Asian LNG Demand Uncertain, Says IEA Analyst

The market for liquefied natural gas (LNG) in Asia faces uncertainty on a number of fronts, even as gas projects worldwide are seeking customers there, stated International Energy Agency (IEA) analyst Anne-Sophie Corbeau. Among the questions regarding demand from Asia are whether Japan will return to heavy use of nuclear power and how successfully shale gas can be developed in China.

“There are optimists who think that shale gas could take off in China in a fashion similar to the U.S. and others who think that there will be limited growth due to the several challenges faced by China,” Corbeau said. Corbeau said pricing mechanisms for LNG are under fire from many Asia buyers, who want to move away from current oil-linked gas pricing mechanisms either by changing the gas-to-oil formula or by using a spot index.

She said gas prices are as high as $18 per million British thermal units (MBtu) in Japan, compared with $3 in the U.S. and $10 to $12 in Europe. Corbeau said some recent sales and purchase agreements with U.S. exporters have linked LNG prices to benchmark Henry Hub gas prices.

“Currently such gas can appear as relatively cheap in comparison with Japanese gas prices, but this relies on the assumption that U.S. gas prices will remain relatively cheap – not so sure over 20 years,” she said. On the supply side of the LNG equation, Corbeau said there are more than 100 billion cubic meters (bcm) per year now under construction, mostly in Australia, and more than 900 bcm per year of projects in the planning stage in Canada, the U.S., East Africa, Australia, and elsewhere.

“These projects are racing to take Final Investment Decision and capture a part of future LNG demand,” she said. Research and consulting firm Wood Mackenzie predicted last month that LNG demand will grow rapidly in South East Asia over the next 12 years.