US demand for natural gas likely to be fulfilled by Asian suppliers: Research

Research by Platts Power in Latin America finds that economic and political problems in the South American countries will likely lead to projects in Indonesia, Malaysia, and Russia's Sakhalin Island fulfilling gas demand in West Coast Mexico and California.

This will occur even though Andean natural gas suppliers in Bolivia and Peru have a geographical advantage over Asian suppliers, Platts said in its report released Thursday.

"Given their large gas reserves, the debate used to hinge on whether Bolivia or Peru was going to win the race to supply liquefied natural gas (LNG) to California and Mexico's West Coast," said Platts Power in Latin America managing editor Jeffrey Barron. "However, political indecision in Bolivia over whether to export gas from Patillos in Chile or Ilo in Peru, and the perception that Camisea missed the boat to become a major player when Shell passed on it in the late 1980's, has opened the door for established Asian suppliers."

In addition to the financial and political issues, Camisea and Bolivia's Pacific LNG lack market options. Once gas off-takers-currently Sempra Energy International, Shell LNG, and Marathon Oil-become dominated by users in the Californian gas market, which has a reputation for price volatility, it is likely that exposure to this price risk would be passed down the export chain to the gas suppliers.

A number of new and expansion projects are underway at sites including Australia's North West Shelf, Tangguh in Indonesia, Butulu in Malaysia, and most recently Russia's Sakhalin Island. All these projects are being developed on the basis of long-term deals committing part of production to buyers in the Far East markets, which are increasingly tight and could create downward price pressure. In this situation the North American markets might offer an outlet for remaining production, said Platts.(alex)