Japan, India hunt for LNG as supply tigthens
Fri Oct 13, 2006 7:17 PM IST

By Stuart Penson
ROME (Reuters) - Japan and India are among big consumers of liquefied natural gas (LNG) scouring the world for spot cargos and trying to negotiate new supply contracts as competition intensifies in a tightening market.
Despite a boom in the construction of plants to freeze natural gas into LNG, supply is lagging demand, partly because of a drop in exports from major supplier Indonesia, industry executives told a conference on Friday.
Shortages of capacity to convert LNG back into normal gas for consumption, and problems with differing gas qualities between regions are also problematic.
"The LNG market is currently a seller's market," Keiji Takemori, General Manager of Energy Resources Development at Japan's second biggest utility Osaka Gas, said.
Osaka Gas Co Ltd supplies about 6.8 million customers in the Kansai Region of western Japan. Its annual LNG purchases total 6.8 million tonnes, roughly five percent of world LNG trade volume.
The company has tried to secure its long term gas needs by investing in upstream LNG production projects in Australia, Indonesia, Norway and Oman. The company is in talks with Chevron Corp to buy a stake in Australia's Gorgon project, but it says competition for equity stakes in LNG projects is tough.
"There are reduced opportunities for equity investment by LNG buyers," Takemori said.
Japan in particular has felt the drop in Indonesian exports, which traders say in due to new policies to use more gas domestically and to the need for investment in Indonesian fields.
India, whose fast growing economy is forcing up energy demand, has started buying spot cargos of LNG to supplement contracted supplies.
"We have started taking spot cargos," Amitava Sengupta, a director at India's Petronet LNG LTD, said. "So far we have taken 10 cargos. I think there will be 4 to 6 more this year."
India is driving ahead with plans to boost the number of terminals it has to import LNG. Also it has taken up an option with Qatar's Rasgas to increase the volumes it takes under an existing contract, Sengupta said. The extract volume will not kick in until 2009
Analysts are divided on when the LNG market might swing back into balance.
One industry source said there were already signs that higher prices in Europe had started hitting demand in Spain. But demand remains strong in most regions.