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Massive LNG supply deal for South Korea

South Korea has agreed a large long-term liquefied natural gas (LNG) supply deal with Shell and Total

The volumes are large enough to satisfy 17% of the country’s annual gas consumption, the economy ministry said on Wednesday.

State-owned Kogas is set to import 5.64 million tonnes a year (t/y) of LNG from 2013 to 2035, under a deal worth W90 trillion ($84 billion). The agreement is expected to replace a number of long-term supply contracts with Indonesia, Malaysia and Brunei, covering around 4.7 million t/y, which are due to expire between 2013 and 2015.

Most of the LNG will probably be sourced from Australia, with Kogas buying all the production from Shell’s 3.6 million t/y Prelude floating LNG terminal when it comes on stream in 2017, as well as taking a 10% stake in the project. Kogas’s involvement in the $12 billion Prelude development will inject another $1.5 billion of investment into the project – the largest floating facility in the world, being built by South Korean firm Samsung Heavy Industries.

Kogas’s stake in Prelude comes on top of its 15% share of the Santos-led 7.8 million t/y Gladstone LNG project, in Queensland, based on coal-bed methane (CBM) resources. In addition to sourcing 3.5 million t/y from Gladstone LNG, it is discussing further supply contracts with Chevron from its Australian Wheatstone and Gorgon projects.

Total is expected to meet its portion of the deal with cargoes from Australia’s 8.4 million t/y Ichthys plant – led by Inpex (76%) with Total holding a 24% stake.

The deal also strengthens ties between the world’s second-largest LNG buyer and a country looking to be the top LNG exporter over the next decade. South Korea imported 44.44 billion cubic metres (33.8m tonnes) of LNG in 2010, according to Cedigaz; while Australia could overtake Qatar’s 77 million t/y production capacity by 2020. 

However, South Korean LNG demand is expected to remain flat, with the economy ministry expecting it to rise by just 2 million t/y, to reach 34 million t/y in 2024.

Pluto expansion doubt

Until the Australian projects start up, Shell and Total are expected to source the LNG from other countries including Russia, Nigeria and Norway. But some Australian LNG supply could be curtailed, with expansion at Woodside’s Pluto project in doubt after the company said it had not secured enough gas supply for its portion of an additional production unit.

“We are moving through the process of capturing gas resources for an equity train at Pluto,” Woodside chief executive Peter Coleman said on Wednesday. “We are close, but we are not quite there yet.” Woodside has already delayed ordering long-lead items for an expanding Pluto project. It was expected to order equipment by mid-2011 for the start up of the expansion train by the end of 2014.

The 4.3 million t/y Pluto project has already been delayed by a year from its initial expected start date, with first LNG now scheduled for March next year. Project costs have also risen to A$14.9 billion ($15.5 billion). 

Other Australian LNG plants are also scrambling for gas resources, with some Queensland-based projects turning to CBM resources in New South Wales in a bid to secure adequate feedstock.

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