implications for the Asian LNG market, a senior analyst with Purvin & Gertz said.

U.S. consumers are capable of paying higher prices and this could pressure Asian buyers into either matching them to gain LNG supplies or retreating from the market, Kenneth Otto, vice-president of Houston-based energy consultancy Purvin & Gertz told Dow Jones Newswires.

Emerging economies such as China may scale back some of their plans for LNG terminals in the short term due to the relatively high price of LNG, when compared with domestically produced coal, Otto noted.

In Asia, LNG prices are around $6 per million British thermal unit, based on long-term contracts, compared with $6.75/mbtu or more for gas being sold into the U.S.

Tang Yali, vice-president of PetroChina Co's (PTR) gas unit, told an industry conference in early November in Beijing that his company may delay talks with global LNG suppliers to 2012 or 2013 due to disagreements over prices.

But China and India will in time be able to afford higher prices as their economies are growing, said Otto.

For now, the U.S. gets the bulk of its LNG from Trinidad, followed at a distance by Egypt and Nigeria. Japan gets most of its LNG from Indonesia, Malaysia and Australia.

But Australia is looking to the U.S. as a major client for its gas, with both Woodside Petroleum Ltd. (WPL.AU) and BHP Billiton Ltd. (BHP.AU) planning to sell LNG in California.

And it's not only the U.S. that is buying up gas from areas once seen as an Asian preserve.

Sempra Energy's (SRE) Energia Costa Azul gas terminal on the coast of Baja California, Mexico, is due for completion in 2008, with initial cargoes to come from Russia's Royal Dutch Shell PLC-led (RDSB) Sakhalin gas fields and Indonesia's BP PLC-led (BP) Tangguh project.

U.S. domestic gas output will slip to 17 trillion-18 trillion cubic feet by 2010-2015, from more than 19 trillion cubic feet in 2000, according to Purvin & Gertz forecasts.

But U.S. gas demand could surge to around 24 trillion cubic feet by 2010-2015, compared with 22 trillion cubic feet in 2000.

U.S. LNG imports may soar to five trillion cubic feet by 2015, accounting for about 24% of global LNG trade, from around 7%-8% this year.

The U.S. Energy Information Administration has said 2006 U.S. LNG imports may be around 1 trillion cubic meters.

About a half-dozen LNG terminals are under construction in the U.S., some proposed by oil giants like Exxon Mobil Corp. (XOM), others by niche players like Cheniere Energy Inc. (LNG) and Sempra Energy. That said, many LNG projects announced two or three years back have languished or been withdrawn.

The LNG market will become increasingly global and driven by spot deals, supplementing long-term supply contract, as more exporters and importers enter the fray, Otto said.

In Asia, the spot trade may grow to 10% of LNG volumes in the next 10 years, from 2% now, said Otto.

But "LNG will not be as global as oil, as it cannot be traded or stored as easily... and transportation costs account for a high proportion of LNG prices, as high as 30%," he said.

China, which has inked three long-term contracts for LNG with Australia, Indonesia and Malaysia, has signaled it will be an active buyer in the spot market.

Last month China National Offshore Oil Corp. initialed framework agreements with Total S.A. (TOT) of France, Franco-Belgian utility Suez S.A. (SZE) and a unit of Royal Dutch Shell for spot purchases, and officials say it may buy seven LNG cargoes next year.

Increasing reliance on LNG may spur importers to play a bigger role in the upstream business to control costs and guarantee stable supplies.

CNOOC, the operator of China's first LNG terminal, is highly interested in investing in overseas projects rather than solely buying LNG, said a vice president of the company in early November. (*)