KOGAS keeping an eye on Alaska LNG project developments
South Korea Vice President Jung Jin-seok, right, shakes hand with Hashim Abdul-Ghafour, General Director of state-run Pipelines Co., left, in Baghdad on Oct. 23, 2012. Iraq inked a multi-million dollar deal with South Korea’s KOGAS that will set in motion the building of two key gas pipelines in the country’s north. The energy-poor Asian nation has signed several natural gas development deals in the past few years and is keeping up-to-date with events in Alaska, but is also watching costs after overruns at its Australian offshore project.
SEOUL — KOGAS, the national gas company of this resource-poor country, is watching Alaska’s natural gas pipeline construction efforts with interest in investing in the project as well as buying the fuel, according to senior company officials.
“We are interested in the Alaska project but at this moment, actually, the timing is a little bit far away. We are willing to keep our eyes on the Alaska projects,” said Kwon Young, Korea Gas Corp. executive vice president and resources business division chief operating officer.
In an exclusive interview at KOGAS headquarters here Nov. 26, Kwon and other company officers also said Alaska state officials and senior executives of the state’s three major energy producers have also visited, some repeatedly, in recent months.
“They’ve already visited our company to propose something in the Arctic, such as LNG imports, said Lee Sung Wook, senior manager of the KOGAS Arctic Resources Project Team.
In addition to Gov. Sean Parnell’s South Korea/Japan trade mission last September, ExxonMobil executives “visited KOGAS many times, two or three times,” in the past year while ConocoPhillips sent a delegation in April and BP in September, according to Lee.
Kwon added, without specifics, that former Natural Resources Commissioner and current U.S. Senate candidate Dan Sullivan was also “very active.”
The Alaskan producers suggested they could begin LNG production as soon as 2022, according to Lee. He declined to comment on the likelihood of meeting that timeframe.
However, various ongoing transitions in the Korean energy scene also leave some of KOGAS’s near-term plans uncertain.
A government owned corporation with revenues of $31.9 billion in 2012, KOGAS is the country’s exclusive importer and distributor of natural gas for home and commercial uses.
A handful of large-scale industrial users like POSCO, ranked as the world’s fifth-largest steel producer, import natural gas for their own uses. A proposal from a previous national administration to privatize the country’s gas import and distribution died without a vote in the National Assembly.
“Most of the Korean people, they have big objection to open the market because if we go for the market as one entity we can get a big buying power for the procurement of energy. That was the background why the bill couldn’t have passed,” Kwon explained.
South Korea, which has virtually no domestic energy resources, is also nearing completion of a reassessment of its future energy sourcing and use plans, partly driven by the ongoing mess at Japan’s Fukushima Daiichi nuclear power plant.
Korea now produces some 11.2 percent of its electricity from nuclear generation, according to the Korea Energy Economics Institute, a government research agency. Pre-Fukushima plans called for an increase to nearly 41 percent.
The draft version of the “Second Energy Basic Plan,” expected to be finalized by the end of this year, will recommend a contribution of 22 percent to 29 percent, according to Kwon.
That increase would allows for the continuation of ongoing nuclear generation plans, but no increase.
Korea’s demand for natural gas increased by an annual average of 8.07 percent over the decade through 2012 and accounted for 17.5 percent of Korea’s energy mix that year, also according to KEEI.
The Korean people also opposed plans for high voltage transmission lines delivering power from centralized generating facilities.
“Many people objected to lines near their villages,” Kwon said. “In order to mediate that the Korean government will try to build power plants just around the consumption area.
“That means in order to disperse the power system we need to build LNG power plants.”
Coal, now providing 28.6 percent of Korea’s energy, “is a problem in terms of environmental issues,” Kwon added.
He said projections to increase renewable energy generation from the current 3.1 percent to 11 percent are unrealistic.
As the country’s natural gas supplier, these developments suggest a bright future for KOGAS.
“As a buyer, as a consumer we are willing to discuss and we are willing to keep eyes on any other energy projects,” Kwon said.
Despite these developments, KOGAS, as of August, halted any new exploration and production investments under orders from President Park Geun-hye, South Korea’s first woman president elected last year to the single five-year term allowed under its political system.
“In the last four or five years we invested too much,” Kwon said.
Lee, the Arctic resources manager, said his team, which have been focused on Russian and Danish/Greenland opportunities to date, has not been affected by the moratorium partly because most of its current activities are research-focused and partly because of the long lead team for project development in the northern latitudes.
In response to the president’s directive, Kwon said KOGAS is re-evaluating its investment strategies after significant cost overruns in Australian gas projects in which it held a stake.
That concern is also causing KOGAS to watch its significant investments in British Columbia.
“There are so many projects on West Coast of Canada so we are worried about cost overrun like Australia,” Kwon said.
Some 10 natural gas infrastructure projects are on B.C. drawing boards including the massive “LNG Canada,” nearing its first phase final investment decision.
Korea, PetroChina, Mitsubishi and Shell Canada Ltd. are partners in the export terminal, planned to export 12 million tons of LNG annually from facilities near Kitimat, British Columbia, some 380 miles southeast of Juneau.
LNG Canada, planned to allow double the start-up volume in future phases, is the most advanced of the B.C. projects.
B.C. recently announced that its natural gas reserves are 2,900 trillion cubic feet, double previous estimates, and Premier Christy Clark made her second visit of the year to South Korea in late November as part of a major push for energy and other investment and other business partnerships.
“Our natural resources and innovations make us your perfect partners,” Clark said at a luncheon following a three-hour presentation by B.C. government, labor and business leaders in Seoul, Nov. 29. (See story, page 9)
Lee said the investment moratorium should be lifted around 2018, which fits Korea’s forecast energy demands and current contract schedules.
Kwon said KOGAS expects to have new, long-term contracts in place by 2022 and that his personal opinion was that the Alaska gasline is unlikely to be operative before 2025, at the earliest.
“We are focused on projects that can produce in 2018, 2019 ... The Alaska project, frankly speaking, there is nothing at this moment,” Kwon said.
That the timeframe does not diminish KOGAS’s interest in Alaska gas if the state settles regulatory, tax and other fiscal terms, and offers a good price is a glutted international gas market.
“If the price is attractive, for instance, tax break for the project and some procedure (laws and regulations) adopted by the legislative body, and a clear policy and consistency of the LNG policy needed to make project attractive,” Kwon said.
Kwon said Alaskan officials promoted investments in Prudhoe Bay and Point Thomson, but were not clear on the opportunities for the latter.
“Frankly speaking, we have no clear idea,” Kwon said when asked if Point Thomson was an attractive investment opportunity.
Referring to Alaska’s unsettled natural gas tax terms Kwon said B.C., “has the same problem. They didn’t decide the tax structure but they said very soon they will fix the tax structure for LNG projects.”
B.C. officials described “soon” as meaning “maybe one month later or two months later,” Kwon said.
Bob Tkacz is a correspondent for the Journal based in Juneau. He can be reached at email@example.com.