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South Korea: Cheaper gas for Kogas

In the latest signs of tightening competition for liquefied natural gas (LNG) sellers in Asia, Kogas secured substantial discounts on three LNG purchase tenders it awarded last month. The Malaysia LNG, Yemen LNG and Sakhalin-2 projects will supply the state-run utility with a combined 5.1m tonnes a year (t/y) of LNG at prices as low as $3.80/m Btu, around 40% cheaper than Kogas' existing agreements.

Malaysia LNG and Sakhalin-2 will both supply 1.5m t/y of LNG, with Kogas having an option for a further 0.5m t/y from each. Yemen LNG will supply 1.3m t/y, with an option of another 0.7m t/y. The deals will run for 20 years, with deliveries commencing in 2008.

Kogas has been struggling to keep pace with domestic gas market growth and has had to import cargoes from as far afield as Algeria in recent winters. South Korean LNG demand is expected to rise by 5% a year over the next decade and a further long-term contract for 3m t/y is scheduled to be awarded in 2010.

Kogas also beat off internal competition from two consortia, headed by units of state-run Korea Electric Power, for the right to import LNG. The electricity generating companies, which buy around a third of the LNG imported by Kogas, argued that they should be allowed to import LNG directly to help cut their fuel bills, but the energy ministry said their import proposals were not as competitive as the deals Kogas negotiated.

Other shortlisted candidates for the tenders included the Woodside Energy-operated North West Shelf project. Woodside said it was disappointed to lose out on the contract, but still intends to approve the construction of a fifth LNG train for NWS LNG in the first half of this year.

Malaysia LNG is owned by Petronas (60%), Royal Dutch Shell (15%), Sarawak state (10%), Nippon Oil (10%) and Mitsubishi (5%); the Sakhalin-2 project by Shell (55%), Mitsui (25%) and Mitsubishi (20%); and Yemen LNG by Total (42.9%), Yemen Gas (23.10%), Hunt Oil (18%) and two South Korean companies, SK (10%) and Hyundai (6%).

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