KUALA LUMPUR, June 9 (Reuters) - With the global gas industry plagued by excess supply and waning demand in coming years even after economies recover, Asian buyers aim to revamp long-term contracts to secure lower prices, executives said on Tuesday.

Any improvement may come in the longer term, with growth in liquefied natural gas (LNG) consumption driven by the emerging economies of China and India, while buyers' hesitance toward term contracts could affect LNG projects and supply, they said.

At the end of May, gas prices in Britain sank to their lowest since June 2007, and U.S. gas prices at benchmark Henry Hub NG-W-HH also plunged, as demand shrank in the wake of the global economic crisis.

"Demand destruction is a real and pressing challenge confronting the global gas industry right now," John Gass, Corporate Vice President of Chevron Global Gas, told the Asia Oil and Gas Conference.

Morgan Stanley estimates a global gas output of 110 trillion cubic feet (tcf) this year, while demand is projected to fall to 106-108 tcf, resulting in an oversupply of 2-4 tcf, said William Wicker, managing director of its Global Natural Resources Group.

"There's a ton of gas out there. The excess supply will remain for some years to come, even after the economies recover."

As a result, producers are looking for alternative markets to offload excess cargoes. Qatargas, one of two majority state-owned producers in the world's top LNG exporter, said it has tried to divert its cargoes to other markets such as Europe and the United States, Alaa Abujbara, the marketing director of its Commercial and Shipping Group, told conference delegates.

"We are working very hard with our core Japanese customers to help them manage these turbulent times," he added.

The United States is seen as the market of last resort for LNG, which is natural gas chilled to liquid form for shipment, largely because it has enough capacity to absorb the higher supply, rather than price fundamentals, analysts said.

"The current economic climate weighs very heavily," said Wayne Harms, the Vice President of ExxonMobil Upstream Ventures.

CHANGING BUYER PROFILE

Buyers are deferring the take-up of cargoes using flexibility clauses in their long-term contracts, said Wan Zulkiflee Wan Ariffin, Vice President of Petronas' Gas Business.

Seokhyo Jang, Executive Vice President of state-run Korea Gas Corp's (KOGAS) (036460.KS) Resources Division, said the demand profile of LNG buyers was changing.

"Buyers are reluctant to make commitment to long-term contracts, which could affect the FIDs of LNG projects," he told the conference, referring to final investment decisions.

Jang said buyers wanted more pricing and volume flexibility in contracts, adjusting prices to prevailing market conditions unless project economics were undermined. 

Atsunori Takeuchi, Senior Vice President of Tokyo Gas Co Ltd's (9531.T) LNG Asia Pacific Gas Resources Department, said his firm was in the throes of negotiating for lower prices.

"We're negotiating the pricing. We're confident to get a deal, maybe later this year," he told Reuters on the sidelines of the conference, but declined to say by how much.

Tokyo Electric Power Co (TEPCO) (9501.T) said it plans to take 17-18 million tonnes of LNG under term contracts this year, but will not import additional cargoes after taking 2 million tonnes of spot parcels last year.

"In Japan, demand is down dramatically. With the decreasing consumption, we have no plans this year for spot cargoes," Takao Arai, executive officer of TEPCO's fuel department, told reporters on the sidelines of an industry conference.

But the outlook brightens longer term, with the booming economies of China and India seen propping up the LNG market, as demand from traditional buyers -- South Korea and Japan -- ease due to rise in alternative energy sources like nuclear power and coal.

"China will be the next biggest buyer of LNG after Japan, and India is on the same scale as China. Spot LNG is looking very attractive to our customers in China right now," Abujbara said.

ExxonMobil estimates that Asia's gas demand will grow at 3.7 percent per year between 2005 and 2030, compared with 1 percent for North America and 0.9 percent for Europe. Asia will account for about one-third of global LNG demand by 2030. (Editing by Ramthan Hussain)

By Jennifer Tan

Source:REUTERS