Japan, Buyers Face LNG Shortage After 2012, ConocoPhillips Says

By Dinakar Sethuraman

Oct. 23 (Bloomberg) -- Japan, South Korea and Spain, the world's three biggest buyers of liquefied natural gas, may find it difficult to secure supplies of the fuel between 2012 and 2015, pushing prices higher.

There may be a shortage of the cleaner-burning fuel after 2012 because of a lack of new projects, Gerard Schuppert, manager for global LNG marketing at ConocoPhillips, told reporters at the LNG Supplies for Asian Markets conference in Singapore.

``Only one project was sanctioned this year at Arzew in Algeria,'' Andy Flower, a consultant and a former employee at BP Plc's LNG business, said at the conference yesterday. ``It takes about four years now to build a new train.'' Three projects were approved in 2006 and 2007.

The decline in new project approvals, and the current financial crisis that's reduced lending to projects, may slow growth in LNG supplies to between 4 percent and 5 percent annually in 2013 to 2020, Flower said. That's down from growth of as much as 9 percent in 2007 to 2012. Output may grow 4.5 percent to about 177 million metric tons this year, he said.

Conoco, which is a partner in a Darwin LNG project and Alaska LNG plant, entered the spot trading business this year to bid for LNG cargoes and resell them, Schuppert said.

Only six of the world's 17 LNG-producing countries showed an increase in exports of the fuel in the first nine months of this year, Flower said.

Slower Growth

LNG production growth has slowed because of technical glitches including flaring problems and heat exchangers failure at plants in Norway and Algeria, and reduced gas supplies at Nigeria, Indonesia, Egypt and Oman, Flower said.

Prices of LNG in the spot market have increased sevenfold in the past five years to as much as $25 per million British thermal units. Prices have fallen from a peak reached in the middle of this year because of a cooler summer and high inventories in Japan and South Korea, government data showed.

``Qatar is facing a major challenge marketing at the prices they want,'' Fereidun Fesharaki, chairman of FACTS Global Energy, a U.S. consultant, said at the conference.

The Middle East nation, the world's biggest LNG producer, is demanding that LNG prices be linked to crude oil, which in July rose to a record $147.27 a barrel.

That translates into a gas price of about $25 per million Btu on energy equivalent basis. Oil prices have since fallen to $66.93 a barrel in New York at 12:33 a.m. Singapore time.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.