LNG Project Delays May Cut 100 Million Tons of Supply

By Dinakar Sethuraman and Catherine Yang

Aug. 20 (Bloomberg) -- Delays in liquefied natural gas ventures led by Exxon Mobil Corp. and Chevron Corp. may pare global supplies by 100 million metric tons, more than the annual demand of South Korea and Japan, the world's biggest importers.

Projects in Australia, Nigeria, Algeria and the Baltics have been shelved or postponed, prompting the capacity shortfall by 2013, said Ian Angell, vice president of gas and power at Wood Mackenzie Consultants Ltd. The deficit, enough to power 250 million homes, will cause spot LNG prices to trade at parity or at a premium to oil, he said.

Prices of the fuel have increased sevenfold in the last five years to a record $20 per million British thermal units while the rate of project approvals last year missed forecasts, adding to concern supply will be insufficient to meet demand. Global LNG trade rose 7.3 percent last year, outpacing crude oil's 1.2 percent, according to the BP Plc Statistical Review of World Energy June 2008.

``There's an increasingly higher linkage between LNG prices and oil prices given the overall shortage in Asia,'' Angell, 46, said in an interview with Bloomberg television today. ``The reduction in scheduled capacity is really impacting the supply side.''

Projects from Australia to Nigeria may have produced about 88 million tons in the first six months of 2008, Andy Flower, an industry consultant and a former executive at BP Plc's LNG business, said on Aug. 18. He expects output to rise by 14 percent or about 25 million tons next year.

Alternative Fuels

Demand for alternative fuels such as LNG and coal will continue to rise amid a slowdown in global economic growth because both are used by power generators with a longer planning horizon, Angell said.

Asian coal prices have more than doubled this year to records on rising consumption and railroad and port bottlenecks in Australia and South Africa, the world's biggest suppliers.

``Power decisions are being made in Asia not by 1-year or 2-year growth projections but long-term projections, which remain robust in China, Vietnam and other countries in Asia,'' Angell said.

Demand for spot LNG cargoes has climbed in Japan after the shutdown of the world's biggest nuclear-fired power plant last July, Angell said.

Gas now accounts for 26 percent of the nation's power generation fuel mix, compared with 23 percent earlier while nuclear's contribution has declined to 21 percent from 25 percent prior to the closures, Angell said. Demand for oil and gas used in power generation increased by 15 percent last year.

To contact the reporters on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Catherine Yang in Hong Kong at cyyang@bloomberg.net