FINANCIAL TIMES: Shell and Total win $20bn LNG contract: “The South Korean deal means Shell has now pre-sold 70 per cent of the gas from its $12bn Sakhalin 2 project in Russia's far east, after signing similar contracts with Japan and its own US trading arm.”: “Separately, the World Conservation Union yesterday called on Shell to suspend the Sakhalin project because of the danger it posed to a breed of whale threatened by extinction.” (ShellNews.net) 17 Feb 05
By Anna Fifield in Seoul and James Boxell in London
Published: February 17 2005
Anglo-Dutch energy group Royal Dutch/Shell, Total of France and their partners have been chosen to supply US$20bn worth of liquefied natural gas over 20 years to South Korea, the world's second-largest buyer of LNG.
Sakhalin Energy and Malaysia LNG, projects in which Shell is a partner, and Yemen LNG, partly owned by Total, have been selected as preferred suppliers for the lucrative contracts.
The South Korean deal means Shell has now pre-sold 70 per cent of the gas from its $12bn Sakhalin 2 project in Russia's far east, after signing similar contracts with Japan and its own US trading arm.
Shell expects to sell the rest of its LNG production within the next three years and is considering whether to increase production capacity at Sakhalin, already the biggest foreign investment in Russia.
Separately, the World Conservation Union yesterday called on Shell to suspend the Sakhalin project because of the danger it posed to a breed of whale threatened by extinction.
Among the companies that lost out in the bidding were Australia's Woodside Petroleum, which operates the North West Shelf venture, and an Iranian consortium.
The three favoured ventures were chosen from lists submitted to the government by Korea Gas Corp, the world's largest buyer of LNG, and state-controlled Korea Electric Power Corp. They will have further talks before final contracts are signed in March or April, the Ministry of Commerce, Industry and Energy said.
The contracts are for the supply of 5m tonnes of LNG annually from 2008, at a discount of up to 40 per cent on the prices currently paid by energy-hungry South Korea, which imports almost all of its fuel needs.
Sakhalin Energy, operator of the project on Sakhalin Island, which is 55 per cent-owned by Shell, and Malaysia LNG, 60 per cent-owned by state company Petronas but in which Shell holds 15 per cent, would each supply 1.5m tonnes a year. Yemen LNG, of which Total owns 43 per cent, has offered to supply 1.3m tonnes a year. Korea Gas would have an option to buy the remaining 700,000 tonnes a year.
Based on an assumed oil price of US$40 a barrel, the new deal would supply LNG to South Korea at US$3.80 a British thermal unit, compared with US$6.20 under existing contracts. That could save South Korea more than US$13bn over the 20-year period, the ministry said. The ministry plans to seek further long-term LNG contracts for about 3m tonnes per year from 2010 to help meet soaring needs.
South Korea's demand for natural gas is expected to almost double from the 18.4m tonnes consumed in 2003 to 31m tonnes by 2017. Additional reporting by Joe Leahy in Sydney