Korea Gas delays selection of LNG suppliers to 2005

Korea Gas delays selection of LNG suppliers to 2005

Bloomberg, Beijing/Seoul

Korea Gas Corp., the world's biggest liquefied natural gas buyer,
will delay choosing suppliers for about US$23 billion worth of
the fuel until early next year because of extended talks with
producers.

Korea Gas, which is negotiating to buy LNG from 2008, had
expected to sign initial agreements with potential suppliers at
the end of this month.

It's negotiating with five bidders to buy as much as 6 million
tons a year of LNG over 20 to 25 years.

"The negotiations are a tough process," Chief Executive Oh
Kang Hyun said in an interview in Beijing. Korea Gas expects a
decision on the suppliers "beginning next year, maybe February",
he said.

Korea Gas wants to buy the fuel from more than one supplier
and the new contracts will replace an accord with Indonesia's PT
Arun NGL that ends in November 2007. In August, the state-run
utility invited bids from 12 gas projects in nine countries,
including all seven existing suppliers, and short-listed five
unnamed bidders last month.

Australia's North West Shelf venture is one of the five
bidders, Western Australian Premier Geoff Gallop said last month.
The other four bidders are Royal Dutch/Shell Group's gas project
off the coast of Russia's Sakhalin Island, Total SA's gas project
in Yemen, and LNG ventures in Malaysia and Iran, the Australian
Financial Review said Oct. 21, without saying where it got the
information.

The company aimed to sign initial agreements with the
successful two or three companies by the end of November, Oh
Seung Hwan, a manager at Korea Gas's LNG purchasing team, said
last month.

"Korea Electric also wants to buy LNG directly from overseas
suppliers and that may be hindering Korea Gas's talks," said Lee
Chang Mok, an analyst at Woori Securities Co. in Seoul. "The bulk
of the volume Korea Gas wants under the new long-term contract is
to supply power generators, including Korea Electric. There's a
conflict of interest."

Korea East-West Power Co. and three other units of state-run
Korea Electric Power Corp. in September asked the government to
allow them to buy a combined 5.7 million metric tons a year of
LNG from abroad beginning in 2008 to help cut their fuel bill.

"The government has already approved Kogas's request to have
five to six million tons" of LNG a year under a new contract,
Korea Gas's Oh said. The gas provider and Korea Electric will
proceed with their competing plans to secure LNG supplies, he
said. "Kogas has more experience than other importers, not only
in Korea but also in the world. I'm very confident and positive
about the outcome."

Korea Gas's bids for 6 million tons a year of LNG are divided
into three lots, each composed of 1.5 million tons a year plus an
option for a further 500,000 tons, the company said. Individual
suppliers can bid for two lots at most.

Korea Gas wants to pay about $3 per million British thermal
units under new contracts, Chief Executive Oh said in May. It now
pays between $4.50 and $5 per million BTU for LNG from Indonesia.
At $3 per million British thermal units, 6 million tons of the
fuel over 25 years is worth $23.4 billion.