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 sufferinga long-term loss of liquefied natural gas (LNG) supply as topexporter Qatar sends only left-over short-term deliveries to theUK while more and more of its LNG goes to higher paying Asiancustomers.

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

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

Instead, Qatar is trying to lock the majority of its gasinto the Asian market through signing long-term supply dealswith customers in Japan, South Korea and emerging markets likeChina and India, where gas demand is rising fast and prices arehigher.

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

Supplying unattractively priced British markets currentlyworks to Qatar's advantage as it withholds gas from Asia andkeeps 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 asudden rise in Asian demand could leave Britain short of muchneeded LNG imports.

"The UK's security of supply is not as good as previouslythought," Niall Trimble, director of the Energy Contract Companysaid.

Fearing a sudden LNG supply disruption, especially duringthe high demand winter heating season, the British government isclosely monitoring Qatari LNG flows, sources close to the mattersaid.

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

The crisis at Japan's Fukushima nuclear power plant in Marchlast year and resultant idling of the country's nuclear powerplant 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 suggestthat LNG imports in Europe were down a quarter compared to thesame 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 declinethrough the medium term," it added.

British government documents seen by Reuters show thatQatari officials have repeatedly resisted calls to guaranteeshipments, preferring instead to decide deliveries based onstrategic objectives and market conditions.

"The draft agreement presented by the Qataris is notacceptable to Centrica - the cargos could be fully diverted, andprice is high, and the contract duration (3 years) too short,"the document says.

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

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

It also shows that Centrica failed to lure the gas-rich Gulfstate into an initially proposed 20-year supply agreement worth30 billion pounds.


LNG exporters have largely set their sights on an Asianfuture as European gas demand is set to stagnate as a result ofslow economic growth and low increases in population while thereare plentiful pipeline supplies from Russia, Norway and NorthAfrica.

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

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

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

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

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

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

Additionally, Qatar holds significant LNG import assets inBritain, owning the South Hook terminal in the Welsh port ofMilford Haven, and letting it sit idle would delay returns oninvestment for Qatar.

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

"The great strength of the UK's liberalised gas market isthat it has the ability, through market means, to attract gasshipments as and when they are required," he told Reutersearlier this year.

So while Britain's chances of losing all its LNG supply toAsia for good appear slim for now, the threat hanging overEurope's biggest gas market is the prospect of large-scaleperiodic 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 5426659)(Reuters Messaging:henning.gloystein.reuters.com@reuters.net))