Woodside, ChevronTexaco vie for Korean LNG market: Report
Monday, June 14 2004 - 01:20 AM WIB
Korea Gas buys 2.3 million metric tons a year from Indonesia's Arun plant in a 20-year contract that ends 2007. The Koreans want price cuts of about two-fifths to renew the contract and more flexible terms, Chief Executive Oh Kang Hyun said in May.
Korea Gas wants to pay the same price that China negotiated in 2002 for its first LNG import contract worth US$14 billion. The Woodside-led North West Shelf venture beat bids from Indonesia and Qatar for the China sales, and seeks to follow that success against rival projects led by ChevronTexaco, Royal Dutch/Shell Group and BP Plc.
``We are flexible and we are competitive, that's how we won the China contract,'' John Banner, president of the North West Shelf venture, said in an interview in Singapore this month.
North West Shelf, now the only producing LNG venture in Australia, will 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.
The venture is under pressure to lower prices and offer more flexible terms to buyers as competing projects come on line.
ChevronTexaco's $7.6 billion Gorgon project off Australia is due to start production in 2008. Shell's $10 billion Sakhalin project in Russia, BP Plc's Tangguh venture in Indonesia and ConocoPhillips' $1.5 billion Darwin plant, which will process gas from Bayu-Undan in the Timor Sea, are all seeking customers.
Gorgon, which is due to begin engineering work by August, is planning a bid to replace Indonesia's contract with Korea Gas, Peter Glass, vice-president of marketing for the project, said in an interview in Singapore during the Gasex 2004 conference.
``The short answer is, yes,'' Glass said. ``We'll work our way through it.''
Korea Gas 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.
A price of $3 will allow ``sellers and investors to get fair returns'' for at least 10 years until 2015, said Shigeru Muraki, a senior executive officer at Tokyo Gas Co., Japan's biggest gas distributor, which buys LNG from Brunei, Malaysia, Australia, Indonesia and Qatar. Some of Tokyo Gas' contracts are up for renewal between 2009 and 2013.
``Even grassroots projects can accommodate the $3 level and Japanese buyers may bid that for contracts from 2010,'' Muraki, previously the general manager of gas resources, and who was involved in contract negotiations with LNG suppliers, said in an interview in Singapore.
Korea Gas plans to start talks with producers this year to replace supplies from Arun, where output has fallen as reserves dwindled.
As production declines in the Arun field, Indonesia proposes to supply buyers from its PT Badak NGL plant in Bontang, East Kalimantan, and Tangguh. With price cuts looming, the contract is open to competition, analysts said.
``The upcoming expiry for South Korea in November 2007 for 2.3 million tons isn't reserved for Indonesia,'' said Fereidun Fesharaki, president of Facts Inc., a Hawaiian-based oil and gas consultancy.
Falling output at Indonesian fields forced the country to buy cargoes of LNG from overseas to ensure it meets export contracts. In November 2002, Indonesia defaulted on a shipment of gas to Korea because repairs to a pipeline disrupted output.
Last week, BPMigas's Kardaya said the country might buy four cargoes in the second half of this year to meet domestic demand, as all its gas is committed to export.
In November, North West Shelf started shipping 500,000 tons a year of LNG shipments to Korea Gas under a $718 million, seven- year contract.
``To diversify their supply, Australia is an excellent opportunity,'' North West Shelf's Banner said. ``We have a track record of reliable supply, 1,600 cargoes without interruption.''
Banner declined to say whether the company would meet Korea Gas's asking price.(*)