Asian demand will pull liquid natural gas east, price convergence uncertain

Japan, short of power in the aftermath of March's earthquake, is topping up supplies from the United States and Qatar

Booming Asian demand for liquefied natural gas will draw supplies east from Qatar and the United States, but the prospects of prices falling for the region remain uncertain.
Asian LNG imports are expected to reach 152 million tonnes this year, according to one analyst's estimate, which would be a 15 per cent increase on 2010. By 2020, it could jump to nearly 225 million tonnes.
But prices for LNG in Asia are well above those elsewhere in the world, partly due to oil-linked pricing for long-term supplies.
Spot LNG prices in Asia for October delivery are currently above $16 per million British thermal unit (mmBtu), about four times the price of U.S. gas prices and nearly $7 more than the British benchmark. LNG-AS
"At some point in time these prices need to converge together. It cannot continue for long at different prices for different reasons -- maybe for the short period is fine," said R.K. Garg, LNGfinancedirector for India's Petronet , at an industry conference in Singapore.
"When fuel terminals in the U.S. start producing and exporting to other countries then there will be competition," he added.
Some industry players, however, believe the global convergence of prices might even be completely out of reach.
"I think the convergence of prices is a far away concept. We always have events that are changing the behavior of the system. We will see convergence in terms of the flexibility of the product and flow," said Enrique Dameno, LNG sales director for Repsol Gas Natural LNG .
SUPPLIES FROM THE WEST
The flow of LNG supplies westward from suppliers that have traditionally looked to the Atlantic Basin for customers has already begun, in part due toJapan, which was forced to lean heavily on LNG imports to replace much of the nuclear power that it lost after the March earthquake and tsunami.
Qatargas, which has boosted supplies to Japan after the nuclear crisis, said it hopes the recent short-term boost in supply to Japan would lead to more long-term supply commitments.
"Our support to our anchor buyers went well beyond the 4 million tonnes and as of today stands at 9 million tonnes of additional LNG. My job is to ensure that Qatargas converts this short-term boost for Asia Pacific sales to long term commitments," said Andrew Seck, assistant director of LNG marketing for Qatargas.
Qatargas wants to double its LNG supplies to Asia from 11 million tonnes currently to more than 20 million tonnes.
The United States is also being eyed as a new supply source, with Japan hoping to start buying liquefied natural gas from there by 2015.
Cheniere Energy is one of a number of players with import facilities in the United States now looking to export natural gas after a surge in domestic production since 2005 evaporated import needs and dented prices.
Cheniere plans to sell U.S. natural gas from its proposed Sabine Pass export plant for more than $2 per million British thermal units above U.S. benchmark gas prices due to rising Asian prices.
But the company expects U.S. prices to remain at a discount to Asian prices even when it begins exporting LNG.
"We don't expect any change in Henry Hub prices even with exports," said Nicolas Zanen, vice president of trading at Cheniere Energy.
"The U.S. gas price will remain at a very low level for a very long time. We don't see convergence happening."
India, which is seeking greater amounts of LNG to fuel its rapid economic growth, is eyeing U.S. LNG shipments to take advantage of the price differential with Asia.
"If everyone believes that Henry Hub prices are not going to increase because of shale gas, the United States can easily liquefy the gas and transport it to India," said Petronet's Garg.