Kogas calls for more flexible LNG deals: Report

Liquefied natural gas contracts in the Asia-Pacific region must become more flexible in response to buyers' needs, Kim Myung Kyu, president and chief executive of state-owned Korea Gas Corp. was quoted by Dow Jones as saying Monday.

"It is questionable that the prosperity of the LNG business can continue to rely on strict, long-term contracts because of the increasing uncertainty resulting from tough competition in the energy consumption market," Kim said in a keynote address at the Gasex 2002 conference in Brunei.

Kim, who is also chairman of the Korea Gas Union, called on producers and consumers in Asia to work together to encourage the development of spot and short-term LNG trading. Currently, most LNG contracts are set for a 15-20 year period.

Already, the LNG industry has seen the emergence of new types of LNG trading that don't specify the LNG production site and don't restrict consumption to a fixed buyer, Kim said.

"The liberalization of LNG trading can only be accomplished through flexible off-take obligations, diverse contractual durations, and competitive mechanisms," he said.

The contracted volume should also be flexible to allow for "unexpected supply and demand imbalances," he added.

Making these changes will allow LNG consumers to cope with uncertainties in demand, Kim said.

Kim also said the current LNG pricing system, which is linked to crude oil prices, should be changed to better reflect the gas market.

Some industry analysts believe that LNG prices are better linked to oil products or coal as all three products compete directly, especially as fuel for power generation.

Kim said South Korea, as the second largest LNG importer in the world, is likely to assume a major if not leading role in pursuing more flexible contracts and developing spot trading.

South Korea, though Kogas, has long-term contracts with Indonesia, Malaysia, Qatar, Oman and Brunei to import 16.86 million metric tons of LNG a year.

The earliest expiring contract is with Indonesia in November 2007; the latest ones are with Qatar and Oman, both expiring in December 2024.

South Korea's LNG consumption is expected to rise 31 percent-50 percent by 2010, due mainly to a projected increase in the number of users of city gas, according to the Ministry of Commerce, Industry and Energy.

By 2010, LNG consumption is expected to reach 21 million to 24 million tons from the current 16 million tons.

Kim said LNG is expected to become the world's second major energy source by 2020, and will account for about 26 percent of the world's energy needs.

Natural gas industry officials and executives from more than 20 countries are meeting in Brunei for the five-day Gasex 2002 conference, which began Sunday. (*)