Australia LNG growth aims face supply glut, cost pressures

* Supply glut, costs could hamper Australia LNG projects

* Asia supply set to overwhelm demand

By Fayen Wong

BRISBANE, May 18 (Reuters) - Australia's liquefied natural gas (LNG) sector faces growing challenges in the coming years on a global supply glut, skilled labour shortages, tepid demand and rising construction costs, industry players said on Tuesday.

Stiff competition for Asian customers means companies with existing LNG projects and established supply portfolios would enjoy a competitive advantage, while laggards could face rising costs and fall by the wayside.

Still, Australia's geographical proximity to key growth markets China and India means it is set to become a dominant gas supplier in Asia and could overtake Malaysia as the world's second-largest LNG producer after Qatar in the coming decade, analysts said.

"Securing access to resources necessary to develop Australia's growing LNG industry will not be easy," Adi Karev, global leader of oil and gas at consultancy Deloitte Touche Tomahtsu, told an industry conference in Brisbane.

"Competition for engineers, project managers will be heightened and project finance and raw materials will be strained given the competition for other LNG and large-scale infrastructure projects."

According to a forecast by the Chamber of Minerals and Energy of Western Australia, even under its most pessimistic forecast, the state needs to recruit some 10,000 extra workers through 2011, rising to 37,000 by 2012 when LNG construction reaches it peak.

"With a skills shortage widely recognised throughout the industry, LNG projects that come in at a later date risk facing much higher costs," Karev said.

At the same time, a global supply glut means energy firms are unlikely to see the same growth in LNG prices that oil market enjoyed in the past few years -- putting strains on high-cost developments.

Operators also need to confront potential LNG supplies from the United States and Europe as those markets experience depressed demand and fail to consume as much.

LNG supply from proposed new and expanded projects in Asia Pacific, as well supplies outside the region, could reach more than 250 million tonnes per annum (mtpa) by 2020, against an uncontracted Asian demand of just about 65 mtpa, BG Australia Managing Director Catherine Tanner said.

"While growth projects and growth are still highly feasible, proponents with multiple trains, expansion projects and large, established LNG portfolios are at an advantage," Tanner said.

There are about 15 LNG projects being planned in Australia which could combine to boost the country's LNG production five-fold from its current 20 million tonnes per annum.

"Even after pushing back some projects by a few years, there is still more than enough supplies to overwhelm demand in the Asia Pacific region," said John Harris, director of global LNG at IHS Cambridge Energy Research Associates. (Reporting by Fayen Wong)