Apr 22 2022
South Korea's state-run Korea Gas Corp. will import 1.58 million mt/year of LNG from BP for up to 18 years from 2025 under a new long-term deal as its existing purchase contracts are set to expire, the company said April 22.
The sales and purchase agreement with BP Singapore Limited follows a heads of agreement between the two sides that was concluded in September 2019.
The latest deal is the first long-term supply contract between the two companies, providing Kogas assured deliveries and an opportunity to stabilize the country's high gas prices.
Under the deal, BP will provide 1.58 million mt/year of LNG produced in BP-led projects in the US, such as Freeport LNG in Texas, Kogas said in a statement, adding that the SPA would also "serve as a catalyst to strengthen cooperation between the two companies."
The company did not disclose financial details of the agreement, but said the 18-year deal linked to the Henry Hub is "considered very competitive given current LNG prices and crude oil prices."
"The supply deal based on LNG produced in the US including Freeport LNG would help Kogas reduce its reliance on the Middle East and diversify supply sources," the statement said.
"The deal also allows Kogas to reduce import volumes and change unloading ports, which will help the state utility cope with possible changes in demand and supply," it said.
The 18-year deal with BP comes at a time when many of Kogas's existing long-term supply agreements have been expiring since 2019. This includes four contracts totaling 5.78 million mt/year -- 2 million mt/year from Malaysia's MLNG II project, 2 million mt/year from Yemen's YLNG, 1 million mt/year from Brunei's BLNG, and 0.7 million mt/year from Indonesia -- which expired in 2019 alone.
Kogas will lose 7.02 million mt/year of Qatari LNG by 2026. The 20-year deal for 2 million mt/year of Rasgas LNG will also expire in 2032. Several more long-term deals Kogas has with other providers, such as 4 million mt/year from Oman's OLNG, are scheduled to expire before 2030.
The most-recently signed long-term supply deal was a 20-year agreement signed in 2012, under which Kogas has been importing 2.8 million mt/year from Cheniere's Sabine Pass terminal in Louisiana since June 2017.
Kogas said it has been tapping the market for new term contracts amid expirations of previous ones, adding that it will seek to diversify LNG supply sources beyond the Middle East and Southeast Asia to include Russia and the US.
In July 2021, Kogas signed an agreement with Qatar Petroleum under which the state utility will import 2 million mt/year of LNG from Qatar for 20 years from 2025.
The new supply deals come as Kogas increased LNG imports to meet growing demand for the fuel amid South Korea's push to reduce its reliance on coal and nuclear in power generation.
In 2021, Kogas, one of the world's biggest LNG buyers, imported 38.17 million mt, up 19.6% from 2020. Kogas imports in 2021 accounted for 83.1% of the country's total LNG imports of 45.93 million mt.
Some 70%-80% of Kogas LNG purchases are based on term contracts and the rest are spot purchases, according to Kogas officials.
Kogas currently has nine long-term contracts -- 9.02 million mt/ year in three contracts from Qatar, 4 million mt/year from Oman, 3.5 million mt/year from Australia, 2 million mt/year from Malaysia, 0.7 million mt/year from Indonesia, 1.5 million mt/year from Russia's Sakhalin, and 2.8 million mt/year from the US Sabin Pass.
LNG sales by Kogas, which has a monopoly in domestic natural gas sales, rose 4.4% year on year to 12.66 million in the first quarter this year, according to Kogas data compiled by S&P Global Commodity Insights.