U.S. to Asia gas price gap to vanish over long term -Exxon

DAEGU, South Korea Mon Oct 14, 2013 3:50am EDT

DAEGU, South Korea Oct 14 (Reuters) - The cost of delivering U.S. gas to Asia will eventually rise as U.S. production costs increase, erasing North America's price advantage over other global suppliers of the fuel in its liquefied form, an ExxonMobil executive said on Monday.

The development will disappoint Japan and other buyers who are counting on bringing liquefied natural gas (LNG) to Asia at huge discounts.

Prices for U.S. natural gas are currently around $3.80 per million British thermal units (mmBtu) compared with just over $16 per mmBtu for LNG delivered into Asia.

"I think there is a misperception out there that with Henry Hub sales from $3.50 we can land LNG in Asia for $11, $12 (per million British thermal units)," Richard Guerrant, ExxonMobil's global vice president for LNG, told the World Energy Congress in South Korea.

"Over time the arbitrage is going to be consumed ... and you can expect a convergence of prices."

U.S. natural gas prices are currently below replacement costs because producers are drilling in areas rich in more lucrative petroleum liquids, which subsidise the cost of drilling for the cheaper gas, Guerrant said.

History indicates those low prices cannot be maintained over the long term, he added.

"Since the gas produced from liquid-rich places is not enough to meet long-term gas demand in North America, the U.S. will eventually need to begin drilling dry gas places to support domestic and export demand," he told the conference, held in the city of Daegu, about 300 kilometres southeast of Seoul.

Export volumes from the U.S. to Asia may also be limited by regulatory hurdles, Guerrant said, with only four projects representing about 51 million tonnes of LNG a year having been approved so far.

"There is still some uncertainty over the amount of exports that U.S. will approve," he said.