KUALA LUMPUR: Long-term demand for liquefied natural gas (LNG) is bright but suppliers face a demand crunch in the short-term due to the economic crisis.

However, speakers at the 14th Asia Oil & Gas Conference said to ensure future uninterrupted supply, there was a need to continue investing in infrastructure, a well-balance relationship between suppliers and consumers as well as a stable geopolitical environment.

ExxonMobil Corp's east region upstream ventures vice president Wayne Harms said the company's in-house projections saw oil demand grow 1% per year from now till 2030 while gas would have a growth of 1.8% and coal 0.6%.

"The long-term outlook for natural gas is strong although the current state of the economy will moderate our short-term outlook," he said.

Harms said Asia would lead the growth in demand for gas and the region would become the largest consumer by 2030. "Asia is also seeing rising production but demand is expected to outstrip supply by half-a-percentage (point) every year," he said.

Global demand for LNG currently stands at 180 million tonnes per annum.

Petroliam Nasional Bhd gas business vice president Datuk Wan Zulkiflee Wan Ariffin said the general consensus was that demand for energy was expected to grow because of economic development, booming populations and urbanisation.

"The pace and timing of recovery is uncertain although gas demand is expected to recover next year, right now there is a wait-and-see attitude for some of the projects compared to last year where the focus was on the gas supply crunch," he said.

Wan Zulkiflee said the push for cleaner energy would mean greater demand for gas and that failure to invest in infrastructure will inevitably have adverse consequences on the economy.

He said the global economic slump has tested the relationship between suppliers and consumers as the latter were not able to commit to long-term contracts due to the slump in demand in their home markets. The average LNG contract is 25 to 30 years with Asian LNG contracts linked to crude oil prices.

"There is a need for a balanced relationship between the two and while suppliers should be as accommodating as possible, there are options of diverting to other markets or reducing production," Wan Zulkiflee said, adding that this was the first time suppliers were facing buyers who could not take cargo.

Chevron Corp global gas president John Gass said suppliers that were able to work with their customers in times like these "will have better success in the long-term".

Wan Zulkiflee later told reporters that the market was very fluid in the past few months and would continue to be so for the foreseeable future.

He said the possibility of lowering production has not been considered. "We're only shutting down plants for regular maintenance at the moment," Wan Zulkiflee said.

FACTS Global Energy Group chairman Dr Fereidun Fesharaki said the outlook for Asian LNG demand would be challenging at least till the first-half of 2010.

"There are 50 million to 60 million tonnes coming into the market by the end of this year while demand in the major consuming countries is expected to come down to between 15 million and 20 million tonnes," he said.

Fesharaki said suppliers would have to think of new ways to dispose of their extra LNG volume or cut production. "The market in this part of the world cannot take the volume," he said.

By Fintan Ng
Source:thestar online | Business