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The evolution of a new Asian LNG market

By Hong Chou Hui in Singapore

February 23 - Asia's LNG market is set to come of age in 2011 as the volatility of the last few years has shaken up the region and increased players' appetite for a more sophisticated approach.

Demand in Asia bounced back in 2010 on the back of extreme cold and hot temperatures coupled with economic recovery across the region, after the global financial crisis at the end of 2008 curtailed LNG cargoes purchased in 2009.

Requirements for 2011 are expected to remain robust among traditional buyers, while a series of new players are also entering the fray.

The region continues to be the dominant force in LNG. Growing shale gas production in the US has reduced the need for imports there to virtually nil.

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Europe's gas demand remains largely focused on pipeline imports, while the growth in LNG imports into the northwest of the continent has been offset by a decline in imports into the southwest.

While the final figures for 2010 have yet to be collated, the previous year saw Asia take 62.8%, or 1.09 billion barrels of oil equivalent of the world's total imported LNG, according to data from independent LNG consultant Andy Flower. And the initial data for last year give every indication of repeating that pattern.

Japan's LNG imports in 2010 were up 8.6% year on year at 70.01 million mt, reaching a new record for annual volumes and surpassing the pre-financial crisis level seen in 2008 of 69.26 million mt, customs data from the Ministry of Finance show.

The figure looks all the more impressive when compared with 2009's dramatic drop in imports to 64.49 million mt.

Quarterly LNG Imports in 2008 and 2009

Similarly, South Korea's 2010 LNG imports were up 26.26% year on year at 32.6 million mt, from 25.82 million mt in 2009, according to the country's customs data compiled by Platts over the year.

Across the board, all Asian buyers imported more LNG in 2010 compared to the previous year.

Total Asian LNG imports: January 2008 - December 2010

Meanwhile, though the traditional buyers in Japan and South Korea, which currently have almost 180 million mt/year and 40 million mt/year of LNG import capacity respectively, will likely continue to remain the dominant force in the market, Asia's largest countries are beginning to make their presence felt.

China and India are building a further 20 million mt/year and 10 million mt/year of regasification capacity respectively.

Two Chinese LNG terminals, both being built by state-owned PetroChina, will startup this year -- the 3.5 million mt/year Rudong facility in April and the 3 million mt/year Dalian terminal in June -- bringing China's total import capacity to 18.8 million mt/year.

And a further three terminals are due for completion in the following few years. (See related chart: Asian terminal capacities (million mt/year)).

Meanwhile India has two terminals under construction, building on its existing import capacity of 13.6 million mt/year. And, like China, there are plans for a host of further regasification facilities in India in the years ahead.

China and India's GDPs are projected to grow by around 10% this year and in 2012, outperforming both Japan and Korea at 2% and 5% respectively over the same period, according to the IMF World Economic Outlook. Coupled with state support for gas use, there is significant potential for increased LNG imports into the two countries.

Asia GDP growth estimates (2008-2015)

But despite their muscular economies and large populations, China and India have both faced constraints on their LNG imports in the last year or so, with the former's ability to bring in shipments curtailed by a small number of import terminals and limited storage facilities, while India is limited by the capacity of its downstream gas pipelines.

And any forecasts are further clouded by the potential for domestic production of unconventional gas -- coalbed methane and shale gas -- in both countries, which could limit the need for LNG purchases in the future.

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