Oil Report

Far East LNG demand siphons more supply from U.S.

NEW YORK, Sept 17 (Reuters) - Liquefied natural gas imports to the United States in September slipped further last week, as strong demand from the Far East, particularly Japan, continued to attract extra spot supplies, according to estimates by a Houston-based consulting firm.

“This is going to be a very strong year for Asian LNG imports,” said Steve Johnson at Waterborne Energy, a consulting firm that monitors the global flow of liquefied gases.

Johnson expects U.S. LNG imports in September to total about 50 billion cubic feet, down from an earlier estimate of 59 bcf and 40 percent below the August total of 87 bcf. He said October should come in at about the same level as September.

With landed gas prices in Japan recently climbing to about $10.70 per mmBtu and U.S. and European prices languishing between $6 and $7, record volumes of spot supplies were being redirected to Asia, Waterborne said in a report last week.

“As the arbitrage to the Far East widens from Western LNG supply sources, the number of Atlantic Basin cargoes moving to the Far East is expected to shatter previous record levels,” the report said.

Demand from Asian countries like Japan, China, Taiwan and South Korea typically picks up at this time of year due to stockpiling ahead of winter, but the shutdown in July of Japan’s largest nuclear plant has added to the increase.

While South Korea has not been an active buyer yet, Johnson said it should be out looking by November, adding, “They can really put a dent in global supplies.”

At the same time, the Waterborne report said production problems in Trinidad and Egypt have cut available global spot supplies, further reducing flows to the United States.


But with U.S. gas inventories this year hovering at record highs and likely to hit an all-time high of 3.5 trillion cubic feet by winter, industry sources said there was little need for extra supplies in the United States right now.

Shipments of LNG to the United States set a record for the first half of the year, totaling some 464 bcf or 2.56 bcf per day, because of high U.S. gas prices.

But winter stock building in Europe and Asia usually gets under way in late summer and autumn, which typically means fewer LNG cargoes earmarked for the United States.

Both regions are more dependent on LNG to meet heating and cooling demand and usually pay up for added supplies, while the United States, one of the world’s largest natural gas producers, can fall back on existing domestic reserves.

Nevertheless, U.S. LNG imports this year are likely to hit a record 850 bcf, or 2.33 bcf per day, up more than 45 percent from last year’s total of 584 bcf, or about 1.6 bcfd.

Natural gas provides about 20 percent of the nation’s power and is also used to heat homes and businesses and as a feedstock for some industrial processes.

LNG will meet nearly 4 percent of total U.S. gas demand this year, but much more will be needed to meet future growth, especially from new gas-fired power generators.

Industry experts have estimated that LNG imports will provide a fifth of total U.S. gas supplies by 2015.

There are five U.S. LNG regasification terminals in operation, but four more are under construction and should be online in 2008 and 2009, more than doubling domestic import capacity to about 13 billion cubic feet.