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Korean officials urge changes in LNG pricing structure

LNG Industry,

Senior Korean officials have explained that changes are needed in the pricing structure of natural gas and LNG, if Asia is to take full advantage of the ‘golden age’ of gas.

The officials addressed the Gastech 2014 VIP programme, held the day before the official opening of the event in Seoul, South Korea.

Structural inflexibility

The natural gas revolution is “being hampered and threatened by the current structural inflexibility of the global natural gas market,” Han Jin-hyun, vice-minister of Korea’s Ministry of Trade, Industry and Energy, told the attendees of the VIP session.

“The inflexible contract conditions and price-decisions” have created an Asian price premium “that have prevented Northeast Asia from enjoying the full benefits of new developments in the gas market,” Han explained.

Gas industry revolution

“The gas industry revolution could become an empty slogan, which is not desirable for any of us, if such restrictions keep any region from reaching its full for potential for growth,” Han added. Korea is currently the world’s second largest importer of LNG.

Han called for changing the oil indexation price mechanism, “which is still being used even though there is no longer a connection between oil and gas prices.” In addition, the destination clause in supply contracts should be re-examined since it “is keeping LNG from being efficiently traded on the market.”

Asian gas premium

Jang Seok-hye, CEO of Korean Gas Corporation (Kogas), also raised the issue of the Asian gas premium, saying that it “has been there since natural gas trading began in Asia. There are times that the old ways don’t work anymore. We need to get rid of the old and find new and better alternatives.”

Jang also called for improvements in contract in gas project investment and financing “through the creation of better commercial methods.”

Fast growing market

Cho Tae-youl, vice minister of the Ministry of the Foreign Affairs, reminded the VIP delegates that the Asian natural gas market is the fastest-growing gas market worldwide, and is expected to become the second-largest by 2015.

The Asian market accounts for almost two-thirds of the global LNG demand. Cho explained that with shale gas emerging as a game changer and suppliers diversifying, the paradigm shifts in the global gas industry will be driven by Asian market demand. He concluded by calling for Asian countries to cooperate in order to decrease the gas premium within the region.

Adapted from press release by Katie Woodward

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