Global gas assets, especially in countries like Australia, have become a red-hot commodity as companies race to outbid each other for the clean energy to meet a spike in Asian demand that outpaces supply.
Some analysts however said the tightness could ease and gas values would further lag crude oil's rally if producers hastened developments to gain from record prices and Western market are amply supplied with liquefied natural gas (LNG).
The debate may be encouraging some buyers in Asia to hold off from signing long-term contracts on hopes of falling prices, an issue that could be the focus of this year's Asia Oil & Gas Conference in Kuala Lumpur, which starts next week.
"Right now, Asia looks like a premium market, but if everyone comes to Asia, they'll undercut prices and you could see the price coming down relative to oil," said Jeff Brown, Singapore-based chief economist for FACTS Global Energy Group.
Global LNG demand is forecast to rise to nearly 400 million tons per annum (mtpa) in 2020, up from around 170 mtpa last year.
Asian demand, accounting for two-thirds of global LNG consumption, is projected to rise 20 percent to 126 mtpa by 2010 and to just above 200 mtpa in 2020, as users turn to gas to secure long-term energy for their booming economies as oil becomes scarce.
However, the Energy Information Administration (EIA) is projecting annual gas output to grow just 1.9 percent to 163.3 tcf in 2030 from 98.9 trillion cubic feet (tcf) in 2004, turning the buyers' market just five years ago into a sellers' market, and making Asia the global market setters.
Earlier this year, for instance, Japanese buyers agreed to pay around $16 per million British thermal unit—at oil price parity of $100 a barrel—for up to 10 years of Indonesian LNG, setting a new benchmark for Asian term contracts.
Rising prices are luring firms like Malaysia's Petronas , which is hosting the conference, and Shell , to invest billions to tap unconventional and underutilized energy sources—Australia's coal seam gas—which experts say could meet a big chunk of the region's gas needs.
Such large investments are deemed crucial due to a shortage of new volumes coming onstream in the next decade.
Woodside Petroleum , for example, stirred a debate recently when it said Australia will fail to meet its goal of tripling LNG output by 2020 due to severe labor shortage, capacity constraints and delays in major projects.
It drew immediate response from the Australian Petroleum Production and Exploration Association, which set that target, describing Woodside's view as "extraordinarily defeatist."
Such uncertainties in Australian LNG projects were causing concerns for buyers in China, Japan and South Korea.
Views also differed over the appetite among U.S. and European consumers to continue paying record prices for their gas.
Exxon Mobil said growing dependence on gas imports in the United States and Europe will result in Western demand surpassing Asia's by as early as 2015, changing consumption patterns for the first time in three decades.
But some analysts said the influx could lead to lower prices for suppliers who may turn to Asia as the main outlet.
"There's a lot of supply coming on in the U.S. market which would tend to undercut gas prices...Then, the temptation for a lot of the LNG dedicated for the U.S. market would be for Qatar to try to redirect that," said Brown from FACTS.
Qatar, the world's top exporter of LNG, plans to boost its capacity of the gas chilled to liquid form for transport on ships, by around 8 million tons to 39 million tpy by end-2008, with Qatargas train four due to come online in the third quarter.
Forward gas prices in Britain for winter have risen to 94 pence per therm ($1.8)—up 40 percent this year—or about $18.00 per million British thermal units. This is a more than $5 per mmbtu premium to winter gas prices at the U.S. Henry Hub market.
Buyers in Asia are likely to pay a premium of $2 a mmbtu above UK or US prices, whichever are higher, analysts say.
Buyers and sellers might also discuss the merits of diluting the link between the prices of LNG and crude oil, and to better reflect the true value of the gas by factoring in prices of other utility fuels such as coal, naphtha and fuel oil.
Analysts noted that while U.S. natural gas prices have jumped by more than half so far this year—versus oil's 36 percent rise—they have stayed below crude oil's peaks.
"There should be less and less of a linkage between the oil price and LNG because the competitor fuels for LNG for power generation is not really crude oil. It's now much more diverse than that," said Ashley Wright, partner at law firm Ashurst in Singapore.
"The linkage in Asia seems to be much more direct to crude oil than in the UK and that's just a symptom of the fact that it's a sellers' market. I don't see that changing as long as that's the case," he added.