LNG Price May Gain 80% as Plant Delays, Export Cuts Curb Supply

By Dinakar Sethuraman and Angela Macdonald-Smith

Aug. 15 (Bloomberg) -- Liquefied natural gas prices in Asia may climb about 80 percent this year as new projects get delayed and countries from Indonesia to Egypt curb exports.

Cargoes of LNG, which is gas chilled into liquid for transportation by tankers, may rise to as much as $25 per million British thermal units in the Northern Hemisphere winter, said John Harris, a director at Cambridge Energy Research Associates Inc. in Beijing. Japan, the world's biggest buyer, paid an average $14.10 in June in the spot market for immediate delivery, according to the finance ministry, while China paid a record $14.35, customs figures show.

Production at plants in Russia, Yemen and Indonesia, with a combined capacity of about 24 million metric tons, will be delayed until next year instead of starting in the second half. Supplies will be limited just as South Korea increases imports 3.5 percent and Japan boosts purchases after an earthquake shut down its largest nuclear plant.

``This winter can be very tight,'' said Andy Flower, a London-based industry consultant and former executive at BP Plc's LNG business. ``There's not going to be much supply available.''

Cambridge Energy and Edinburgh-based Wood Mackenzie Consultants Ltd. say natural gas will reach parity with oil this year. Oil is forecast to average $124 a barrel in the fourth quarter, according to the median estimate of 31 analysts in a Bloomberg survey. That equates to a gas price of around $21 per million Btu.

Oil Alternative

U.K. gas futures for winter are trading at about $18 per million Btu, according to data compiled by Bloomberg. A British thermal unit is equivalent to the heat generated by a lighted match.

Supplies of the fuel, which pollutes less than oil-based alternatives, could be constrained because plants in Egypt, Nigeria and Norway operated at about 60 percent of capacity in the first half of 2008 after equipment failures and inadequate pipeline capacity, according to estimates compiled by Flower.

The StatoilHydro ASA-led Snohvit project shut twice this year because of mechanical difficulties, and may operate at 60 percent capacity for the rest of this year.

The BP Plc-led Tangguh venture in Indonesia, the OAO Gazprom-led Sakhalin-2 project in eastern Russia and a Total SA- led development in Yemen may start in 2009 instead of this year, said Frank Harris, global head of LNG at Wood Mackenzie.

Indonesia, Egypt, Qatar

Indonesia will divert fuel to fertilizer makers. The Bontang plant in the Kalimantan region will produce about 320 cargoes this year, lagging behind its contracted volume of 350, Daniel Purba, head of LNG market development at PT Pertamina, said in May. The plant can produce about 400 a year, he said. A cargo is typically 50,000 to 60,000 tons.

Pertamina, Indonesia's state oil company, will cut supplies to a group in Japan by 75 percent after its contract expires in 2010, Vice President Iin Arifin Takhyan said in October.

Egypt produced about 5.2 million tons in the first six months of 2008, compared with a potential 6.1 million, to meet domestic demand, Flower estimates. Nigeria supplied about 8 million, or about 72 percent of its first half capacity.

Qatargas Operating Co.'s fourth LNG unit and a fifth unit at the North West Shelf venture in Australia will probably be the only new production coming onto the market this half, Wood Mackenzie's Harris said. Most of the supply added in the first half of 2009 is designated for long-term agreements, or is being marketed under shorter contracts, rather than left for spot sales, he said.

Double Purchases

Global LNG trade rose 7.3 percent to the equivalent to 165.3 million metric tons last year, according to the BP Plc Statistical Review of World Energy June 2008. Consumption will increase 10 percent a year through 2015, more than five times as fast as crude oil, Citigroup Inc. analysts led by James Neale said in an April report.

China, the world's second-biggest energy user after the U.S., may double spot-market purchases this year, Cambridge Energy's Harris said. China may import as many as 15 cargoes from producers including Egypt, Nigeria, Algeria and Trinidad, he said.

Korea Gas Corp., which imports about 95 percent of South Korea's needs, plans to increase purchases to 26.4 million tons this year, Kim Sang Gil, an investor relations official, said in an Aug. 12 interview. The country relies on LNG for its gas requirements.

Japan's imports rose 6.2 percent to 34.67 million tons in the first six months, according to data compiled by the Finance Ministry. The country, which imports almost all its gas, bought 66.8 million tons of LNG in 2007.

Tokyo Electric Power Co., Asia's largest utility, increased consumption by about 18 percent to 19.9 million tons in the year ended March 31 after an earthquake last July shut its Kashiwazaki Kariwa nuclear plant, the world's biggest. LNG use in July grew 7.4 percent to 1.75 million tons from a year earlier, the company said Aug. 12.

``Japan and South Korea will pay whatever it takes to get the fuel,'' Cambridge Energy's Harris said. ``They do not have access to pipeline gas and the alternative is oil-based fuel.''

To contact the reporters on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net