But Asia's overall demand for LNG is set to grow by 2010, as India and China emerge as new LNG importers, the Institute of Energy Economics (IEE) added.

"The LNG market in Asia is facing a turning point. The current formula of LNG contracts will need to be changed to more flexible terms," said Yasuhiro Koide, analyst at IEE said.

"Given growing uncertainty over the demand outlook among traditional LNG buyers, Japan and South Korea, importers are more interested in buying LNG on a small-lot volume," Koide said.

Koide told a seminar that it is necessary to reduce current contract terms - currently usually more than 15 years - in order to more flexibly adjust short-term demand.

Faced with rising competition from new power suppliers, importers are likely to pressure LNG suppliers to review LNG prices and obtain more flexible contractual terms, he said.

In February, Japan's two power companies, Tokyo Electric Power Co (TEPCO) and Tohoku Electric Power Co, agreed to revise a 21-year contract that expires in December, 2004 with Indonesia to allow a cut in their combined annual LNG purchases to 1.0 million tonnes from 3.51 million tonnes.

Once that contract expires, the length of the new contract will be reduced to five years.

In Japan, large commercial buyers of electric power have been free to choose their suppliers since late March. But Koide said LNG demand in Asia was set to expand by 2010 in line with a regional economic recovery, and India and China will emerge as significant LNG importers. IEE said it expects LNG demand in Asia to expand to 105-112 million tonnes in 2010 from 68.43 million tonnes in 1999. It expects demand to reach 10 million tonnes for India and up to 500,000 tonnes for China. Both countries did not import LNG in 1999.

IEE said it expects demand from Japan, the world's largest LNG buyer, to post moderate annual growth of two per cent by 2010. It expects Japan's LNG demand to reach 64 million tonnes in 2010 from 51.3 million tonnes in 1999.

Despite the expansion of Asian LNG demand, the supply-demand balance in the LNG market will remain in the buyers' favour, with several LNG projects scheduled to come onstream in the Asia-Pacific region by 2010, Koide added.