* LNG shortfall expected to emerge in early to mid-2020s
* Prices at $7-$8/mmBtu could get LNG projects going
* Tellurian offers LNG delivery to Japan at $8/mmBtu from
(Adds detail, comment)
By Mark Tay and Aaron Sheldrick
CHIBA, Japan, April 4 The global liquefied
natural gas (LNG) industry will face a supply shortfall in about
five years because low prices have discouraged investment in new
production, major producers said on Tuesday at a gas conference
in Chiba, near Tokyo.
Without the investments, suppliers may not be able to meet
the needs of buyers such as Japan - the world's biggest importer
of LNG - at a time when reducing emissions from other dirtier
fossil fuels will be crucial to abate global warming, executives
with international gas majors said.
"We are facing global overcapacity that is putting pressure
on prices," Total SA Chairman and Chief Executive
Office Patrick Pouyanne told the Gastech conference.
As a result, "the industry is entering a period of reduced
investments … (that) could result in a lack of supply in five
years. We must carry on investing for the future," he said.
LNG projects typically require billions of dollars of
investment over many years of development. The industry has
usually relied on long-term contracts linked to oil prices to
ensure producers can get financing on favourable terms.
That has changed in recent years as buyers led by Japan and
other Asian countries have been pushing for lower prices and
better contract terms. The recent drop in oil prices has also
meant some planned projects are not feasible.
Chevron Corp Vice Chairman Michael Wirth said
earlier at the conference a "supply gap" could happen over the
next few years if new projects are not approved.
During supply shortfalls - such as when the Fukushima
nuclear crisis of 2011 led to the shutdown of Japan's reactor
fleet, and imports of LNG and coal spiked to records to replace
the lost power generation - price can run up rapidly.
Spot LNG prices in Asia LNG-AS were at more than $20 per
million British thermal units (mmBtu) in 2014, but with the more
recent surplus they are now trading at less than $6 per mmBtu.
BETTING ON $8/MMBTU IN 2023
Other executives echoed Pouyanne and Wirth on the need for
investments now to avoid a shortfall emerging in the early to
They included Woodside Petroleum CEO Peter Coleman,
who said buyers and sellers are starting to align on prices that
can get projects going.
"Sellers are looking for prices above $7 per mmBtu;
somewhere between $7 to $8 would get most projects going, and I
think also that's a sustainable level for buyers," Coleman told
reporters at the conference.
One seller is willing to gamble at those levels to win the
chance to fill the potential supply gap.
Tellurian Inc said it will guarantee to deliver LNG
to Japan for $8 per mmBtu from 2023 under five-year contracts,
"I'm going to take the volatility out of the market,"
Tellurian Chairman Charif Souki told Reuters, after announcing
his offer from the stage at Gastech.
Souki said deliveries would be from the company's planned
Driftwood LNG terminal near St Charles in Louisiana, with the
company taking care of all costs from gas field, LNG processing
and delivery to Japan on an initial 7 million tonnes per annum
in the "first phase".
Tellurian said on Monday it had filed an application with
the U.S. Federal Energy Regulatory Commission to build a
terminal that would eventually have a capacity of 26 million
tonnes a year.
Gas supplies would come from a 96-mile (150 kilometre) link
to interstate pipelines, the company said.
(Reporting by Mark Tay and Aaron Sheldrick; Additional
reporting by Osamu Tsukimori and Yuka Obayashi; Editing by
Christian Schmollinger and Tom Hogue)