UPDATE 1-S.Korea's KOGAS says in LNG arbitration with Australia's North West Shelf Gas

Shelf Gas@

* State-run KOGAS is world's 2nd-biggest buyer of LNG

* Australia has ambitions to become no.1 global LNG exporter

* Buyer pressure on LNG producers has increased in past years

* Buyers want more flexibility in long-term LNG contracts

* Analysts warn of reputation damage in demand to change contracts (Adds detail, comment, background)

SEOUL/SINGAPORE, Feb 12 (Reuters) - South Korea's Korea Gas Corp has entered court-administered arbitration with Australian joint venture North West Shelf Gas seeking to settle a dispute over a liquefied natural gas (LNG) contract that expired in 2016.

A spokesman for the state-run Korean firm, known as KOGAS, confirmed the arbitration process was under way but declined to give further details. Woodside Petroleum, operator of the North West Shelf venture, was not immediately available for comment.

The case, to be heard in a specialist arbitration court, that will be closely watched by the booming global liquefied natural gas (LNG) industry: KOGAS is the world's second-biggest single buyer of LNG, while Australia has ambitions to overtake Qatar as the world's biggest exporter of the fuel.

The arbitration relates to a difference over an agreed price renegotiation during a mid-term supply contract, a person familiar with the matter told Reuters. The person declined to be named due to the sensitivity of the matter.

Saul Kavonic of energy consultancy Wood Mackenzie it was "the first time in Asia" that an LNG buyer has resorted to taking an LNG price review negotiation to arbitration.

"Producers will be watching how the likes of the Chinese national oil companies, JERA (of Japan) and KOGAS choose to navigate upcoming price review opportunities, with large project value at stake," he added.

South Korea imports most of its LNG through KOGAS, the country's sole LNG wholesaler. The firm brings in over 30-31 million tonnes per year of the fuel, mainly from Qatar and Australia.

Most of Asia's LNG is supplied via long-term contracts under which buyers receive monthly cargoes. If they cancel supplies, payment is still due under so-called "take-or-pay" clauses.

Additionally, "destination clauses" prevent buyers from selling LNG to third parties.

To protect buyers and sellers from sharp price swings, the LNG under most long-term contracts is linked to oil, which caps by how much the price for LNG can rise or fall.

But with Asian spot LNG prices <LNG-AS> down by half from their more than $20 per million British thermal units 2014 peak, buyers have become restless and started demanding concessions.

In Japan, the world's biggest buyer of LNG, utilities have said they are unhappy with the terms from sellers, including Qatar and Malaysia.

In India, seen as a hotspot for LNG demand growth, GAIL has re-negotiated some prices with Russia's Gazprom .

There is precedent. Between 2008 and 2014, European utilities entered into dozens of arbitration cases, most winning awards in their favour and freeing up natural gas volumes to be bought and sold on spot trading hubs.

However, WoodMac's Kavonic warned there were also risks for buyers.

"Threats to renegotiate existing contracts now, outside of what is contractually permitted, will damage their (buyers')reputation for contract sanctity and impede their ability to underpin new supply projects when they need to in the future," he said.

(Reporting By Jane Chung in SEOUL and Jessica Jaganathan in SINGAPORE Additional reporting by Sonali Paul in MELBOURNE Writing by Henning Gloystein Editing by Richard Pullin and Kenneth Maxwell)