1998-10 Gulf Arab Gas Producers pin hopes on India and China to Ease Gloom

Mr. Vishvjeet Kanwarpal CEO GIS-ACG Global InfraSys - Asia Consulting Group
Publisher: Gulf Times in October 1998

October 12,1998 GULF ® TIMES

Gulf Arab gas producers pin hopes on India and China to ease gloom
ABU DHABI: Gulf gas producers have
seen their traditional markets eroded by
economic turmoil in Asia and hopes for a
recovery in the next decade are pinned on
India and China.
Asia was until last year seen as the major
market for Gulf liquefied natural gas
(LNG) producers like Qatar and Oman.
But most Asian clients have since been hit
by economic crises that have stalled or
even reversed growth.
Expectations that demand for gas from
these markets would absorb increased out­
put from G ulf states have not materialised,
said analysts at a Middle East gas summit
which opened in Abu Dhabi yesterday.
"The industry has turned upside down as
the effect of Asia’s economic and financial
crisis have filtered through the energy sec­
tor ...
"The list of potential new buyers is now
effectively reduced to two: India and Chi­
na,” said Chris Holmes, senior down­
stream and gas consultant with Gaffney,
Cline and Associates’ office in Singapore.
South Korea, Thailand, Japan, Taiwan,
Singapore and the Philippines have all ex­
perienced slowdowns in demand that
range from slight growth in the case of
Taiwan to negative demand for South Ko­
rea.
Middle East gas producers, which ac­
count for a third of the world’s proven nat­
ural gas reserves, are also facing stiff com­
petition from Asian producers like
Indonesia, Malaysia and Australia.
"Demand growth in traditional LNG has
all but stalled and exploitation of new mar­
kets has been painfully slow ... The in­
dustry faces a somewhat uncertain future,”
Holmes said. Amid the gloom, Korea in
particular is o f concern to Gulf LNG pro­
ducers.
Oman has agreed to supply Korea Gas
Corp (Kogas) with 4.1mn tonnes a year
(mty) for 25 years from 2000, while Qa­
tar’s Rasgas has a 4.8 mty sales commit­
ment to Kogas from 1999. But further
deals may be a long way off.
Korean LNG imports have risen from
1.7 mty in 1987 to 11.6 mty in 1997 and
some were predicting a further growth to
30 mty by 2010. But total LNG imports
for the first five months o f 1998 have been
at about 80% of their 1997 level.
This downturn has worried Gulf pro­
ducers, despite bullish statements from the
Koreans themselves.
The only two Asian markets remaining
with substantial growth potential are Chi­
na and India.
China has still not explicitly said it wants
to import LNG, although analysts at the
Abu Dhabi summit said there were three
projects that could potentially require
large LNG imports.
Some estimates for demand to these
LNG projects in the provinces o f Guang­
dong, Fujian, and a third in Jiangshui and
Zhenjiang have estimated demand as high
as 2.52bn standard cu ft per day by 2005.
Only a fraction of this could be met
through domestic production with the rest
coming either from LNG or pipeline.
"Decline in the demands for natural gas
will last only a few years and after 2000
those demands will pick up,” said Yon-
ghun John Jung, a senior fellow at the gov­
ernment’s energy economics institute.
Japan, the world’s largest buyer of LNG,
has experienced a period of economic
stagnation. Despite some small growth in
demand, “energy demand in total will, at
best, stagnate and, at worst, contract,”
Holmes said.
India is still seen as the brightest star for
LNG exports to Asia. But even with the
Indian market, so far largely unscathed by
the Asian crisis, analysts are being cau­
tious. There are about 20 LNG projects
planned in India, but the final figure may
only be a fraction of that.
"It is not as good as it looks on paper. In
the end, about three o f those projects are
feasible — many do not have electricity
markets to go to,” said Vishvjeet Kan-
warpal, a consultant from Asia Consulting
Group. But he remained upbeat: “The po­
tential is certainly there and historically
speaking India has had a good LNG de­
velopment,” he said.
India is already an important market to
Qatar. Last month, Qatar’s Rasgas said it
would supply 7.5 mty to India’s Petronet,
although no mention was made o f how
long the contract was for.
In August, Oman LNG said it had sold
1.2 mty to India’s Metropoli Gas Co start­
ing in late 2001.
Others were also optimistic about the po­
tential of the Indian market.
"The G ulf is the most obvious source for
India for natural gas, said Mukesh Butani,
a consultant from Arthur Andersen’s New
Delhi office.
"India has had a traditionally friendly re­
lationship with the Gulf, but India needs to
be more committed in terms o f imple­
mentation o f projects and there are still a
lot of obstacles to overcome.” — AFP