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Lloyds List: North Asian gas import prices will rise as demand increases

Lloyds List: North Asian gas import prices will rise as demand increases

Tony Gray reports from the LNG Finance Forum in London organised by Euromoney Energy Events and Gas Strategies

May 10, 2005

Growing global demand for liquefied natural gas will force the hungry markets in north Asia, which have traditionally been the biggest consumers, to raise their import prices, the conference was told.

Peter de Wit, president of Shell Gas ‘ Power, Asia- Pacific, said the industry was witnessing the emergence of a more inter-connected global LNG market which was likely to lead to ‘greater volatility in the Asia-Pacific market and higher prices.’

Japan, South Korea and Taiwan account for more than two-thirds of the world’s LNG trade.

China and India are also set to become significant Asian importers.

As demand in the US and Europe also grows, Mr de Wit pointed out that suppliers had increasing inter-regional choices of market.

‘That means if North Asian LNG prices continue to lag behind those elsewhere, particularly in the US, then those Asian markets may not be attractive destinations for many of the new sources of supply.’

Evidence of this had already been provided by the substantial increases in Middle East production capacity which was all directed at North American and European customers.

In addition, the Gorgon project, Australia’s next major development, last month disclosed that its first major market was Mexico.

‘The message is clear,’ Mr de Wit said, ‘and we can expect to see the hungry markets in North Asia respond by raising their price levels.’

Although the majority of LNG supplies were likely to continue being contracted on a long-term basis, he said both old and new customers would be looking for increasing flexibility and diversity of supply.

‘I think we will also see more opportunities to manage flexibility by spot sales and cargo swapping,’ Mr de Wit said.

‘We are already seeing evidence of an increasingly complex network of inter- regional trades, helped by growing shipping capacity, where suppliers are redirecting cargoes from their original destinations.’

Mr de Wit endorsed the optimism expressed earlier in the day about the ‘direction the business is going in the US’.

Jean-Francois Lambert, finance manager at Total LNG USA, said the LNG industry in the US was ‘growing in a fairly balanced way.’

Although there were many LNG terminal projects, they would probably take more time to implement than initially scheduled.

This would ‘act as a moderator and avoid flooding of the US market.’

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