Through phase one of the LNG Canada project, we have secured 700,000 tons per year of liquefied natural gas (LNG) for 20 years on a stable basis. Through phase two of LNG Canada and projects in Africa, we expect to hold a total of 3.9 million tons per year of LNG equity volumes by 2031.
Choi Yeon-hye, president of Korea Gas Corporation (KOGAS), said this about LNG equity volumes at a press briefing for the first arrival of an LNG Canada cargo in the Seoul metropolitan area, held at the KOGAS Incheon terminal on the 4th. LNG equity volumes refer to the volumes that the corporation can produce and directly own and operate from overseas LNG development projects in which it has an equity stake.
Canadian LNG has made a total of five cargoes (the unit of cargo carried by one tanker) into the Tongyeong terminal since September last year, and this is the first time it has entered the Seoul metropolitan area. The ship departed the Kitimat plant in Canada on the 20th of last month and arrived at the Incheon terminal on the 3rd, two weeks later. It took a full day to unload 73,000 tons of LNG. Five more cargoes are scheduled to arrive by year-end.
The LNG Canada project, in which the corporation holds a 5% equity stake, began in 2010. The project lays a 670-kilometer pipeline crossing the Rocky Mountains to develop natural gas in Canada's inland regions, sends it to the northwestern port city of Kitimat, and exports LNG across Asia. Construction was carried out in highlands over 1,200 meters above sea level, and more than 50,000 workers were mobilized.
According to its equity ratio, the corporation will have 700,000 tons of LNG per year. The equity structure of the LNG Canada project consists of Shell (40%), Petronas (25%), PetroChina Company Limited (15%), Mitsubishi (15%), and the corporation (5%). The value of the 5% equity is estimated at $2 billion (about 3 trillion won).
The corporation schedules long-term LNG imports according to the Basic Plan for Electricity Supply and Demand. Of the import volume, 70%–80% is fixed through long-term contracts of more than 10 years, and the rest is filled with fixed volumes such as 3–5 year short-term contracts. The remainder is filled with expensive spot contracts (spot transactions) depending on changes in demand by period, and the equity volumes secured are said to be highly useful at such times.
Choi said, While the 700,000 tons per year secured through the LNG Canada project account for only 2% of last year's total LNG imports, it is meaningful in that we have secured a strategic energy asset we can control ourselves.
The reason the corporation has devoted 15 years to resource development in Canada is its strong economic advantage. The route from the Kitimat plant in Canada to Korea is about 8,500 kilometers and takes 12–14 days to transport. Compared with Sabine Pass on the U.S. East Coast (31 days) and Qatar in the Middle East (17 days), the shorter distance cuts transportation expenses by up to 50%. There is also no geopolitical risk because it uses a Pacific route.
The biggest challenge in overseas resource development was securing business feasibility amid changes of administration. This project was pursued during the Lee Myung-bak administration. Initially, a 20% equity was secured, but delays raised doubts inside and outside the industry about the project's viability. In 2017, 15 percentage points of the equity held were transferred to Petronas, leaving only 5%.
The corporation said phase two of the LNG Canada project, which targets commercial production in 2031, is also proceeding smoothly. Phase two will add one liquefaction process train and one storage tank by duplicating the phase-one design. Because only the facilities needed for the existing pipeline are added, the construction period is shorter and expenses are expected to be lower.
The project passed the government's preliminary feasibility study in May and is awaiting a final investment decision in the second half of this year. The corporation plans to invest $1.1 billion (about 1.7 trillion won) in phase two.
The corporation plans to further increase LNG equity volumes. It has currently secured a total of 1.07 million tons of equity volumes, including Prelude FLNG (350,000 tons) in Australia and LNG Canada phase one (700,000 tons). Adding LNG Canada phase two and Mozambique Coral North FLNG, the equity volumes are projected to reach a total of 3.9 million tons per year by 2031. That amounts to 10% of annual imports.
Choi emphasized, LNG equity volumes are quantities we can procure even if an energy crisis hits and will play an important role in South Korea's energy freedom and security.