Korea Gas seeks suppliers for LNG worth $16b

Korea Gas seeks suppliers for LNG worth $16b

Bloomberg Seoul

Korea Gas Corp., the world's biggest buyer of liquefied natural gas (LNG), will this week start seeking offers for more than US$16 billion worth of the fuel to replace a 20-year Indonesian contract that expires in 2007.

Korea Gas plans to invite companies including Royal Dutch/Shell Group to supply 5.3 million metric tons, worth about $830 million, of the fuel each year for 20 years beginning in 2008, said Jung Joon Suk, an official in Korea Gas's LNG purchasing team.

"We will send letters to our existing long-term suppliers and new suppliers, including those in Sakhalin, this Friday," Jung said in a telephone interview in Seoul. "We want to receive bids by Sept. 20 and choose more than one potential supplier by the end of September for serious talks."

Korea Gas, a state-owned utility, is seeking price cuts of about two-fifths and more flexible supply terms in its new contracts, Chief Executive Oh Kang Hyun said in May.

Buyers have sought lower prices because of an increase in supplies as producers including Australia, Malaysia and Indonesia are expanding or planning to build new LNG plants.

A Royal Dutch/Shell Group-led venture, which is seeking Asian buyers for oil and gas from their Sakhalin 2 project in Russia's Far East, said it can be more flexible in delivery than competitors to accommodate South Korean demand, which rises during winter.

Korea Gas wants to find a replacement by the end of this year for the LNG that it imports from Indonesia's PT Arun NGL plant. The Indonesian LNG plant is supplied by natural gas from Exxon Mobil Corp. fields in northwest Indonesia.

Korea Gas wants to pay about $3 per million British thermal units under new contracts, Oh said. It now pays between $4.50 and $5 per million BTU for LNG from Indonesia. At $3 per million British thermal units, 5.3 million tons of the fuel is worth about $830 million.

Korea Gas imports almost all of its natural gas under long- term contracts from Indonesia, Malaysia, Qatar, Brunei, Oman and Australia.

Last year, the company imported 19.43 million tons of LNG, of which 2 million tons were made up of individual cargoes for immediate delivery.

The volume Korea Gas is seeking is more than double the 2.3 million tons a year it buys under contract from Indonesia. South Korea's gas demand is expected to rise 5 percent annually over the next 10 years, BP Plc., Europe's largest oil company, said in its 2004 Statistical Review of Global Energy.

Korea Gas said it expects the country's gas demand to rise to 23.2 million tons in 2007 from an estimated 21.3 million tons this year.

Indonesia, the world's biggest LNG exporter, may offer a 40 percent price discount to Korea Gas as part of negotiations to extend the 20-year supply contract, Rachmat Sudibyo, chairman of Indonesian oil and gas regulator BPMigas, said in June.

Korea Gas last week said it received bids from Shell's Malaysian venture and three others to supply about $1.9 billion worth of the fuel over a four-year period beginning in December.

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.