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Seoul to seek bidders for record 20-year LNG contract

Financial Times: Seoul to seek bidders for record 20-year LNG contract

By Andrew Ward and Song Jung-a in Seoul and David Pilling in,Tokyo

Published: August 18 2004 05:00 | Last updated: August 18 2004 05:00

South Korea will invite bids on Friday for its biggest liquefied natural gas supply contract, worth an estimated $25bn-$30bn (€20bn-€24bn, £14bn-£16bn) over 20 years. It underlines north-east Asia’s voracious appetite for energy.

Seoul’s willingness to sign a 20-year contract, longer than its previous gas supply deals, highlights a growing desire in the region to lock in long-term and reliable supplies of energy.

Tsutomo Toichi, managing director at the Institute of Energy Economics in Tokyo, said: “I think they are very much concerned about the security of supply of LNG. In the past, South Korea tended to make contracts of smaller amounts and for a shorter term. Signing a contract for 20 years is a very new approach.”

South Korea and Japan, which have scant energy resources, are among the world’s biggest importers of oil and gas. Their search for new sources has intensified, partly as a result of the emergence of China as what one foreign oil company executive called “an energy-hungry monster”.

South Korea and Japan are seeking to reduce their dependence on Middle East oil as security in the region deteriorates and oil prices rise.

Energy giants such as Shell, BP and ExxonMobil are expected to compete for the contract for an annual 5m tonnes of LNG supplied to state-run Korea Gas Corporation (Kogas), the country’s monopoly gas provider. At least two contracts are likely to be awarded for 2m-3m tonnes of LNG each from 2008.

Kogas, the world’s biggest buyer of LNG, imported about 19.4m tonnes last year under contracts with Indonesia, Malaysia, Oman, Brunei, Qatar and Australia. Tokyo Electric, the world’s largest private utility, imported 19.1m tonnes to Japan.

All existing LNG suppliers to South Korea have been contacted, as well as possible new suppliers including Sakhalin, an island in far eastern Russia that is the focus of huge development efforts in oil and gas.

International energy companies, which have been notified about Friday’s tender, are squaring up for one of the biggest contracts in the region for years.

Andy Calitz, commercial director for Sakhalin Energy, a consortium led by Royal Dutch/Shell, said he would promote Sakhalin, three days by ship from South Korea, as the country’s closest and most reliable source of LNG. Sakhalin Energy is due to start producing LNG for export from 2007. South Korea needs extra long-term supplies to meet growing energy consumption. Kogas has forecast that demand for LNG will rise 15 per cent this year to 21.3m tonnes.

This week’s tender marks the first time Kogas has awarded an LNG contract through open bidding. The deadline for bids is mid-September.

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