CERAWEEK-LNG sector rethinks long term amid US natgas glut

Wed Mar 10, 2010 6:43pm EST

Related Topics

* Unconventional supply saps U.S. interest in LNG imports

* China a growth spot in global natural gas markets

* Industry still prefers long-term contracts

By Eileen O'Grady

HOUSTON, March 10 (Reuters) - A glut of unconventional natural gas supplies from U.S. shale deposits has fundamentally recast the long-term prospects for liquefied natural gas imports that were once considered the linchpin of the nation's energy security, industry executives said on Wednesday.

A recession-driven fall in global natural gas demand saw spot LNG prices tumble last year to around $4 per mmBtu from record highs of around $22 in 2008.

With no immediate rebound in worldwide energy demand in sight, major players in the global LNG market are focused on long-term prospects.

"There's little hope in 2010 or 2011 that the oversupply and low prices will disappear," but the prospects for 2012 and beyond are brighter, Jean-Francois Cirelli, vice chairman of France's GDF Suez (GSZ.PA) told the CERAWeek conference in Houston. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic showing U.S. natural gas and oil prices click here: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The dip in natural gas prices has sent global natural gas producers scrambling to change their plans.

Russian gas giant Gazprom (GAZP.MM) and partners last month delayed first LNG shipments from the giant Arctic Shtokman LNG output by three years to 2017, citing "changes in the market situation and particularly in the LNG market."

Shtokman LNG, whose main target market is the United States, has had to adjust to a new reality in which the U.S. -- once considered to be big growth LNG market -- does not need incremental LNG supplies for the foreseeable future.

U.S. natural gas reserves are up by a third since 2006, thanks to unconventional gas development including shale gas, with estimated reserves sufficient to supply the U.S. market for nearly 100 years at current rates.

After 2012, executives said they expected demand to swell and prices to improve as the flexibility and climate-friendly attributes of natural gas propel it to the forefront for power generation in a world. First-ever U.S. regulations of carbon dioxide emissions could make natural gas a more attractive source for power generation.

NEW MARKETS

One bright spot on the horizon is China, which has been building natural gas pipeline and import terminals at a break neck pace.

Forecasters have low-balled China's demand for natural gas, according to Philippe Boisseau, president of gas and power and French energy giant Total (TOTF.PA).

China currently has over a dozen LNG import terminals under construction and has changed its pricing policies to attract more imports, Boisseau said.

Attractive low LNG prices currently have created demand for gas from a number of new countries not seen as LNG customers in the past, such as Chile and Turkey, which purchased LNG from RasGas last year, said Hamad Rashid Al Mohannadi, managing director of Qatar's RasGas.

Spot pricing of LNG cargoes, while favored by buyers, will be incorporated in more LNG contracts going forward, but will not replace the traditional long-term contracts tied to oil prices used in Europe, executives said.

However, many industrial buyers prefer the certainty of long-term contracts benchmarked to oil prices, which have been the industry standard for decades.

"Our suppliers want to keep the oil-indexed and long-term contracts," said Cirelli at GDF Suez. (Editing by Marguerita Choy)

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