* Gas developers struggle with high costs, low margins
* But long-term outlook for gas remains positive
* Shell has 25 pct stake in $54 bln Gorgon LNG project
* CHART-Asian spot LNG prices: http://link.reuters.com/vek89v
* CHART-UK winter gas prices: http://link.reuters.com/raj89v (Updates with Shell projects in Australia, links to analysisand factbox)
By Henning Gloystein
LONDON, June 9 (Reuters) - Only a fraction of the naturalgas export projects being developed around the globe will becomereality as high costs and weakening gas prices torpedo thosethat until recently promised huge returns on investment.
Large natural gas field discoveries on and offshore haveprompted several countries to plan liquefied natural gas (LNG)export projects, including in North America, Australia, EastAfrica and the east Mediterranean.
But high development costs and low profit margins in the gassector mean most of these will fail, Royal Dutch Shell's director of projects and technology told Reuters in aninterview.
"There is always so much talk about these big LNG projectsaround the world, but only a small fraction of them will getbuilt," said Matthias Bichsel, who is also a member of Shell'sExecutive Committee.
"Costs in the oil and gas sector are still on the rise andoutpacing inflation, and gas projects are extremelyprice-sensitive because the margins are so thin," he added.
Bichsel, without commenting on specific projects, said thatin Australia, high labour costs had caused problems fordevelopers. The country hopes to overtake Qatar as the world'sbiggest LNG exporter.
Shell is building the world's first floating liquefiednatural gas (FLNG) project in Australia, named Prelude, whichwill be the biggest maritime vessel ever constructed.
It also has a 25 percent stake in the massive Gorgon LNGproject on Australia's western coast, led by Chevron.
The development's costs have soared from initial estimatesof $37 billion in 2009 to almost $55 billion on the back of highlabour expenditures and complex technology.
Also in Australia, Shell exited the Wheatstone LNG projectafter selling its stake to Kuwait Foreign Exploration PetroleumCo in January, and cut hundreds of jobs at its Arrow LNGproject, where it has yet to take a final investment decision.
Late last year, Shell abandoned a proposed gas-to-liquids(GTL) project that would have made diesel from natural gas inthe U.S. state of Louisiana.
While costs are soaring, gas prices have been dropping formost of this year, reducing the outlook for developers' returnon investment and prompting analysts to say many new gasprojects will struggle to receive the required financing.
European forward gas prices, which are used to makeinvestment decisions for big pipeline and gas field projects,have dropped more than 15 percent since the beginning of 2014.
They are close to five-year lows, and most analysts expectfurther declines as new producers flood markets with gas.
In Asia, where 70 percent of global LNG trading takes place,spot LNG prices have fallen more than 35 percent this year totheir lowest since late 2012.
STRUGGLING PROJECTS
In the east Mediterranean, where Israel and Cyprus havediscovered large offshore gas fields, Australia's WoodsidePetroleum last month pulled out of an agreement to takea stake worth up to $2.7 billion in Israel's flagship Leviathangas project.
Woodside is a specialist LNG developer and was targetingsales in Asia with its involvement in Israel.
"After many months of negotiations it is time to acknowledgewe will not get there under the current proposal," Woodside CEOPeter Coleman said at the time.
In Central Asia, France's Total pulled out ofAzerbaijan's huge Shah Deniz II gas project, which is expectedto produce 16 billion cubic metres (bcm) of gas for export toTurkey and Europe towards the end of this decade.
Norway's Statoil had reduced its stake in theproject in May.
In North America, several LNG export terminals are alsobeginning to have trouble attracting buyers.
In East Africa, where impoverished Mozambique and Tanzaniahope recent offshore gas discoveries can bring future wealth,analysts have said developers will struggle to find necessaryfinancing and that costly production delays are likely.
"I believe the speed with which the East African projectshave been promised is somewhat ambitious since allinfrastructure there has to be built from scratch," Shell'sBichsel said.
Mozambique and Tanzania hope to export their first cargoesaround the turn of the decade.
In Asia, uncertainty over future pricing of LNG has ledconsumers to hold off signing 20-year deals amid expectationsthat prices will soon enter a period of decline.
As a result, final investment decisions on new projects havecome to a virtual standstill, while cost blowouts in Australiaare further deterring investors from signing up.
LONG-TERM GROWTH
Despite the troubled perspective for many gas projects,Bichsel said the outlook for the sector was positive.
"We're quite excited about gas, there is a lot it can beused for, for instance gas to liquids, gas for transport or gasto chemicals, and there's also a lot of work being done to bringdown the production costs of LNG," he said.
"In oil, it's more maintaining production but in the longterm, we're talking decades ahead, we see a decrease in oildemand and gas will take a more prominent role, including fromshale gas. But it'll take time." (Additional reporting by Oleg Vukmanovic in Milan; Editing byDale Hudson)
