BP to sign $1.43n LNG deal with Posco

BP to sign $1.43n LNG deal with Posco

Bloomberg, Seoul

BP Plc., Europe's largest oil company, will sign a US$1.43 billion contract on Wednesday to supply 11 million metric tons of liquefied natural gas to Posco, South Korea's largest steelmaker, over 20 years starting in 2005.

BP and its partners in Indonesia's $2.2 billion Tangguh project will sign a final sales agreement with Posco officials on the Indonesian island of Bali, Kim Soo Jung, a spokeswoman for the steelmaker, said in a telephone interview in Seoul.

In August last year, BP and BP Migas, Indonesia's oil and gas regulator, signed a preliminary agreement to supply 550,000 tons a year of the fuel to Posco. They also signed a preliminary contract to supply 600,000 tons a year to SK Corp., South Korea's largest oil refiner, over 20 years from 2006. SK has the right to buy an extra 200,000 tons of LNG each year until 2010.

LNG imports by Posco and SK Corp. for their own use will end state-run Korea Gas Corp.'s monopoly on supplies of the fuel in Korea. The government is pushing ahead with a plan to reorganize the gas industry to allow other companies to import and sell the fuel in the domestic market.

Indonesia, the world's biggest LNG exporter, agreed to sell the fuel to Posco and SK Corp. at a higher price than to China, Djoko Harsono, head of marketing at BP Migas, said last month in Jakarta.

"I can't say we are paying less than China does," said Park Sung Eun, an official at Posco's LNG project team. He declined to elaborate.

Indonesia had agreed to sell 2.6 million tons a year of LNG to China's Fujian province for about $2.40 per million British thermal units based on a formula linked to oil prices, said Rachmat Sudibyo, head of the regulatory agency, in October 2002. He put the worth of the contract with Posco at $1.43 billion last year.

Indonesia wants PT Badak NGL in Bontang, the world's biggest LNG plant, to supply Korean buyers the fuel initially because gas won't start flowing from Tangguh until 2007.

Posco is spending $290 million to build a terminal in Korea able to return about 1.7 million tons a year of LNG to gas form. Posco plans to share the terminal that's scheduled for completion in March 2005 with SK Corp., which will buy the fuel through its unit SK Power Co.

LNG is natural gas that has been chilled into liquid form so that it can be transported on a ship. Buyers turn LNG back into gas so it can be piped to power plants and households.