14 April 2014 | By: Abache Abreu and Ruth Liao
A group of South Korean companies have agreed to create an LNG buying consortium with the aim of increasing energy security and drive down import costs, South Korea’s monopoly state-owned buyer KOGAS said in a statement on 9 April.
Signatory participants include KOGAS, state-owned power utility Korea Midland Power (KOMIPO) and three independent LNG importers including city gas provider SK E&S, steelmaker POSCO and energy group GS Caltex.
KOGAS president and CEO Seok-Hyo Jang said the agreement, signed in South Korea’s capital Seoul, was aimed at increasing co-operation among public and private companies in upstream investments, terminal usage and LNG procurement, with the ultimate goal of securing stable long-term supply at competitive prices.
With nuclear cutbacks limiting the country’s power generation capacity and seasonal temperature fluctuations increasing the chances of power shortages, the consortium could help increase procurement flexibility and mitigate potential demand and supply shocks over peak consumption periods.
The country’s LNG demand increased by almost 10% year on year in 2013 as a consequence of unplanned shutdowns at South Korea’s nuclear power plants, which account for more than 30% of the country’s power demand.
Total imports amounted to 40.39m tonnes of LNG in 2013, accounting for around 17% of the global market demand, according to the International Group of LNG Importers (GIIGNL).
The joint procurement of LNG and other fuels has been on the agenda of Japanese and South Korean buyers in recent years, with customers expecting that co-operation on LNG purchases will lead to lower prices.
In January 2013, KOGAS and Japanese utility Chubu Electric signed the first international LNG joint purchase contract in Asia. Both buyers are sharing 28 cargoes over a four-and-a-half year period, allocated according to their respective demand requirements.
POSCO aims to reduce its LNG consumption after commercial operations start at its new 0.5mtpa synthetic natural gas (SNG) plant in the southern Gwangyang province in January 2015, the company said on 7 April.
The plant, which is to be operated by subsidiary POSCO Green Gas Tech, is expected to save POSCO approximately won (W) 200bn ($193m) on LNG imports each year once it reaches full operating rates, POSCO said in the statement.
“Once construction is completed this August, POSCO will make a trial run and begin commercial production in January 2015,” the statement said.
The SNG plant, South Korea’s first, will convert low-cost coal into gas at high temperatures and pressure. Once refined, the resulting product can be used as a direct substitute for regasified LNG. POSCO Green Gas Tech will handle everything related to the SNG plant, from the purchase of coal to the production and sale of SNG.
POSCO currently imports 0.55mtpa of LNG from the BP-led Tangguh plant in Indonesia under a 20-year contract through to 2024.
The company imports LNG to its 1.7mtpa Gwangyang regasification facility, which is located at the country’s southern coastline. It is the only terminal in Asia to have conducted a conventional-sized LNG reload.
POSCO is said to have sufficient contractual supply to meet its short- and medium-term demand requirements, although additional long-term procurement is being considered.
“We currently have sufficient LNG and a good operating terminal so we are not planning any other new business yet,” a company source said, although it may consider additional supply in the future, he added.
ICIS offers market participants vital LNG information to support their trading decisions with reliable pricing data, keep track of shifts in trade dynamics, as well as analyse the markets with our historical data and long-term trends.
ICIS publishes daily and weekly LNG reports covering: