Asian Buyers Prefer Spot Buys For Gas Until Prices Drop

ExxonMobil's liquefied natural gas project in Alaska will increase gas competition for the Pacific basin, but Asian countries prefer making spot buys for now until supply increases and gas prices are softened, experts say. 



ExxonMobil, one of the major energy companies in the world, submitted a formal request to the Federal Energy Regulatory Commission to start its natural gas project in Alaska, ExxonMobil announced on its website last week. 



"Alaska project is another significant source of liquefied natural gas, for the Pacific basin, which is typically hungry for gas," said Christopher Goncalves, Director of Energy at Berkeley Research Group - a global economic consulting firm.



 "There is a lot of growth in gas demand, but there is also new supply coming from Alaska, the lower 48 states in the U.S., Australia, East Africa, and Canada," said Goncalves.



Adjunct Professor of Law, Susan L. Sakmar from the University of Houston Law Center said, "There are many proposed liquefied natural gas (LNG) projects around the world, including Australia, Canada, the lower-48 United States, Russia, East Africa and all are targeting the same Asian markets.  The Alaska LNG project will have to compete with these other projects and at the moment Asian buyers are pushing for lower prices."



Energy-hungry economies in Asia are avoiding making long-term contracts, to prevent making commitments to expensive quantities of natural gas for long periods of time. Countries that need gas prefer waiting for the prices to drop, and in the meantime are currently making spot buys while waiting for LNG projects to be approved and operational.



"Spot prices have already declined more than long term prices. For buyers, it's good to go short term, and stay flexible to see how things evolve. Assuming there will be more supply than demand, and long-term prices will eventually soften, buyers will come back to the long term market," Goncalves said.



Sakmar said: "Buyers need to sort through the wide choice of possible new supply projects, and with the degree of uncertainty regarding the volume of U.S. LNG exports; buyers are likely to wait to see how it all sorts out before going forward to secure longer-term contracts."



According to Sakmar, depending on permits, construction of the project would start in 2018-2019 and operations could begin in 2024-2025.



An announcement on ExxonMobil's website states that the proposed project facilities include a liquefaction facility in the Nikiski area on the Kenai Peninsula, an 800-mile, large diameter pipeline, up to eight compression stations, at least five take-off points for in-state gas delivery and transmission lines to transport gas from and to a gas treatment plant.



ExxonMobil will join forces with other major oil and gas producers, British Petroleum and ConocoPhillips, in addition to TransCanada and Alaska Gasline Development Corporation for the Alaska LNG Project.



The Alaska LNG Project is a proposed $45 to $65 billion liquefied natural gas export project, which would be the largest single investment in Alaskan history if realized, with an average of about 3.5 billion cubic feet (105 million cubic meters) of gas per day, according to the Alaska LNG website. 



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