Global LNG supplies to remain tight through 2015
* Tight gas markets likely through 2014-2015
* Future U.S. LNG exports uncertain
* Asia price structure may change if U.S. exports rise
KUALA LUMPUR, June 8 (Reuters) - Global liquefied natural gas markets will tighten and prices likely increase over the next two to three years as supplies rise more slowly than appetite from a growing number of importers, industry leaders said at an event this week.
Consumers will pay the price for delays to investment decisions during the global financial crisis, with few new projects scheduled to start exporting until 2015.
"We do think the market will be tight in the medium term. It will be 2015 at the earliest before you see material new supply coming into the market and even those are exposed to the risk of delay," De La Rey Venter, Shell's head of global LNG, told reporters at a global gas conference in Malaysia's capital Kuala Lumpur.
Any delays would mean LNG markets stay tighter for longer, Venter said, making it harder for buyers to find the spot cargoes they need to meet additional fuel demand.
Australia will supply the next round of gas to the LNG market from 2014 onward and is set to overtake top exporter Qatar in 2017. But several of those projects are the first of their kind - including three to export coal-bed methane from the country's east coast.
The challenges that come with breaking new ground will be expensive, said Didier Houssin, director of energy markets and security at the Paris-based International Energy Agency (IEA).
"These projects will be more than twice as costly as the previous generation of LNG plants, this means that this new gas supply will not be cheap," he said.
SUPPLY WILD CARD: NORTH AMERICA
Consumers are eyeing North America, awash with supply due to the rapid increase in shale gas output. There are at least 12 projects to export gas from North America at different stages of development, but only one has full export approval.
U.S. developers are eager to export the vast gas supplies unlocked from shale as they could achieve higher prices for sales abroad. U.S. prices have dropped to around $2.40 per million British thermal units (mmBtu), a fraction of the $18 per mmBtu price in the Asian spot market .
The Sabine Pass LNG project, to be developed by Cheniere Energy, will be the first of its kind in the United States in 50 years. But there is debate in the United States around export policy and the government is under pressure to keep enough supply at home for industry and prevent price spikes.
Peter Oosterman, president of Fluor's energy and chemicals group, said he is not very bullish on the possibility of LNG exports from the U.S.
"The U.S. still needs to decide if they want to export and if so how much and when. If you're ready to export and you decide today, it's still four years before you have a facility up and running," he said.
Qatar's RasGas was unconcerned about the United States eating into the market Qatar dominates.
"Outside of the Sabine Pass, LNG exports may well be limited... The U.S. is also a country in need of energy, so I can't see the U.S. being a major exporter of LNG," said Hamad Al Mohannadi, managing director of RasGas said.
"I think (U.S. supplies) will be on the spot market from time to time, but is it going to be a secure supply?" Mohannadi questioned, adding that it would be a "big gamble" for consumers to bet that U.S. gas prices would remain cheap.
NO VIABLE PRICE ALTERNATIVE?
The debate continued on how any flow of U.S. LNG exports, priced against the U.S. Henry Hub gas benchmark, would change the oil-linked pricing structure in Asia.
Gas consumers in Asia typically express concern about paying oil-related prices when there is wide divergence between gas and crude. While U.S. gas prices were in the doldrums, oil hit its highest level since 2008 in March at over $128 a barrel and Asian LNG prices are still much higher than U.S. gas prices.
The difference between oil and gas fundamentals would make buyers reluctant to pay oil-related prices as more LNG exports flow, some executives said.
"They should really insist on a gas-on-gas price," Cheniere Energy CEO Charif Souki said.
Cheniere has struck long-term deals to supply South Korea and India from Sabine Pass LNG at Henry Hub-linked prices.
Within five years, a gas-linked market for LNG is likely to develop, Souki said.
But other gas developers say they need oil-indexed prices to finance the huge expense of building LNG projects.
"I don't fundamentally see that we'll move away from the oil linking because the people who were taking that huge upfront risk to both discover the resource and build it... they need to have some assurance that it's going to be on some basis that they can make those huge investments," said Peter Coleman, CEO of Woodside Petroleum, which operates most of Australia's LNG capacity.
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