Royal Dutch/Shell has said that it is in talks with the state run Korea Gas Corp (Kogas) on a strategic alliance that may include taking equity and hopes to sell gas from Sakhalin in Siberia to Korea, the Group Chairman Philip Watts said yesterday.
Seoul plans to break up the import and wholesale division of Kogas into three units and sell off two of them by the end of this year as part of its broader restructuring of the public sector. South Korea is one of the world's top importers of liquefied natural gas (LNG).
”We are in discussions with Kogas on a strategic alliance, which may see us taking equity as a strategic investor”, Watts told reporters.
He said he had met Kogas President Kim Myung-kyu for talks on the potential alliance and Energy Minister Shin Kook-hwan during his two day visit to Seoul.
Kogas, South Korea's sole LNG importer, is seeking a strategic partner to buy its fifteen percent stake ahead of privatisation.
Kogas has said that many oil majors have expressed an interest in the stake, hoping to sell more natural gas to Korea Gas in return for the purchase.
”We've talked about the fifteen percent stake,” Watts said. “And we think it would be a suitable commitment to demonstrate the seriousness with which we would be participating in such a strategic alliance,” he added.
Watts hoped a possible strategic alliance with Kogas would link to its newest gas development in Sakhalin in Siberia from which Shell will produce almost ten million tonnes of LNG a year.
“Main purpose of the discussion was to mention minister and (Kogas) president Kim about Sakhalin-2 project is making a good progress. Decisions are coming,” he said.
Shell has already invested up to two billion dollars into the project, together with its Japanese partners Mitsui and Mitsubishi.
It plans to raise investment to ten billion dollars over the next few years to build the world's largest liquid natural gas plant.
“This is an important new strategic source of supply for this part of the world, for Korea, Japan, one day for China, I think” Watts said.
Other potential buyers were in the west coast of America and Mexico, he added. Kogas imports seventeen million tonnes of LNG every year from Indonesia - the largest supplier to South Korea - Malaysia, Brunei, Oman and Qatar.
He said that Shell currently supplied forty percent of the Korean market through gas from Brunei, Oman and Malaysia. That amounts to 6.8 million tonnes a year, making it Shell's second biggest market in the world for LNG.
South Korea consumes fifteen million tonnes of LNG a year and Shell expects this could grow by up to another ten million tonnes over the next decade years, Watts said.
Regarding uncertainties over the privatisation of Kogas which still requires parliamentary approval, Watts said: “We'll see how the situation develops. But we've been very clear that we think a strategic alliance could be very beneficial.”
Watts said Shell was also interested in Korean gas assets, but did not give further details. Kogas shares ended up 1.5 per cent to 16,900 won ($13.97) yesterday outperforming a 0.22 per cent gain in the benchmark index.