Regional LNG: S. Korea renegotiates LNG import price from Brunei

South Korea's state-owned Korea Gas Corp. has renegotiated a lower price for liquefied natural gas imports from Brunei, Oh Seung Hwan, manager at Kogas' LNG contract division, was quoted by Dow Jones as saying Wednesday.

Oh said Kogas' suppliers have agreed to lower the cost of Brunei LNG by around US$15 a metric ton to $240/ton, based on current oil prices.

The cost of imported LNG is linked to fluctuating oil prices, and not fixed. Recent oil prices have been very high, and Kogas is renegotiating contracted LNG prices from term suppliers like Brunei, Malaysia, Indonesia, and soon, Oman and Qatar, Kogas company officials said.

"We started talking to Malaysia, and are now trying to talk to Middle East suppliers," Oh said.

Under a 16-year term contract expiring in 2014, Kogas receives 700,000 tons of LNG a year from Brunei, Oh said.

Brunei LNG makes up the smallest portion of Kogas' annual import volume committed via long-term contracts, while its annual 5.3 million tons offtake from Indonesia is the largest.

Oh said Kogas has received "no response" from Indonesia on LNG prices because of the "situation" there.

The approach of July 5 presidential election in Indonesia could bring about changes, stalling potential LNG contractual renegotiations Kogas has been seeking.

"We are proposing that in the time of high oil prices, there should be a mechanism in place" to shield Kogas from full exposure to the oil market, said another company official.

LNG supply, in the short to medium term, exceeds demand in Asia, while the opposite is true for crude oil. New LNG deals are increasingly flexible, allowing for a basket of commodities including coal, against which the price of LNG will be pegged.

Kogas Chairman, President and Chief Executive Oh Kang Hyun told delegates at the Asia Oil and Gas Conference in Kuala Lumpur Tuesday that long-term contracts "are believed to continue playing an important role in the supply of natural gas...essential in assuring security of supply."

He said long-term contracts should provide "for adjustment required by the prevailing market situation" and greater flexibility with regards to price, volume, seasonal demand fluctuations and delivery destinations.

South Korea is expected to sign new LNG import deals shortly, as demand forecasts indicate a supply shortfall of 2 million tons a year by 2007.(*)