LNG is scarce, especially in Asia. We have argued this here more than once. There are people who think the world will soon be flodded with natural gas. They might want to take note of the article below:

There can hardly be any doubt that InterOil’s LNG will arrive in a very receptive market. It’s a sellers market for at least the next decade.

Fears of LNG supply crunch grow

• The growing prospect of LNG shortages could start to destroy demand By Alex Forbes
• GAS BUYERS are losing confidence in the liquefied natural gas (LNG) sector’s ability to meet demand over the long term. As a result, they are increasingly likely to switch to other fuels, leaving the LNG industry facing a crisis of credibility. In the past 16 months,  there have been just three final investment decisions (FID) for gas-liquefaction projects:
• Pluto LNG in Australia (4.8m tonnes a year – t/y); the Skikda rebuild in Algeria (4.5m t/y); and Angola LNG (5.2m t/y). In the preceding 16 months, between the end-2005 sanction of Qatargas 4 and April 2007, only one new project was approved: the 4.45m t/y Peru LNG plant. Just 19m t/y of LNG capacity has been sanctioned in the past two-and-a-half years. And it is unlikely that many planned projects will achieve FID before year-end. Nigeria LNG train 7 – which at 8.5m t/y would be the world’s largest – is a contender, but approval in 2008 is far from certain.
• Iran’s progress continues to be slow, especially after Shell’s and Repsol YPF’s recent decision to postpone Persian LNG. Gorgon LNG in Australia now looks like it may not be sanctioned until the year after next. Progress on Algeria’s Gassi Touil project is also far from certain, given its recent history. The LNG industry’s sombre mood now is in sharp contrast to the high expectations that followed Qatargas 4’s FID in December 2005.
• According to one estimate at the start of 2007, it was expected that 14 projects in seven countries would receive FID over the course of the year, adding up to 70m t/y of capacity. It takes around four years from FID for a gas-liquefaction project to become operational. So it is no surprise that people are starting to wonder where incremental LNG supply will come from after 2010 to meet projected demand growth. Post-2012, the picture looks bleak for at least a couple of years, especially if demand continues to grow as forecast.
• Despite a slow-down in some consuming economies, LNG demand growth is expected to remain strong, partly on the back of the fuel’s environmental advantage. Moreover, as distances between gas reserves and markets increase, LNG will become increasingly competitive with pipeline supplies, says Jon Chadwick, head of Shell Gas & Power in Asia. “Offshore, LNG beats pipeline gas over distances longer than 1,500 km. In straightforward onshore terrain, LNG competes favourably with pipeline gas over distances greater than 1,800 km.
• Beyond 4,000 km, whatever the terrain, LNG is the better-cost choice.” On some trade routes, such as from the Middle East to North America or Japan, it is the only feasible option. These factors have led to forecasts for LNG growth to 2020 ranging from 7% a year to 13%/y. Over the past two decades, LNG trade has been growing by around 8% a year. Between 2005 and 2006, the industry grew by 11.6%, and between 2006 and 2007 by 9% – about four times the annual growth rate for gas overall, says Chadwick.
• Supply/demand imbalance
• The supply/demand imbalance has already transformed the sector into a seller’s market – and the shift could hit many forecasts, which previously expected growth of 8-13% over the next decade. In 2013 and 2014, for example, more capacity would need to be commissioned than is expected in 2009, when three of the Qatari megatrains are due to come on stream. Not feasible, says Andy Flower, of Flower LNG, a consultancy, especially as new capacity will have to come from countries other than Qatar, which has put a moratorium on further development of its North Field. Forecasts of 13% are “fanciful”, he says.
• More likely, predicts Flower, is growth at about half of today’s rate, at 4-5%/y beyond 2013. Even that would require the commissioning of three new trains every year. “The seller’s market is here to stay for the next decade at least,” Flower adds. One problem is cost inflation. According to Cambridge Energy Research Associates (Cera), upstream project costs have almost doubled since 2005, driven by rising steel prices and higher oil prices. “The cumulative effect of tight capacity caused by high activity levels and high raw material costs is a near doubling, in two years, [of] capital required to build the same volume of facilities.”
• And industry executives agree with Cera that the inflation hasn’t ended yet, either. When Petroleum Economist asked Total’s chief executive, Christophe de Margerie, Shell’s head of E&P, Malcolm Brinded, and Thierry Pilenko, head of EPC at Technip, how they saw the investment trajectory of the next few years, all said they expected costs to continue rising rather than to reach a plateau in the near future. Pilenko, whose company is working with Chiyoda on the six LNG mega-trains in Qatar, says a review of its projects shows that between 2003 and 2007 engineering costs rose by 8% a year, procurement by 24% a year and construction by 12% a year.
• “We certainly don’t see a plateau – we see continuous increase.” According to Flower, the costs of LNG projects that have reached FID in the last two years fall in a wide range of $600-1,400 per t/y of capacity three to five times the level of three to four years previously. But a bigger problem, he says, will be securing sufficient gas supply to make projects viable:
• “Governments are increasingly questioning whether exporting gas as LNG, or indeed by pipeline, is the best solution for their country, or whether the reserves should be kept for domestic use. Even in Qatar, which will have 100 years of reserves even when it reaches 77m t/y (of LNG capacity), the argument is that these are the resources for future generations and that they have to be husbanded sensibly.” It all adds up to a problem for the LNG sector.
• The sanctioning of Angola LNG at the end of 2007 may have been good news for the country – but the fact that it made headlines at all was because an FID on a new project has become such a rarity. As Mohamed Hassan Marican, chief executive of Malaysia’s Petronas, said recently, if the sector can’t provide the comfort of supply, it will face the prospect of buyers turning to alternative sources for their energy. That would be a “credibility and reputation problem” for the industry.