Seoul — South Korea's state-run Korea Gas Corp. has started preparations for new term contracts to replace expiring contracts, and has sought to diversify LNG supply sources beyond the Middle East and Southeast Asia, the company's vice president said Friday.
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"We are now tapping the market for new term contracts," Kogas' senior executive vice president Lim Jong-Kook said at an energy forum in Seoul.
Kogas' two long-term contracts worth 3 million mt/year expired in 2018 -- 2 million mt/year from Malaysia's MLNG II project and 1 million mt/year from Brunei's BLNG. A 30-year contract with Indonesia's Badak project under which Kogas had imported 1 million mt/year had also expired late last year.
Seven more long-term contracts, worth 17.28 million mt/year, are scheduled to expire before 2030, such as 7 million mt/year from Qatar's Rasgas, 4 million mt/year from Oman's OLNG and 2 million/mt from Yemen's YLNG.
Kogas, the world's second-largest LNG buyer, imported 33.06 million mt last year, mostly under 15 term contracts, up 3.8% from 31.85 million mt in 2016.
"We aim to secure necessary volumes for new term contracts using the current buyers' market conditions," Lim said.
Kogas has been watching market conditions closely because global LNG demand is expected to grow, driven by increasing consumption in China and India. "Price is the single most important factor for new term contracts," Lim said.
"We will push to join hands with other buyers for greater bargaining power, while seeking to reduce risks of LNG import prices linked to crude oil prices."
"Kogas will deepen cooperation with other buyers in terms of swap, trading and joint uses of storage facilities as part of efforts to ensure stable LNG supplies to South Korea," he said.
As part of efforts to ensure supplies, Kogas would import 700,000 mt/year of LNG from the LNG Canada project from 2024 for 40 years, Lim said.
"We can secure 700,000 mt/year from LNG Canada on the basis of our stake in the project, amounting to 14 million mt/year, and we would bring the volume into South Korea," he said.
Kogas holds a 5% stake in LNG Canada; Royal Dutch Shell holds a 40% stake, followed by Malaysia's Petronas with a 25% interest, and PetroChina as well as Japan's Mitsubishi with 15% each.
Kogas recently decided to invest Won 749.86 billion ($660.7 million) in the LNG Canada project, Lim said, noting that LNG Canada is expected to start exports late 2023 or 2024.
"We can also resell part of the volume to a third party, depending on LNG supply conditions in South Korea," he said, noting that the deal has destination flexibility.
The LNG Canada project, located on the west coast of Canada, sharply cuts the shipping voyage to South Korea, compared with passing through the Panama Canal or sailing via the Atlantic Ocean, the Kogas vice president said.
Recently, LNG Canada was given the go-ahead to build liquefaction facility and export terminal in Western Canada for up to $31 billion, which will be able to offset its hefty price tag by delivering cargoes to East Asia in less than half the time that terminals on the US Gulf Coast can.
It is the first large-scale LNG export project in Canada to advance. LNG Canada is among some 14 LNG export projects proposed for Western Canada.
"The Canadian government has provided tax benefits to LNG Canada, which demonstrated its hope of sending more cargoes to East Asia due to its proximity," Lim said.
Kogas has increased its LNG imports to help meet South Korea's growing demand, driven by nationwide efforts to reduce heavy reliance on coal and nuclear in power generation.
Kogas imported 20.14 million mt over January-June, up 14.8% year on year.
The state utility's LNG imports are expected to keep rising thanks to the country's energy transition from nuclear and coal to LNG and renewable sources, Lim said.
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