South Korea announced long-term deals on today worth over $84 billion (51 billion pounds) to buy gas from Australia equivalent to nearly a fifth of its demand from oil major Royal Dutch Shell and French energy giant Total.
South Korea is the world’s second-largest buyer of liquefied natural gas (LNG) after Japan, importing over 32 million tonnes in 2010.
State-run Korea Gas Corp (KOGAS) will import a combined 5.64 million tonnes per annum (mtpa) of LNG under the deals to be signed next month, the economy ministry said in a statement.
South Korea’s largest ever long-term gas supply deals are worth 90 trillion won ($84.1 billion) from 2013 to 2035, the ministry said.
KOGAS, the world’s largest corporate buyer of LNG, will also acquire a 10 percent stake with an additional investment of $1.5 billion in Shell’s fully-owned Prelude project in Australia, according to the ministry statement and a ministry official.
Shell will build the world’s largest floating vessel for the Prelude project, a ship longer than four soccer fields and six times heavier than the world’s largest aircraft carrier. Prelude is expected to become the world’s first floating LNG project when it comes on line in 2017, with a capacity to produce and ship 3.
The purchase adds to KOGAS’s portfolio of projects in Australia, which is rapidly boosting its LNG export capacity.
KOGAS already has a 15 percent stake in the Santos-led Gladstone 7.8 mtpa coal seam gas to LNG project in Australia’s eastern state of Queensland, with an agreement to buy 3.5 mtpa from the project over 20 years.
Asia’s largest economies are competing for Australia’s gas supplies to meet their rapidly rising energy needs.
Japan’s massive March earthquake knocked out nuclear power plants and forced it to rely more on gas-fired power, forcing it to boost LNG imports and tightening fundamentals in the regional and global market.
The deals would help “stabilise South Korea’s LNG supplies as global energy supply concerns have been on the rise since Japan’s March earthquake,” the country’s economy ministry said.
The LNG import deals are estimated to cost $110 million less annually than Japan’s latest long-term LNG deals in July for Australian origins, the ministry said.
“It seems that KOGAS has a discount thanks to the large volume, and such lower cost of LNG import will help buoy South Korea’s LNG demand more,” said Chang Lee, head of research at Woori Investment and Securities.
The deals will be enough to replace contracts with Indonesia, Malaysia and Brunei totalling 4.7 million tonnes per year that will expire between 2013 and 2015, according to the ministry statement.
Shell and Total will supply LNG mainly from Australia’s Prelude and Ichthys projects under the deals.
Ichthys has yet to receive the final go ahead from developers Inpex and Total, who were expected to take their investment decision in the fourth quarter this year. LNG project developers typically seek and sign long-term deals to sell their gas before they begin construction.
A senior official at Inpex Corp,Japan’s top oil and gas explorer, said earlier this month that it expects to sign contracts to sell Ichthys LNG to five firms by late August. Inpex owns 76 percent of the project, with the rest held by Total.
South Korea’s Samsung Heavy Industries Co Ltd is building the giant Prelude vessel.
