Weak oil threatens US export of LNG, leaving Asian buyers stranded

Tue Oct 21, 2014 11:38am EDT
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* Falling oil price blunts appetite for U.S. LNG exports

* Asian buyers of U.S. LNG alarmed by shifting dynamic

* Oil prices may delay Australian, Canadian LNG projects

* U.S. LNG could be diverted to Latin America, Europe

By Oleg Vukmanovic

MILAN, Oct 21 (Reuters) - Plunging global oil prices may turn hopes for cheap liquefied natural gas supplies from the United States into a costly disappointment for Asian buyers who have already invested billions of dollars in long-term contracts.

The 26 percent price slide since June to $85 a barrel exposes cracks in the assumption by utilities and industrial companies from Japan to India that cheap U.S. LNG would muscle into high-value Asian energy markets from 2016.

Oil prices form the backbone of LNG trade to Asia, because exporters outside the United States typically tie 25-year supply deals to crude oil prices. If prices continue to fall, these suppliers from Qatar to Australia will regain their edge over upstart U.S. producers.

"From the buyer's view, $80 oil makes oil-linked supplies less expensive ... it makes U.S. LNG relatively less attractive for buyers," said one industry source with a commercial focus on North American projects.   Continued...