S Korea strikes $84bn deals with Shell, Total

Reuters/Seoul/Perth

A Korea Gas Corporation plant. Kogas will buy a 10% stake in Shell’s Prelude LNG project

South Korea announced long-term agreements yesterday worth $84bn with energy giants Royal Dutch Shell and Total to buy gas from LNG projects in Australia.Asia’s largest economies are competing for Australia’s rapidly growing supplies of liquefied natural gas (LNG) to secure the energy to fuel expansion.South Korea, the world’s second-largest buyer of LNG after Japan, needs the deals to replace supply from Indonesia, Malaysia and Brunei under agreements due to expire between 2013 and 2015.State-run Korea Gas Corp (Kogas) will import a combined 5.64mn tonnes per annum (mtpa) of LNG from 2013 to 2035 under the agreements, the economy ministry said in a statement. The volume is equivalent to about a fifth of the country’s LNG imports in 2010, and the deals are due to be signed next month.Worth 90tn won ($84.1bn) over their lifetime, the deals are the nation’s largest ever long-term gas supply agreements.Kogas, the world’s largest corporate buyer of LNG, will also acquire a 10% stake with an additional investment of $1.5bn in Shell’s fully-owned Prelude project in Australia, the ministry said.Analysts had expected Kogas to buy LNG from Prelude as Samsung Heavy Industries Co is building the giant vessel in South Korea to process and liquefy gas from the project.The floating vessel will be the world’s largest, a ship longer than four soccer fields and six times heavier than the biggest aircraft carrier. Prelude is expected to become the world’s first floating LNG project when it starts operating in 2017, with a capacity to produce and ship 3.6mtpa of LNG.The purchase of a stake in Prelude adds to Kogas’s growing portfolio of projects in Australia, which is on course to become the world’s second-largest LNG supplier after Qatar by the end of the decade.Kogas already has a 15% stake in the Santos-led Gladstone 7.8mtpa project to produce LNG from coal seam gas. The South Korean firm will buy 3.5mtpa over 20 years from the project in Australia’s eastern state of Queensland.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.Industry sources said the supply deals with Shell and Total have been in the works for some time and they expected more deals to be finalised soon.Seoul said it had bought the LNG more cheaply than Japan’s latest agreements for Australian supply, with the ministry estimating the savings at $110mn annually compared to those deals.South Korea’s LNG demand is expected to remain relatively flat through the next decade, inching up to 34mn tonnes by 2024, up from 32mn in 2010, according to government estimates.Shell and Total will supply LNG mainly from Australia’s Prelude and Ichthys projects under the deals, with some additional supply coming from Shell and Total’s LNG portfolios.Ichthys has yet to receive the final go ahead from 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.Inpex said earlier this year it had secured buyers to cover the entire annual output of 8.4mn tonnes from the Ichthys project. Inpex owns 76% of the project, with the rest held by Total.Shell has said it expects Prelude to come online by 2017. The ministry estimated the start up date would be in 2016. Until it can supply gas from Prelude, Shell will ship a million tonnes per year from Nigeria and Russia to South Korea, the ministry said.