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South Korea's SK Group to make big push into N. America shale gas development: source


SK Group, South Korea's third-largest conglomerate, has decided to step up efforts on the development of shale gas, particularly in North America, describing it as future growth engine for the group -- which has a business portfolio ranging from oil and petrochemical production to power generation, construction and shipping -- a company source said Friday.

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The family-run conglomerate recently held a key policy meeting and approved a shale gas-focused growth strategy, the source said, adding that all its business units, including the country's top refiner SK Innovation, have been informed of the plan.

SK Group has divided its shale gas development plan into five stages -- exploration/development, plant building, distribution, shipping/terminal and electricity generation -- and specified the roles for each of its business units.

The source did not provide a timeline for the plan, but added that each business unit will reveal its specific plans later.

Under the plan, exploration and development will be led by SK Innovation which is currently involved in several upstream projects overseas. SK Innovation will look to acquire shale gas assets in North America, and process imported volumes, mostly into South Korea. Its wholly-owned petrochemical subsidiary, SK Global Chemical, meanwhile, will build an ethanol-based cracker to produce petrochemical products from shale gas, according to the source, most likely at the company's Ulsan complex on the country's south coast.

SK Group does not currently own any shale gas assets in North America.

SK E&S, the group's power and city gas arm, has already signed a contract to import 2.2 million mt/year of US-sourced LNG from the proposed Freeport LNG terminal in Texas for 20 years from 2019. The deal, inked in September, is the first by a privately owned South Korean company to import shale gas.

The company has been tasked to secure more shale gas imports from North America as part of efforts to meet demand from its gas-fired power plants, the source said.

SK E&S has already been importing 600,000-700,000 mt/year of LNG from the Tangguh project in Indonesia since 2006 under a 20-year contract. SK E&S operates two gas-fired power complexes in South Korea, with a combined capacity of 1,907 MW.

SK E&S will also look at building a gas liquefying plant to facilitate shale gas imports, the source said.

The company is already working to build an LNG terminal in Boryeong on the country's west coast, jointly with local company GS Energy, as part of efforts to expand its LNG business. The terminal -- which will have three LNG storage tanks, each with a capacity of 200,000 kiloliters, an LPG storage tank with a capacity of 45,000 mt and a regasification facility -- would be the second privately owned LNG terminal in South Korea after steelmaker Posco's Gwangyang facility on the south coast.

SK Shipping, meanwhile, will be tasked with transporting shale gas for the group. SK Shipping and Japanese trading house Marubeni have formed a joint venture to transport US-produced shale gas from the Sabine Pass LNG terminal in Louisiana and the Ichthys project in Australia to South Korea's state-run Korea Gas Corp. SK Shipping has a 51% stake in the joint venture, with Marubeni holding the remaining stake.

Meanwhile, SK Gas, the biggest LPG distributor in South Korea, will be looking to buy shale gas-based LPG, following a deal by local rival E1 Corp. to buy 180,000 mt/year of LPG produced from US shale gas from 2014 from Enterprise Products Operating, a subsidiary of US gas company Enterprise Products Partners.

SK Engineering & Construction will be tasked with building the planned terminal and liquefying facilities for the conglomerate.

SK Group wants be involved in all aspects of the shale gas industry, from exploration to power generation, the source said, adding that it wants to move from a diversified conglomerate to a more energy-focused one.

The group controls about 90 affiliates in various industrial segments, including No. 1 wireless telephone service provider SK Telecom and SK Hynix, the country's No. 2 memory chip maker.

The move comes amid business uncertainty for SK Group, after chairman Chey Tae-Won was sentenced in September to four years in prison for embezzlement and breach of duty. Chey, 53 was found guilty of embezzling Won 50 billion ($47 million) from two SK Group affiliates and funneling the funds to make personal investments in stock futures and options in 2008.

--Charles Lee,
--Edited by Deepa Vijiyasingam,