Washington (Platts)--9Mar2010/940 pm EST/240 GMT

Abundant liquefied natural gas cargoes -- routed away from a US market flooded with shale play production -- will probably bring down spot prices for gas in the near future and hammer long-term gas contracts in Europe, an energy analyst said Tuesday.

Asian gas contracts are already slipping away from prices indexed to crude oil, BSA Energy President Ben Schlesinger said, as spot prices fall below gas marked to crude prices.

"Where was the LNG supposed to go? The US," Schlesinger said. He noted that forecasts for LNG imports to the US have been cut in half, a phenomenon he attributed directly to the volumes of North American gas being produced from shale.

Speaking to an audience of policy makers and analysts at a Center for Strategic and International Studies conference in Washington, Schlesinger said the European gas market, in particular, is coming under constant stress from US shale production.

He likened the situation to the early 1980's when deregulation came to the US gas markets and spot prices on the open market undercut long-term contract pricing.

"Three pipelines declared bankruptcy" as the newly freed market sorted itself out, Schlesinger noted.

"Europe may be getting on this wild ride." he said. Evidence of the growing move towards spot purchases versus lengthy contracts is Gazprom's recent announcement that it would sell 15% of its gas output on the spot market, a decision Schlesinger said was caused by the "turning back of LNG not needed in the US."

But Gazprom itself may be the motivating factor for Europe's gas utilities to look elsewhere for supplies, Statoil's Vice President for Exploration and Production Strategy Ivan Sandrea said.

"All along there is the confrontation between Europe and Russia over gas on January 1," Sandrea said, motioning as if he was turning off a faucet.

"Europe will be heading for the spot market; it makes the system more flexible."

In fact, there may be a third hit to European gas markets in the works, Schlesinger speculated. In addition to the double whammy of US shale production displacing LNG to ports in the global market, development of renewables and greenhouse gas legislation my start to cap Europe's demand for gas, putting a ceiling on prices, Schlesinger said.

--Bill Holland, bill_holland@platts.com