Korea Gas Corp. (036460), the world’s biggest importer of liquefied natural gas, said U.S. policies will determine how much LNG the country exports and shipments will undermine a 40-year-old oil-linked price mechanism used in Asia.
“There is good potential for the U.S and Canada to export LNG to Asia,” Chief Executive Officer Choo Kang-Soo said in an interview today in Kuala Lumpur, where he is attending an industry conference. “How much they can ship out will depend on the policy of the U.S. and also what American people think.”
Asia’s LNG buyers, which account for more than 60 percent of global demand, are turning to North America because U.S. prices are tumbling amid record production driven by extraction from shale deposits. That’s weakening the so-called Japan Crude Cocktail, the benchmark index used to price long-term contracts across Asia.
“More volumes from the U.S. will affect oil-linked gas pricing,” Choo of Korea Gas said today. Western Canada is also preparing to export LNG, so “we have to see the overall picture,” he said.
Qatar, the world’s largest LNG provider, and Australian producers including Woodside Petroleum Ltd. (WPL) this week played down prospects of large-scale exports from the U.S., where a shale-gas boom has upended global energy markets and brought the country closer to energy independence.
Woodside, operator of the A$15 billion Pluto LNG project in Western Australia, expects the U.S. to export as much as 50 million metric tons of the fuel by 2025. That would meet about 10 percent of global demand. The company last month predicted 65 million to 80 million tons of unmet demand in 2018 to 2020.
South Korea has agreed to buy 3.5 million metric tons of LNG annually from the U.S. starting 2017, Choo said.
Asian buyers including Korea Gas and GAIL India Ltd. (GAIL) have contracted about 7 million tons of U.S. supplies since last year from Cheniere Energy Inc., the Houston-based company developing what will be the nation’s largest LNG export terminal in Louisiana. Tokyo Gas Co. (9531), Japan’s biggest gas distributor, and Sumitomo Corp. (8053) agreed in April to buy 2.3 million tons annually for 20 years from Dominion Resources Inc. (D)’s Cove Point project.
Buying U.S. gas will allow Asian consumers to pay prices linked to U.S. Henry Hub futures, which dropped 32 percent in 2011 and are down 19 percent in 2012. Futures slumped to $1.90 per million Btu on the New York Mercantile Exchange April 19, the lowest since September 2001. The contract rose 0.4 percent today to $2.43 per million Btu.
“We are studying and recalculating the LNG import plan for future as the whole economy has been changed,” Choo said. “The result may come out at the end of the year.”
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