Nikkei: Recession forces rethink of LNG strategies

The world's major LNG producers are reviewing their strategies to deal with overcapacity resulting from the global economic downturn, according to Japanese media.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 22 -- The world's major LNG producers are reviewing their strategies to deal with overcapacity resulting from the global economic downturn, according to Japanese media.

The Nikkei Business Daily said Indonesia is revising its production plans in response to shrinking orders from electric and gas utilities in Japan and other East Asian countries, while Qatar is cultivating new markets, including Thailand.

The world's LNG supply capacity is expected to grow 25% this year, adding to the urgency of efforts by the suppliers.

Electric power and gas companies in Japan, South Korea, and Taiwan have asked Indonesia to reduce LNG shipments from a plant in Bontang, East Kalimantan, by 15% from April through the end of 2009, due to weakened demand.

The Bontang plant produces 22 million tons/year of LNG. Shipments are expected to fall by 1 million tons annually, or the equivalent of about 2% of Japan's total imports.

The paper noted once output is scaled back at a gas field, it takes considerable time to bring production back up to the original level.

To maintain the current production level at the Bontang plant, it said the Indonesian government is considering cutting initial output at the Tangguh LNG plant in West Papua, which is slated to start operations soon.

Indonesia's state-owned PT Pertamina is in discussions with BP PLC, which has a stake in the Tangguh project, about possibly substituting Bontang's LNG for some of the planned shipments to China and Mexico from the Tangguh plant.

Meanwhile, Qatargas, Qatar's state-operated LNG producer, has reached a basic agreement with Thailand to export 1 million tons of LNG annually to the country from 2011, CEO Faisal Al-Suwaidi told the newspaper.

It will be the first time for Thailand to import LNG. Qatar also reached an agreement for supply to Poland and is preparing to begin shipments to Kuwait and the United Arab Emirates, as well.

Qatar is the world's largest LNG producer, with an annual output of over 30 million tons.

A new plant boasting the world's largest capacity was completed there earlier this month, and 46 million tons in production capacity will be added by the end of next year, enabling the country to meet more than 30% of global demand.

In 2007, 165 million tons of LNG was supplied worldwide, of which 60% was consumed in East Asia. In fiscal 2009, demand in Asia is expected to fall by several percentage points, with Tokyo Gas Co. planning to cut its purchases by 5% and Osaka Gas Co. by 12%.

In East Asia, electric power and gas companies have canceled enough purchases on the spot market so far this year to fill 12 LNG carriers, and LNG prices have fallen to one-fifth the levels of last summer, according to U.S. financial services firm Merrill Lynch & Co.

The US, which has been expected to become the largest LNG consumer, is in a recession and is being supplied with more conventional natural gas that has become obtainable thanks to technological innovations.

LNG has become more expensive in the US than natural gas imported from Canada via pipelines. The US Department of Energy expects LNG imports to start declining after peaking in 2018.

Meanwhile, an LNG plant in Sakhalin, Russia, started operations in February, and LNG production is expected to begin in Yemen, Peru, and Angola by 2013, when about 20 countries will be producing LNG, up from the current 16.

Contact Eric Watkins at hippalus@yahoo.com.

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