Singapore International Energy Week: Promise of cheaper liquefied natural gas for Asian buyers fading

SINGAPORE (Reuters) - North American liquefied natural gas projects, once believed to be the panacea that would save Asia from paying top dollar for the super chilled fuel, are proving to be less of a gamechanger than originally expected.

High costs, gruelling regulatory processes and mounting social opposition have slowed the development of new capacity in Canada and the United States, tempering early hopes that a flood of cheap western gas would drive down prices.

A sudden rise in demand for LNG after the Fukushima nuclear disaster in March 2011 created a tight market for the commodity, pushing Asian prices to new highs and sending buyers scrambling to make deals with fledgling producers in North America.

Three years later, the majority of projected U.S. and Canadian volumes are still as much as a decade from first shipment, making it difficult for them to spare Asia from LNG prices that have been up to twice as expensive as natural gas in European markets this year.

"A few years ago, there was a kind of enthusiasm that U.S. LNG would solve everything, that is the 'Captain America'story," Ken Koyama, chief economist at Japan's Institute of Energy Economics, told Reuters on the sidelines of the Singapore International Energy Week conference. "As we gain a better understanding of the U.S.'s possible role in LNG in Asia, we are still very much interested in it, but we are not so excited."

North America's first LNG export terminal, Cheniere Energy's Sabine Pass, is currently under construction, with initial LNG cargoes expected by late 2015.

Shovels hit the ground this month on a second U.S. Gulf Coast terminal, Sempra Energy's Cameron LNG project, with two further projects approved by U.S. regulators for non-free trade exports, and numerous more under review.

In Canada, Malaysia's Petronas is expected to make a final investment decision on its Pacific NorthWest LNG project by mid-December and could potentially start building the U.S. neighbour's first ever LNG export terminal in 2015.

But last month state-owned Petronas threatened to delay that project by up to 15 years unless a favourable tax deal was reached, and this week BG Group pushed back an investment decision on its Canadian project by a year to 2017.

"There's a lot of gas reserves in Canada and the U.S.," said Hoe-Wai Cheong, Executive Vice President at Black & Veatch Corp."But if you look at the pace by which that's coming out and the amount of gas that will ultimately be exported, I don't believe it will have a significant impact on the global LNG pricing."

Cheniere has signed sales contracts with Asian buyers like Indonesia's Pertamina and South Korea's Kogas , but concerns remain on the ultimate cost of shipping that gas through the Panama Canal, especially as the spot prices for LNG deliveries into Asia have fluctuated in a broad range this year.

LNG spot prices dropped from a multi-year peak at US$20.50/mmBtu in February to a post-Fukushima low at US$10.60/mmBtu in August, as demand growth slowed and as a run-off in global oil benchmarks pulled energy values lower.

Canada, on the other hand, benefits from far shorter shipping distances to Asia, though the cost of building new pipeline and liquefaction infrastructure is high, making it hard to justify the initial investment if prices stay low.