Prices, demand to trump politics as lure for US LNG, say Asian buyers

LNG is unloaded from the Al Kharsaah LNG tanker docked at the Korea Gas terminal in Pyeongtaek, South Korea. Asian buyers, including China, India, Japan, South Korea and Taiwan, currently take about 70% of global LNG exports.

Reuters/Goyang, South Korea

Asian natural gas buyers are counting on higher prices and growing demand to lure most North American gas shipments their way, even as US lawmakers consider speeding up export approvals to cut Europe’s dependence on Russia for the fuel.

Russia’s seizure of Crimea from Ukraine has revived European worries about energy supply security. EU leaders are eager to end decades of reliance on Russian gas, and will press the US for clear commitments on a new source of supply.

US lawmakers are already weighing changes to energy policy that would allow natural gas exports to any country that belongs to the World Trade Organization, and a key senator said on Tuesday that US shale gas should be used to counter Russian influence in Europe.

Asian buyers, who have been counting on the fresh supply source to meet rising demand, said that Europe’s option of increasing imports of liquefied natural gas (LNG) at the expense of Russian piped gas is a long-term, costly solution that may never happen.

“That is not going to happen overnight. You have to build up receiving terminals, which will take millions in investments and five or maybe ten years,” chairman of Taiwan’s CPC, Sheng-Chung Lin told Reuters at a gas conference in South Korea.

“Unless European countries show such determination, it won’t happen,” Lin said. The discussions on supply come before the US has shipped even one cargo of LNG. Exports are scheduled to begin next year and slowly ramp up toward the end of the decade to around 50mn tonnes a year, making it the world’s third largest shipper behind Australia and Qatar.

Any impact of US LNG exports to Europe would be “relatively minor on the scale of the global gas market”, said Maarten Wetselaar, executive vice president of the integrated gas division at Royal Dutch Shell’s, one of the world’s biggest producers of LNG. “I wouldn’t expect them to disrupt any of the short-term, medium-term flows going around Asia,” Wetselaar said.

EU officials earlier this month called for clear text that would guarantee US gas exports under the Transatlantic Trade and Investment Partnership (TTIP). Asian gas prices, however, are around 50% higher than in Europe, and exports to EU countries at current US market values - adding in costs to super-chill the fuel and ship it - push the price of US LNG cargoes above European spot levels.

“Southern European markets would need to compete with Asia and Latin America for these additional LNG cargoes. This would push spot prices in some southern European markets higher - to levels equivalent to Asia,” said Noel Tomnay, Head of Global Gas Research at Wood Mackenzie.

Russian state gas company Gazprom recently moved to defend its position in Europe and Ukraine, including from potential US shipments, by cutting prices for most of its customers.

“I cannot see how those US cargoes will go to Europe unless European markets are willing to pay a higher price,” said Ahmad Adly Alias, chief executive of Petronas LNG, a key supplier to North Asia. “Cargoes will go to where the value is.”

Asian buyers, including China, India, Japan, South Korea and Taiwan, currently take about 70% of global LNG exports. Gazprom shut off gas to Europe in 2006 and 2009 during price wars with Kiev, and any similar disruption amidst the current crisis would tighten global LNG markets.

Last year, European countries began re-exporting LNG shipments bought under long term contracts, helping to ease tightness in Asia.

“If supplies to Ukraine are cut, which I really think is the big issue, then some of those cargoes may stay in Europe and not be redirected into Asia,” said Peter Coleman, chief executive of Australia’s Woodside Petroleum. Europe gets about one-third of its gas from Russia with about half of that shipped via pipeline through Ukraine.

“We obviously have a difficult situation in Ukraine at the moment, but the markets have lived through a similar period of tension in the past,” said Steve Ratcliffe, senior vice president of LNG coordination at Italy’s ENI, one of Russia’s biggest buyers of gas.

According to energy consultancy Wood Mackenzie, a two-month disruption this spring to the Ukrainian transit route would result in southern Europe requiring less than twomn tonnes of additional LNG. Even the impact of a six-month disruption during the next winter would be limited to less than five million tonnes due to high European storage volumes, the consultancy says.