Liquefied natural gas is new energy darling

Asian demand, especially by China, is exploding, but benefits to the nation are years away

The global liquefied natural gas war is heating up with an increasing number of companies adding to their production capacities, driven by the growing demand from Asia. But analysts say it will still take years until China can really gain benefits from the expansion.

Globally, the new LNG supplies are expected to come from the eastern Mediterranean and East Africa, said a report released by Ernst & Young Advisory Pte Ltd, the global assurance, tax and transaction service provider, on Wednesday.

The United States government has approved four LNG projects - for SabinePass, Freeport, Lake Charles and Cove Point. Full export permits and with others on the waiting list likely to get permits by the end of 2013, have prompted industrial insiders to express hopes the increasing US supply can boost the market and ease China's natural gas shortage problems.

However, they add little will happen soon.

Usually, companies sign long-term supply contracts with clients before they start construction of LNG projects because of the huge costs, which are much higher than those of crude oil projects often based on short-term trading.

According to Sanjeev Gupta, the Asia-Pacific oil and gas chief of Ernst & Young Solutions, the four US LNG projects have no Chinese buyers at the moment.

In the last year, China imported LNG mainly from Qatar, Australia, Indonesia and Malaysia at an annual rate 20 percent higher compared with the previous year.

The Chinese government is trying to increase more imports from Central Asia, according to a statement by the National Development and Reform Commission on Monday.

As an energy-hungry country with a fast growing economy, China has been working hard to increase and diversify its natural gas imports.

The Chinese government has urged the three big oil and gas companies to increase LNG infrastructure construction to ensure supplies especially in winter.

By the end of 2012, China's LNG production capacity was 23.73 million cubic meters a day. LNG prices have been rising because of a shortage of supplies, according to Sublime China Information Co Ltd, a domestic commodities consultancy.

In addition to Japan and South Korea, which are traditional LNG importers, China and India have been growing LNG imports in recent years.

According to a report from ExxonMobil Corp, the annual global LNG demand will reach 600 million metric tons, with 75 percent coming from Asia.

"Everybody is trying to add capacity to supply the Asian market, especially China," said Dale Nijoka, global oil and gas sector leader with Ernst & Young.

"Africa can be a potential supplier of natural gas," said Nijoka. "The good news is they have found natural gas in Africa, while the bad news is there is not any appropriate infrastructure there."

At present, it seems few new routes will be added to China's natural gas supply structure, said Nijoka.

According to Ernst & Young, in addition to the US LNG projects and the new possible supply from East Africa, there are several new LNG projects proposals in Canada. The traditional exporter, Australia, is witnessing significant cost escalations in its LNG sector, mostly pressured by new LNG supplies coming up.

To meet the growing demand for natural gas, the Chinese government has ambitious plans for the development of the unconventional energy source.

Many big companies including foreign ones, have shown an interest. However, experts from Ernst & Young said there are several challenges including mineral rights, controlled prices, water shortages and infrastructure.