World LNG Output May Rise at Slowest Pace in 28 Years

By Dinakar Sethuraman

Dec. 3 (Bloomberg) -- Liquefied natural gas production may increase at the slowest pace in 28 years because of equipment breakdowns, reduced gas supplies and delays in new projects, a London-based consultant said.

Output may rise less than 2 percent this year from 172.6 million metric tons in 2007, said Andy Flower, an industry consultant and a former executive at BP Plc's LNG business. There is ``uncertainty'' over project approvals next year after the financial crisis.

``There will be a big temptation to defer final investment decisions,'' Flower said in an interview in Singapore today. ``Nobody knows what will happen to costs.''

Growth in LNG trade has slowed after expanding 7.3 percent last year because of the delayed commissioning of new ventures in Qatar, Russia and Yemen, technical problems in Algeria and Norway, and limited gas supplies to feed liquefaction plants in Nigeria and Egypt. The global recession may also cut LNG demand as it curtails electricity use in Asia.

The output growth estimate for this year is ``the lowest since 1980-81 when LNG output fell after the collapse of Algeria- U.S. LNG trade,'' Flower said. Production rose 0.4 percent in the first nine months compared with a year earlier, he said, citing data from importing nations.

``The crisis may weaken demand and slow project approvals,'' Flower said. ``There will be a very different market next year from what you are seeing this year.''

Output may climb about 25 million tons in 2009 and 2010, respectively, as new projects start operations in countries including Qatar, Yemen, Indonesia and Australia, Flower said. The annual increase may suffice to meet yearly demand from South Korea, the world's No. 2 importer of the fuel, he said.

Project Approvals

Only one project was approved this year at the port city of Arzew in Algeria, Flower said, compared with the Chevron Corp.- led project in Angola and Woodside Petroleum Ltd.'s Pluto project in Western Australia in 2007. Less than 15 million tons of capacity in total was approved over the last two years.

More than 35 million tons of liquefaction capacity awaits approval next year including the Chevron-led Gorgon project in Australia, Exxon Mobil Corp.'s LNG plant in Papua New Guinea, Nigeria LNG Ltd.'s seventh train, Indonesia's Senoro plant and BG Group Plc's Queensland project, Flower said.

``The danger of taking a final investment decision is that you may be locking in equipment costs,'' Flower said. ``Equipment costs don't seem to be falling but LNG prices are declining.'' BG and Exxon may sanction the projects next year, he said.

Asian Imports

Asia increased imports of the fuel from the Atlantic Ocean area by 7 million tons in the first nine months of 2008 to about 11.2 million tons, Flower said.

Shipments to Asia from the Atlantic Basin including Nigeria, Algeria, Equatorial Guinea and Egypt may fall in the fourth quarter to about 2.5 million tons after a cooler summer damped demand and inventories increased in South Korea and Japan, the world's top LNG importer, he said.

Flower said in August world LNG consumption this year may rise 5.8 percent to about 183 million tons. He revised his forecast after plant delays and unplanned shutdowns. Projects from Australia to Nigeria may have produced about 88 million tons in the first six months of 2008, he said then.

LNG is natural gas that has been reduced to one-six- hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit) for transportation by ship to destinations not connected by pipeline. On arrival, it is turned back into gas for distribution to power plants, factories and households.

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