BLOOMBERG: Shell, Total, Partners Win $20 Bln LNG Sales in Korea: “Royal Dutch/Shell Group, Total SA and partners will sell about $20 billion of liquefied natural gas to Korea Gas Corp., the world's largest LNG importer, over 20 years after offering the fuel at about 40 percent below current prices.” (ShellNews.net) 16 Feb 05
Feb. 16 (Bloomberg) -- Royal Dutch/Shell Group, Total SA and partners will sell about $20 billion of liquefied natural gas to Korea Gas Corp., the world's largest LNG importer, over 20 years after offering the fuel at about 40 percent below current prices.
Ventures involving Shell in Malaysia and Russia and Total's Yemen project will supply a combined 5 million metric tons a year of LNG to Korea Gas starting in 2008, the Ministry of Commerce, Industry and Energy said in a statement today. The LNG will cost as little as $3.80 a British thermal unit, compared with about $6.20 under Korea Gas's existing contracts.
Korea Gas is taking advantage of rising supply to negotiate favorable terms, including lower prices. The ventures in Malaysia, Russia and Yemen beat competition from the Woodside Petroleum Ltd.-operated North West Shelf venture and Iran.
``It's positive for Korea Gas because they will be able to cut costs, which will benefit earnings,'' said Choi Yong Kyu, who manages the equivalent of $293 million at KEB Commerz Investment Trust Management Co. in Seoul. Korea Gas ``will maintain their monopoly.''
Malaysia LNG Tiga Sdn. will supply 1.5 million tons a year, Shell's Sakhalin-2 venture will supply 1.5 million tons a year and Total's Yemen project 1.3 million tons a year. Korea Gas has an option to buy a further 700,000 tons annually.
Woodside's shares fell 2.1 percent to A$21.27 on the Australian Stock Exchange at 2:05 p.m. local time.
Rising Demand
Korea Gas, based in Seongnam, needs to meet demand for LNG that is expected to rise 5 percent a year over the next 10 years, BP Plc estimated in June. The company has been forced to buy LNG from as far as Algeria in recent winters as increased demand at that time of year exceeded the amount of fuel secured under multiyear contracts.
``The company also secured favorable terms, including heavy deliveries in winter time, when gas is in high demand,'' the government's statement said.
The price cuts won by Korea Gas helped the company to maintain its dominance in LNG imports, beating competition from units of state-run Korea Electric Power Corp., which also submitted import proposals to the government.
``Korea Gas will be able to get the fuel at a 40 percent discount to earlier contracts because we introduced competition this time,'' the ministry said.
Units
Korea Southern Power Co. and three other Korea Electric units wanted to import gas directly from overseas suppliers, bypassing Korea Gas to help cut fuel bills. The units buy a third of the LNG imported by Korea Gas.
``The proposals submitted by Korea Electric's units were less competitive than Korea Gas's,'' Lee Won Gul, deputy energy minister, told reporters. ``Korea needs another long-term contract to buy 3 million tons a year in 2010, when they can bid again.''
The new Korea Gas contracts will replace an accord with Indonesia's PT Arun NGL that ends in November 2007. Korea Gas picked five bidders in October.
Korea Gas will pay between about $3.80 and $4.20 per million British thermal units, or between $197 to $217 a metric ton, for the LNG, assuming a crude oil price of $40 a barrel, the ministry said in the statement. The LNG price, which is determined according to a formula that's linked to crude oil prices, compares with about $6.20 per million British thermal units, or $322 a ton, under existing contracts, it said.
New Supplies
New supplies from countries such as Australia, Indonesia, Malaysia, Russia, Oman and Qatar are reducing prices of the fuel, which is cooled to a liquid for transportation by ship and then returned to a gas for use in power stations, factories and households.
Korea Gas also put a price cap on LNG it will import from the three gas ventures, limiting the price rises to 29 percent even if oil prices double. LNG prices are pegged to crude oil and the limit will help Korea Gas to cut import costs when crude rises higher than a pre-determined LNG price range.
Korea Gas in June won a 5.9 percent reduction in prices from Shell and partners selling LNG from Brunei for LNG delivered between April 2003 and March 2008.
The utility is expected to sign final contracts next month or in April after fine-tuning delivery conditions with the suppliers, the ministry said. The contracts also need approval from the government.
Tiga
Malaysia LNG Tiga is 60 percent owned by state-owned Petroliam Nasional Bhd., or Petronas. Nippon Oil Corp., Japan's largest refiner, has a 10 percent stake, as does the Sarawak state government. Shell holds 15 percent, and a unit of Mitsubishi Corp., Japan's largest trading house, has 5 percent.
Petronas supplies about a fifth of South Korea's LNG needs, the company said on its Web site.
Shell owns 55 percent of Sakhalin Energy Investment Co., which is building an LNG plant on Sakhalin Island to tap fields off Russia's east coast. Mitsui & Co. and Mitsubishi Corp. of Japan own the rest the venture known as Sakhalin-2. The venture has contracts to sell 3.4 million metric tons a year of LNG to Japan and is holding talks on supplies to other Asian countries, Mexico and the U.S.
Total has a 43 percent stake in Yemen LNG, which is developing an export plant at BalHaf, on the Gulf of Aden, after it found a reserve of 10 trillion cubic feet of natural gas at Marib in 1997.
Yemen Gas Co. owns 23 percent and Dallas-based Hunt Oil Co. has 18 percent. Four South Korean companies, including SK Corp., own a combined 16 percent.
To contact the reporter on this story:
In-soo Nam in Seoul at inam@bloomberg.net.
To contact the editor responsible for this story:
Reinie Booysen at rbooysen@Bloomberg.net.
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