Kogas may double LNG purchases: Report
Thursday, June 24 2004 - 08:16 AM WIB
Korea Gas plans to buy 5.3 million metric tons, or about US$827 million, of the fuel each year starting in 2008, more than double the 2.3 million tons a year it buys under contract from Indonesia, said Oh Seung Hwan, a manager in Korea Gas's LNG purchasing team.
Gas producers such as Australia and Indonesia are cutting prices to win customers as they develop new fields. Power stations from the U.S. to Taiwan are switching to natural gas after prices of competing fuels such as oil surged to a record.
``It's good for Korea Gas to raise its volume under long- term contracts, given that the U.S. is increasing its purchases of LNG,'' said Jay Ryu, an analyst at Mirae Asset Securities in Seoul. ``China is also emerging as a new big buyer in Asia. Once the two become serious players, the market could turn into a sellers' market again.''
Korea Gas wants to find a replacement by the end of this year for the LNG that it imports from Indonesia's PT Arun NGL plant, which is supplied from fields operated by Exxon Mobil Corp. The buyer is seeking price cuts of about two-fifths and more flexible supply terms in any new contracts, Chief Executive Oh Kang Hyun said in May.
``If the company can lower the price, it's the icing on the cake,'' Mirae Asset's Ryu said.
South Korea's LNG demand is expected to rise to a total of 23.2 million tons in 2007 from an estimated 21.1 million tons this year, Korea Gas said.
``We expect a shortage of at least 3 million tons of LNG from 2008,'' Korea Gas's Oh said in a telephone interview. ``We may begin the process of selecting one or two potential suppliers for serious negotiations as early as next month.''
The company sought government permission to buy the fuel, which it needs before inviting offers.
LNG is natural gas that has been chilled into liquid form so that it can be transported on a ship. Buyers turn LNG back into gas so it can be piped to power plants and households.
Korea Gas and rival LNG buyers are seeking lower prices as projects such as Royal Dutch/Shell Group's $10 billion Sakhalin plant increase competition among suppliers.
The company wants to pay about $3 per million British thermal units under a new contract. It now pays between $4.50 and $5 per million British thermal units for LNG from Indonesia's PT Arun NGL plant, said Kardaya Warnika, vice chairman of Indonesia BPMigas, the state agency that markets the country's gas.
At $3 a million British thermal units, 5.3 million tons of the fuel is worth about $827 million.
Indonesia, the world's biggest LNG exporter, may offer a 40 percent price discount to Korea Gas as part of negotiations to extend the 20-year supply contract, Rachmat Sudibyo, chairman of BPMigas, said Tuesday. Korea Gas said it may consider the offer.
Indonesia wants to supply buyers from the newer PT Badak NGL plant in Bontang, East Kalimantan, and BP Plc's Tangguh project, to replace declining LNG output from Arun.
Korea Gas said it aims to achieve flexible supply terms from potential sellers as the market favors buyers. Global supplies have increased as producers, including Exxon Mobil, build new plants or expand existing facilities.
``LNG prices have been too rigidly pegged to the oil price,'' Chief Executive Oh said last month. ``We want to ease the correlation, given the abundance of global gas development projects that could begin production in 2007 or 2008.''
Australia's North West Shelf venture led by Woodside Petroleum Ltd. and ChevronTexaco Corp. said last week they are planning bids to replace Indonesia's contract with Korea Gas.
North West Shelf, now the only producing LNG venture in Australia, is scheduled to supply about 3.3 million tons a year of LNG to China's Guangdong plant for 25 years starting in 2006. North West Shelf will start a fourth production line later this year, and may add a fifth in 2005. ChevronTexaco's $7.6 billion Gorgon project off Australia is due to start production in 2008.
A Russian delegation, led by Sakhalin Oblast Governor Ivan Malakhov, will visit Korea today to market the fuel being developed by a Royal Dutch/Shell Group-led venture.
Shell and its partners, Mitsui & Co. and Mitsubishi Corp. of Japan, are seeking Asian buyers for oil and gas from their Sakhalin 2 project in Russia's Far East.
OAO Rusia Petroleum, in which BP venture TNK-BP holds a controlling stake, last year agreed to sell 900 billion cubic meters of natural gas from the Kovykta field in Siberia to China and South Korea over 30 years.
The three parties signed a preliminary agreement to start deliveries in 2008, shipping two-thirds of the volume to China and the rest to South Korea. Deliveries will probably be delayed because of disagreements on price, Korea has said.
``By raising the purchase volume, Korea Gas wants to hedge against the expected delay in the planned gas imports from Russia,'' Mirae Asset's Ryu said.(*)