GO
Loading...

Asia Natgas Demand Strong Amid Risk of Oversupply: Pros

Sri Jegarajah|Reporter, CNBC Asia Pacific
Tuesday, 5 Jun 2012 | 11:38 PM ET

Despite slowing growth momentum in China, demand for natural gas is expected to remain robust in Asia and will be enough to absorb the additional supply coming in from North America, several industry players told CNBC on the sidelines of the World Gas Conference in Kuala Lumpur.

A hydraulic fracturing site
Getty Images
A hydraulic fracturing site

Barclays Capital noted last month that the spread between North American natural gas prices and Asian LNG (liquefied natural gas) prices hit all-time highs of more than $13 per million British thermal units to Japan. The widening spread makes it profitable to ship North American cargoes to faster-growing emerging economies here.

Still, many believe too much material is heading in this direction and that the market risks becoming saturated around the next decade. “I think it's pretty realistic because we will see oversupply from 2017, 2018 with the volumes coming from the U.S.,” Fereidun Fesharaki, Chairman and CEO of consultancy FACTS Global Energy said.

However, Santos CEO David Knox and his industry peers believe demand will remain strong enough to absorb the additional volume. “I don't believe there will be an oversupply. I do believe there will be some volumes coming from North America this way but it will be a relatively small amount.”

He added: “We predict that by 2025, there will be 350 million tons of demand in Asia of which perhaps 10 percent will come from North America - so a relatively small amount. We believe that LNG demand is going to remain really very strong in the Asian region for the foreseeable future.”

Asia to Stick to Long-term Deals

And to ensure supply security, industry players say Asia will stay with long-term contracts of between 10 and 20 years, despite calls to evolve the pricing structure towards more flexible shorter terms.

According to Santos Knox an increasing number of shorter-term deals were being struck but they still formed a “relatively small percentage of the total LNG market” at between 10 percent and 20 percent.

“Fundamentally the market is supplied on long-term contracts and the reason is...security of supply,” Knox said.

Fesharaki of FACTS Global Energy agreed that longer-term supply contracts would remain the industry norm, and likened the deals to a lasting nuptial agreement. “Oil is like dating. Gas is like getting married, requiring proper contracts, and long arrangements,” he said.

Featured

  • Pump jacks and wells are seen in an oil field on the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom, March 23, 2014 near McKittrick, California.

    Brent crude futures turned lower after Russia said top diplomats have agreed to take immediate steps toward calming tensions in Ukraine.

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • A former BP employee will pay to settle allegations of insider-trading during the 2010 Deepwater Horizon oil spill.

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

Contact Energy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More