Korea Enters into Major Long-Term LNG Deals
South Korea has announced long-term agreements with Total SA and Royal Dutch Shell to buy gas from LNG projects in Australia valued at worth $84 billion.
The deals are equivalent to nearly a fifth of annual gas demand in South Korea, the world's second-largest buyer of LNG after Japan. South Korea imported over 32 million tonnes in 2010 and Seoul needed the deals to replace supply from Indonesia, Malaysia and Brunei under agreements due to expire between 2013 and 2015.
State-run Korea Gas Corp (KOGAS) will import a combined 5.64 million tonnes per annum (mtpa) of LNG from 2013 to 2035 under the deals, to be signed next month, the economy ministry said in a statement. Worth 90 trillion won ($84.1 billion) over their lifetime, the deals are the nation's largest ever long-term gas supply agreements.
KOGAS, the world's largest corporate buyer of LNG, will also acquire a 10 percent stake with an additional investment of $1.5 billion in Shell's fully-owned Prelude project in Australia, the ministry said. Analysts had expected KOGAS buy LNG from the Prelude project as the giant vessel to process gas and produce LNG for the plan is being built by Samsung Heavy Industries Co Ltd in South Korea.
'Everyone has been waiting for KOGAS to sign up for Prelude because it's being built there-it's a matter of national pride that the first floating LNG is being built in their yards. That was always going to happen,' Reuters quoted Noelle Leonard, a consultant for Facts Global Energy. The floating vessel will be the world's largest, a ship longer than four soccer fields and six times heavier than the world's biggest aircraft carrier. Prelude is expected to become the world's first floating LNG project when it comes on line in 2017, with a capacity to produce and ship 3.6 mtpa of LNG.
The purchase of a stake in Prelude adds to KOGAS's growing portfolio of projects in Australia, which is on course to become the world's second-largest LNG supplier after Qatar by the end of the decade.
KOGAS already has a 15 percent stake in the Santos-led Gladstone 7.8 mtpa coal seam gas to LNG project in Australia's eastern state of Queensland, with an agreement to buy 3.5 mtpa from the project over 20 years. In addition, the company has signed preliminary agreements with Chevron for LNG supply from Wheatstone and Gorgon projects, and is in talks with Chevron for a stake in the Wheatstone projects.
South Korea's LNG demand is expected to remain relatively flat through the next decade, inching up to 34 million tonnes by 2024, up from 32 million in 2010, the ministry said.
Shell and Total will supply LNG mainly from Australia's Prelude and Ichthys projects under the deals. Ichthys has yet to receive the final go ahead from developers INPEX and Total, who are expected to take their investment decision in the fourth quarter this year. LNG project developers typically seek and sign long-term deals to sell their gas before they begin construction.
INPEX Corp said earlier this year it had secured buyers to cover the entire annual output of 8.4 million tonnes from the Ichthys project. Inpex owns 76 percent of the project, with the rest held by Total.