ANALYSIS-LNG plants unlikely to shut-in production

* LNG demand set to remain damp in 2010

* Technical, cash reasons to keep large LNG trains going

* New production coming online, oversupply seen in 2010

By Edward McAllister

NEW YORK, April 30 (Reuters) - Producers of liquefied natural gas are unlikely to shut in significant volumes this year despite the recession crushing demand and prices, which could leave the world oversupplied into next year.

LNG spot prices have tumbled from highs around $24 per million British thermal units (mmBtu) last summer to around $4 per mmBtu, threatening the profitability of producing the super-cooled gas that can be transported by ship.

However, large new LNG trains are likely to continue producing, given the technical complications of shutting down a whole train and the need to pay for the investment.

"Any train that is a larger size and relatively new is going to keep going," said Frank Harris, head of global LNG at Wood Mackenzie in Edinburgh, Scotland.

These include a mega-train in Qatar, Train 4 in Trinidad, the North West Shelf Train 5 in Australia and another at Damietta in Egypt.

"For some of the new trains, even if the netback is not great, you have to keep the cash flowing because you have debt to pay," said Harris.

There has not been a shut-in of an LNG production plant since the early 1980s when the U.S. stopped imports from Algeria over a price dispute, forcing the North African state to cut production.

But the worst economic meltdown in 80 years has dented demand for gas and power in large importing nations enough to bring the discussion of LNG production shut-ins to the fore.

Japan, the world's largest LNG importer, is set to import 7.9 percent less LNG in the fiscal year 2009/10, to 58.04 million tonnes from 62.99 million tonnes in 2008/09, according to leading independent consultant Andy Flower.

South Korea, the second largest importer, reported a 14 percent year-on-year fall in March LNG imports after February imports fell 9.5 percent from the previous year.

A FLUSH MARKET IN 2010

The global LNG demand demise coincides with new production coming online this year and next, totaling nearly 3 trillion cubic feet of extra capacity.

Sakhalin 2 Train 1 in the Russian Far East and Qatargas 2 Train 4 have already started this year. New output will come from trains in Tangguh in Indonesia, RasGas in Qatar, Yemen, and Sakhalin 2 Train 2.

The result, without production curbs, is an oversupplied market in 2010 that could keep a lid on regional natural gas markets around the world.

With Asian demand down, and after Europe has filled its stocks, the already-flush U.S. will get the brunt of the excess supply, potentially tanking the market further.

U.S. benchmark gas prices, already pressured by oversupply, are trading around $3.30 per mmBtu -- near a 6-1/2 year low.

In Britain, prices have, to a lesser extent, been pressured by increased LNG imports, helping to thin the price differential above the U.S. to about 70 cents.

Despite this, some analysts say prices need to fall further for producers to shut-in production.

"In our view, a shut-in of LNG liquefaction capacity is unlikely," Merrill Lynch analysts said in a note this month, suggesting U.S. prices would have to fall to around $2.50 per mmBtu before margins were thin enough -- around 70 cents per mmBtu -- to force any shut-ins from suppliers to that market.

However, the cost of producing LNG in some plants, including those in top producer Qatar, is considered quite low because the fuel is produced alongside other higher-profit liquids.

"The LNG business is very capital intensive and the operating costs are quite low relative to the sales price of LNG," said Jim Rockwell, manager of LNG technology and licensing at ConocoPhillips. "A plant could operate at a loss to ensure condensate can continue to be produced."

Wood Mackenzie's Harris said older, smaller trains with no pressing payments might consider shutting down, but this is unlikely to tighten the market.

"There may be a handful of cases where if you take a small train out it makes sense. It might help a little bit, but it's not going to make a major difference," he said.

"There is a huge amount of production coming online. At some stage. all this is going to come online and they are going to run at full capacity and if the demand is not there, it is going to get ugly." (Reporting by Edward McAllister; Editing by Marguerita Choy)