U.S. to Asia gas price gap to vanish over long term-Exxon


(Corrects attribution in paras 6,7; adds paras 3,4)

By Meeyoung Cho

DAEGU, South Korea, Oct 14 (Reuters) - The cost ofdelivering U.S. gas to Asia will eventually rise as U.S.production costs increase, erasing North America's priceadvantage over other global suppliers of the fuel in itsliquefied form, an ExxonMobil executive said on Monday.

The development will disappoint Japan and other buyers whoare counting on bringing liquefied natural gas (LNG) to Asia athuge discounts.

Prices for U.S. natural gas are currently around $3.80 permillion British thermal units (mmBtu) compared with just over$16 per mmBtu for LNG delivered into Asia.

"Today the Henry Hub prices are in one of the low pricecycles and below replacement cost," Richard Guerrant,ExxonMobil's global vice president for LNG, told the WorldEnergy Congress in South Korea.

"If history is any indication, this can't be maintained overthe long term since the gas produced in liquid-rich plays is notenough to meet long-term demand."

ConocoPhillips executive vice president Don Wallette,speaking at the same panel discussion, said: "I think there is amisperception out there that with Henry Hub sales from $3.50 wecan land LNG in Asia for $11, $12 (per million British thermalunits)."

"Over time the arbitrage is going to be consumed ... and youcan expect a convergence of prices."

U.S. natural gas prices are currently below replacementcosts because producers are drilling in areas rich in morelucrative petroleum liquids, which subsidise the cost ofdrilling for the cheaper gas, Guerrant said.

History indicates those low prices cannot be maintained overthe long term, he added.

"Since the gas produced from liquid-rich places is notenough to meet long-term gas demand in North America, the U.S.will eventually need to begin drilling dry gas places to supportdomestic and export demand," he told the conference, held in thecity of Daegu, about 300 kilometres southeast of Seoul.

Export volumes from the U.S. to Asia may also be limited byregulatory hurdles, Guerrant said, with only four projectsrepresenting about 51 million tonnes of LNG a year having beenapproved so far.

"There is still some uncertainty over the amount of exportsthat U.S. will approve," he added.

(Reporting by Meeyoung Cho; Editing by Rebekah Kebede and TomHogue)

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