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Britain's gas supply prey to Qatar marketing strategy

* UK officials monitoring Qatar LNG trade patterns

* UK import dependency set to rise sharply

* Qatar focuses on Asia for growth

By Oleg Vukmanovic and Henning Gloystein

LONDON, Oct 8 (Reuters) - Britain is in danger of suffering a long-term loss of liquefied natural gas (LNG) supply as top exporter Qatar sends only left-over short-term deliveries to the UK while more and more of its LNG goes to higher paying Asian customers.

Analysts and British energy companies say the strategy rewards Qatar but puts Britain at a significant disadvantage.

Britain depends increasingly on Qatar to plug a growing energy supply deficit but has so far failed to receive a supply guarantee from the Gulf producer.

Instead, Qatar is trying to lock the majority of its gas into the Asian market through signing long-term supply deals with customers in Japan, South Korea and emerging markets like China and India, where gas demand is rising fast and prices are higher.

Qatari shipments provided a quarter of Britain's gas needs last year.

Supplying unattractively priced British markets currently works to Qatar's advantage as it withholds gas from Asia and keeps prices in target markets like Japan and South Korea high, just as long-term contracts are being negotiated.

But the lack of binding supply agreements means that a sudden rise in Asian demand could leave Britain short of much needed LNG imports.

"The UK's security of supply is not as good as previously thought," Niall Trimble, director of the Energy Contract Company said.

Fearing a sudden LNG supply disruption, especially during the high demand winter heating season, the British government is closely monitoring Qatari LNG flows, sources close to the matter said.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ UK overseas gas imports to surge to $11 bln: CHART-UK gas demand outlook: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

"This is compounded by the fact that we are the only importer on the planet without guaranteed supplies of LNG, so if there is another Fukushima-style event, it's our supply that would be hit," Trimble added.

The crisis at Japan's Fukushima nuclear power plant in March last year and resultant idling of the country's nuclear power plant fleet spurred record imports of substitute fuels like LNG, with many cargoes diverted away from markets in Europe.

"Preliminary estimates for the first half of 2012 suggest that LNG imports in Europe were down a quarter compared to the same period of 2011, with the UK reduction close to 43 percent," energy consultants Wood Mackenzie said in a research report.

"European LNG imports peaked in 2011 and will decline through the medium term," it added.

British government documents seen by Reuters show that Qatari officials have repeatedly resisted calls to guarantee shipments, preferring instead to decide deliveries based on strategic objectives and market conditions.

"The draft agreement presented by the Qataris is not acceptable to Centrica - the cargos could be fully diverted, and price is high, and the contract duration (3 years) too short," the document says.

The details of a three-year, two billion pound ($3.23 billion) gas supply deal between British utility Centrica

and Qatar signed in 2011 show that up to a quarter of Britain's gas may be diverted at Qatar's behest, according to briefing documents prepared for former UK energy minister Charles Hendry and supplied to Reuters by Greenpeace.

It also shows that Centrica failed to lure the gas-rich Gulf state into an initially proposed 20-year supply agreement worth 30 billion pounds.

LOOKING EAST

LNG exporters have largely set their sights on an Asian future as European gas demand is set to stagnate as a result of slow economic growth and low increases in population while there are plentiful pipeline supplies from Russia, Norway and North Africa.

"With Qatar now producing at full capacity, attention has turned to increasing market share in Asia," Wood Mackenzie said, adding that several long-term supply contracts with Asian partners had been signed with Qatar this year.

Because Qatar is producing at full capacity and has set a moratorium on expanding its export terminals, these new long-term supply deals mean that less Qatari gas will be available to be sent to Britain during a time when global gas markets are expected to tighten.

Some British officials have set their hopes on LNG exports from the United States, where a shale gas exploration boom in recent years has opened up vast new reserves that U.S. companies hope to export from 2015.

But analysts say that U.S. LNG exports are likely to be capped in order to guarantee domestically low energy prices, and that most U.S. LNG exports would likely flow to Asia, where prices are expected to remain higher for the foreseeable future.

Despite this risk, it is unlikely that Qatar will completely stop sending LNG tankers to Britain.

"It is not physically possible for Qatar to divert everything to Asia since its large vessel sizes are not compatible with many ports," an executive at Centrica said, ensuring that the UK continues received deliveries.

Additionally, Qatar holds significant LNG import assets in Britain, owning the South Hook terminal in the Welsh port of Milford Haven, and letting it sit idle would delay returns on investment for Qatar.

The Energy and Climate Change Secretary Ed Davey also defended Britain's handling of its gas supplies.

"The great strength of the UK's liberalised gas market is that it has the ability, through market means, to attract gas shipments as and when they are required," he told Reuters earlier this year.

So while Britain's chances of losing all its LNG supply to Asia for good appear slim for now, the threat hanging over Europe's biggest gas market is the prospect of large-scale periodic disruptions, which could cause sharp rallies, especially during peak-demand periods like winter. ($1 = 0.6186 British pounds)

(Editing by William Hardy)

((henning.gloystein@thomsonreuters.com)(+44)(0)(207 542 6659)(Reuters Messaging: henning.gloystein.reuters.com@reuters.net))

Keywords: ENERGY GAS/BRITAIN/QATAR

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