THE WALL STREET JOURNAL: ExxonMobil: Asian LNG Buyers Facing U.S. Competition: “Billings' comments come just a few days after Royal Dutch/Shell (RD) unveiled a US$10 billion deal to sell liquefied natural gas from its part-owned Gorgon project offshore Western Australia to a receiving terminal in Mexico” (ShellNews.net) 13 April 05
By STEPHEN BELL
April 13, 2005
Of DOW JONES NEWSWIRES
PERTH -- Asian liquefied natural gas buyers including China, Japan and Korea
will have to pay more "competitive" prices in coming years as more gas in the
region is diverted to liquid markets such as the U.S. West Coast, ExxonMobil
Corp. (XOM) said Wednesday.
Ron Billings, ExxonMobil's global LNG vice president, said that the transition to a "globalized" LNG market - driven by technological changes and demand growth in the Atlantic basin - will eventually see prices in Asia reach "parity" with North America.
Billings' comments come just a few days after Royal Dutch/Shell (RD) unveiled a US$10 billion deal to sell liquefied natural gas from its part-owned Gorgon project offshore Western Australia to a receiving terminal in Mexico.
The U.S. deal for Gorgon comes as 50% owner and project operator, ChevronTexaco Corp. (CVX) tries to finalize a A$30 billion supply deal with China. Shell and ExxonMobil each own 25% of Gorgon.
The Shell deal is a "good example that Australian gas can go in different directions (than Asia)", Billings told reporters at the Australian Petroleum Production & Exploration Association conference in Perth.
"In the past, Middle East and Asia Pacific gas resources could only economically supply the Asian region, so LNG pricing mechanisms were effectively isolated from the U.S. and European markets," he said.
"Looking ahead, Middle East suppliers have the option to sell LNG into the Atlantic Basin markets, and Asia-Pacific suppliers can sell into the West Coast of North America."
"So given these options, it stands to reason that prices around the world will increasingly move toward parity, and prices in the liquid markets of the Atlantic Basin will begin to impact pricing in the importing countries in the Asia-Pacific region," he said.
In order to compete for LNG supplies, buyers in Asian regions will need to pay prices that are "competitive with those in liquid markets", Billings said.
"The advantage of a liquid market is you don't have to have years of negotiation with a single buyer to arrange a sale, because typically the gas can be moved on a fairly short-term basis," he said.
The U.S., U.K. and parts of Northwest Europe are the "only true liquid markets" - or places where gas can easily be bought and sold on a short-term basis, he said.
"LNG will increasingly be headed toward these liquid markets," he said.
Asked whether there is scope for ExxonMobil to clinch a similar offtake deal to Shell over its share of Gorgon's gas, Billings said it is "certainly possible".
"We're looking at all sorts of flexible marketing arrangements to help facilitate the launch of the project," he said.
Gorgon hopes to commit to a front-end engineering and design, or FEED, phase, by midyear, leading to a final investment decision in mid-2006. The A$11 billion project is due to ship its first LNG by late 2009.
Billings said that by 2020, LNG is expected to represent 14% of global natural gas supply, more than double the current 6% level, as big markets such as North America and Europe import more of the fuel.
Technological improvements - more effective processing plants and bigger, more efficient ships - have helped lower LNG costs by as much as 30% over the past five years, he said.
This has helped to make it more feasible for distant sources of gas to be transported as LNG to the Atlantic Basin markets, he said.
By 2020 global LNG demand is expected to have trebled to 450 million metric tons per year, up from 150 million metric tons/year currently, he said.
-by Stephen Bell, Dow Jones Newswires; 61-8-9245-5120
-Edited by Ian Pemberton
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