Global crisis threatens future LNG supplies

Barcelona: The world will face a severe liquefied natural gas supply crunch when demand rebounds after the economic crisis if more production plants are not built soon, delegates told the CWC World LNG Summit this week.

New plants under construction and due to start over the next three years, together with lower demand growth, should mean there will be plenty of fuel for a while, giving some respite from the high prices of the tight market in recent years.

But a lack of investment in new capital-intensive facilities amid uncertainty over demand and financing problems threatens an even tighter market for the super-cooled gas later.

"The lack of final investment decisions on new supply projects since most of these new projects were conceptualised is probably setting the industry up for a very tough supply crunch in the middle of the next decade," Elizabeth Spomer of BG Group, one of the biggest market players, told the conference in Barcelona.

"One of the repercussions of this financial crisis will be what happens to the pace of new projects going forward ... One of the biggest challenges facing the industry today is that markets don't know how much gas they need," Spomer, a senior vice president of BG's North American operations, said.

Most speakers agreed there would probably be a lull in demand for the fuel used to fire an increasing number of the world's power stations and as a raw material for some industries because of the economic downturn.

Talk of tight supplies and high prices affecting the market during last year's conference in Rome has turned to concern about long-term availability of gas after 2012.

"In principle, the short term market should relax," Jean-Luc Colonna, senior vice president of LNG at GDF Suez said.

"In the longer term there is uncertainty about what is going to happen after 2012-2013 because we need new projects for LNG ... The conditions prevailing in the coming two or three years will probably make new projects more difficult, particularly in terms of financing."

Simon Bonini, LNG director at Centrica - Britain's biggest retail gas supplier - said that although residential demand for gas for heating was unlikely to fall significantly, there were already signs of a drop in demand from other users.