S. Korea approves $84bn LNG import deals with Shell

Long term agreement has been announced with South Korea and Royal Dutch Shell and Total, worth $84 billion. South Korea is the world’s second biggest buyer of LNG, which will replace this deal with the agreements with Indonesia, Malaysia and Brunei, due to expire in 2013 and 2015. Under the new agreements, 5.64 million tons of LNG will be imported between 2013 and 2035. Worth 90 trillion won ($84.1 billion) over their lifetime, the deals are the nation’s largest ever long-term gas supply agreements.

Analysts had expected KOGAS to buy LNG from Prelude as Samsung Heavy Industries Co. Ltd. is building the giant vessel in South Korea to process and liquefy gas from the project. KOGAS has also signed preliminary agreements with Chevron for LNG from the Wheatstone and Gorgon projects, and is in talks with Chevron for a stake in Wheatstone. KOGAS already has a 15 percent stake in the Santos-led Gladstone 7.8 mtpa project to produce LNG from coal seam gas. The South Korean firm will buy 3.5 mtpa over 20 years from the project in Australia’s eastern state of Queensland.

According to Reuters poll of analysts Japans demand is expected to jump to over 12 percent this year alone. Shell and Totals deal has been stated it will help stabilize South Korea’s LNG supplies as a global energy supply. Seoul has come out and said they estimated the savings of approximately $110 million when it has bought LNG more cheaply than Japans latest agreement. Indonesia and Malaysia, long the top exporters and key suppliers to north Asia, are seeing their exports fall as rising domestic demand eats up more of their declining output. South Korea’s scramble to replace its expiring contracts comes as the regional LNG sector goes through a sea change.
South Korea’s LNG demand is to remain relatively low through the next decade, inching up to 34 million tons by 2024, up from 32 million in 2010. The ministry estimated the start up date would be in 2016. Until it can supply gas from Prelude, Shell will ship a million tons per year from Nigeria and Russia to South Korea, the ministry said. Ichthys has not received the final go ahead from the developers Inpex and Total, who are expected to take their investment decision in the fourth quarter this year and begin production in 2014. LNG project developers typically seek and sign long-term deals to sell their gas before they begin construction.