Diversification of LNG Import
South Korea should create a stable supply environment to expand the development of natural gas, which is an environmentally friendly energy resource, by diversifying its importers, according to a recent report.
According to the “role of natural gas to convert into eco-friendly energy” report released by Lee Jae-ho, a researcher at Hyundai Research Institute, on December 19, 92 percent of South Korea’s liquefied natural gas (LNG) importers were limited to six countries – Qatar with 36 percent, Australia with 14 percent, Indonesia with 13 percent, Oman with 12 percent, Malaysia with 11 percent and Russia with 6 percent – last year. The combined share of the three largest importers increased from 54 percent in 2010 to 63 percent last year.
The report pointed out, “There are factors of supply anxiety as Qatar recently cut off relations with neighboring countries, suffering from diplomatic conflicts, and Australia is also considering measures to limit LNG exports at the government level.”
Inflexible contract provisions are another obstacle to natural gas development. For LNG imports, contracts without destination restrictions, which limit loading and unloading spots to specific countries, and resale prohibition restrictions, which ban from selling to a third party, are considered flexible. However, Qatar, Australia and Malaysia, the main importers of South Korea, are categorized as countries with a low percentage of flexible contracts.
Most of LNG import price contracts are oil-price indexation so there are problems that the price of LNG cannot change flexibly according to the supply and demand on the market.
The report said, “The country needs to expand LNG imports from the U.S. and the government should consider various support systems at the government level in order to do so.”