SEOUL: South Korea will allow local private companies to import LNG directly and resell in the domestic market from 2025, bypassing state-owned Korea Gas Corp., or Kogas, the Ministry of Trade, Industry and Energy said in a statement Tuesday. Kogas has so far had a monopoly in LNG imports and domestic sales since its establishment in 1983.
In 1998 the government allowed local companies to import LNG directly, but on the condition that they secure storage facilities and use imported natural gas for its own power production, not resell in the domestic market. Only Posco and SK E&S are importing LNG directly at present and they use it for power generation. Midland Power, a unit of state-owned electricity monopoly Kepco, also imports LNG directly. Posco, the country’s biggest steelmaker, has been importing 550,000 mt/year of LNG from the BP-led Tangguh consortium in Indonesia since July 2005 under a 20-year contract.
SK E&S, South Korea’s biggest city gas provider, which belongs to the SK Group that also owns top refiner SK Innovation, has been importing 600,000 mt/year of LNG directly from Tangguh since 2005 under a 20-year contract. Midland Power imports 400,000 mt/year since 2015 under a 10-year contract with Vitol.
In 2014, GS EPS owned by the GS Group that also operates refiner GS Caltex, signed a 20-year contract with Chevron to buy 600,000 mt from the US from 2019 to 2038. “Their combined LNG imports account for just 5.7% of the country’s total LNG imports, while Kogas’ purchases account for 94.3% due to the regulations,” the ministry said in a statement.
“Due to the monopoly and lack of competition, Kogas and local companies have less motivation to look for cheaper supplies and respond flexibly to market conditions,” it added. Regulations on resale of imported LNG in the domestic market will be gradually lifted form 2025, the ministry said.
The government plans to unveil details on the use of gas pipelines and storage facilities in the second half of this year to help local companies prepare for LNG imports, and a formal roadmap on LNG imports in the first half of next year. Kogas has been under fire for its costly supply contracts signed when oil and gas prices were high, which was partly held responsible for its poor financial condition.
Kogas imported 31.41 million mt of LNG last year, down 13.5% from 36.33 million mt in 2014, marking the second consecutive year of decline in LNG imports. The state-owned utility imports most of its LNG under long-term contracts. It has not disclosed the price of its term contracts.
