INTERVIEW-Petronet sees Asia LNG spot market growth

Wed Nov 24, 2010 6:27pm IST

Stocks

   

* Petronet appetite for Australian LNG dependent on pricing

* Asian buyers looking for increased flexibility

By Rebekah Kebede

PERTH, Nov 24 (Reuters) - The Asian liquefied natural gas spot market will likely expand as buyers wary of long-term contract pricing look for more flexibility, an executive at India's Petronet LNG Ltd (PLNG.BO) said on Wednesday.

"Indian and Asian LNG markets are lagging - most of the LNG which is sold in Asian markets is long term (but) eventually, the trend will change and Asian buyers will look for more flexibility," said Anil Joshi, senior vice-president of major projects and business development at Petronet.

While spot trade made up 20 percent of the worldwide LNG market last year, Asian buyers made up only 4 to 6 percent, Joshi said.

The fact that many long-term LNG contracts are priced against the Japan crude cocktail C-JP-JCC is a key motivator for more buyers to move towards more short-term contracts or even towards buying spot cargoes.

"The thing which is in the back of the mind of every LNG buyer is that if the market decouples with oil, then he would be left with a long contract which is totally linked with oil," Joshi said.

Petronet is moving away from long-term contracts to supply part of its 2.5 million tonne Kochi LNG terminal, with a 1.5 million tonnes long-term contract with Exxon Mobil (XOM.N) and leaving the balance open to shorter-term arrangements, including spot cargoes.

LNG FOR INDIA

Natural gas is expected to grow from 10 percent of India's energy supply currently to 24 to 28 percent in 2025 and India will be on the market to fill some of that demand with imported gas.

However, Australia, which is a major supplier of LNG to other Asian countries, and hopes to become the second-largest LNG producer by 2015, may not be Petronet's first choice.

"Australia has a very high construction cost. Buyers definitely like to buy from a project that can give them an affordable price," Joshi said. "If the price is high, then the market cannot take it."

Petronet's new Kochi terminal will be supplied in part by Exxon Mobil's Gorgon project located in northwest Australia.

Most Australian projects now under construction or in the pipeline are already seen as expensive, at a cost of between $6 and $8 per million British thermal units (mmBtu), while most non-Australian projects cost less than $6 per mmBtu, according to the Australian Petroleum Production & Exploration Association.

Meanwhile, Indian domestic gas produced by Reliance priced at just over $4 per mmBtu, Joshi said.

The arrival of the United States on the LNG export scene as it attempts to find a home for its plentiful gas supply from unconventional gas production, may help drive down prices in the higher-priced Asian LNG market.[ID:nSGE6AL0QX]

"(It's) good for an energy deficit country like India," Joshi said.

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