South Korea mulls new LNG supply contracts

South Korea's state-run Korea Gas Corp. likely will begin considering new liquefied natural gas supply contracts starting next year, Dow Jones Newswires reports Tuesday.

"We have enough LNG secured until 2004," a Kogas official quoted by Dow Jones as saying. "But after then, we might have a shortfall."

The official said the new contracts signed could begin supplying LNG to South Korea starting in 2004.

"This all depends on the LNG market situation," he said. "If by then, the LNG spot market is attractive, then we may just buy on a short-term basis in 2004 and postpone long-term contracts until 2005 or even 2006."

The official said this year was too soon for Kogas to consider new LNG supply contracts, as many potential suppliers, such as those in Indonesia, Yemen and Qatar, haven't yet presented all the details of their supply conditions.

The Kogas official said South Korea is no longer focused on diversifying its LNG sources.

"I think we've already achieved that," he said. "We are no longer depending on Indonesia for most of our LNG; our first priority is price."

South Korea, through its LNG monopoly Kogas, annually imports 5.3 million metric tons of LNG from Indonesia, 4.9 million tons from Qatar and 4 million tons from Oman. Oman and Qatar account for 50% of South Korea's LNG supply.

The Kogas official said LNG demand has grown significantly since the country first began importing the alternative energy source in 1986.

LNG demand grew by nearly 20% annually from 1986 to 1991. After the financial crisis that shook the region four years ago, however, South Korea's annual demand growth rate for LNG fell to about 10%, the Kogas official said.

South Korea consumed about 14 million tons of LNG in 2000, up from 1999 consumption levels of 13 million tons. The Kogas official said LNG demand in 2001 is expected to be 15.9 million tons.

The Kogas official said the South Korean government's plans to privatize the company in 2002 would have little effect on the signing of new LNG contracts.

The government's restructuring and privatization strategy involves splitting up Kogas' import and wholesale operations into three units, two of which will be sold off to investors in 2002. Kogas will retain ownership of one import unit.

"We'll still make contracts, though we'll retain ownership of only one subsidiary," he said. "We'll still have to consider new contracts."

Kogas' seven LNG contracts will be split up among the import units, but the official said it wasn't clear exactly how the government will apportion them.

South Korea holds one LNG import contract each with Oman, Qatar, Malaysia and Brunei. It holds three contracts with Indonesia.

"It won't be easy to persuade the suppliers to agree to the contract split," the Kogas official said. "The suppliers also have a lot of financing issues to consider."

The government's plan also involves privatizing Kogas' retail operations in 2003. Kogas will retain ownership of its LNG facilities, receiving terminals and pipeline. (*)