Malaysia's Petronas seeks higher prices for its LNG to S.Korea-sources

Business & Markets 2013
Written by Reuters
Friday, 13 December 2013 19:56
A + A - Reset
(13/12/13 19:18:59)
* Petronas supplies 2 MT/yr of LNG to KOGAS, under 20-yr contract
* Wants price of more than 13 pct of crude oil, from less than 10 pct now
-sources
* Talks may be wrapped up by year-end or in January -source
KUALA LUMPUR/SEOUL (Dec 13): Malaysia's Petronas is seeking higher
prices for the 2 million tonnes of liquefied natural gas (LNG) a year it supplies
to South Korea's Korea Gas Corp (KOGAS), Petronas sources said on Friday.
The Petronas contract is one of several that KOGAS — the world's largest
corporate buyer of LNG — is currently renegotiating, and a settlement could
pave the way for a sharp jump in long-term LNG prices, from Malaysia to South
Korea.
The move to hike prices comes as Asian LNG users are looking for ways to jointly leverage their buying power, to lower prices of the fuel.
"We would be happy if we could get above 13 percent of crude oil," one Petronas source directly involved with the negotiations said, but
declined to say what the current pricing formula is.
A second Petronas source said the Malaysian state-run company is aiming to renegotiate its contract with KOGAS, to 13 to 13.5 percent of
crude oil prices, and that the current pricing formula is below 10 percent of crude oil prices.
Some industry insiders estimate that long-term LNG prices from Malaysia to South Korea could jump by as much as a third, due to the
renegotiations.
Long-term prices of around 13 percent of crude oil would put Malaysian LNG prices into South Korea, at around $14.50 per million British
thermal units (mmBtu). Current LNG spot prices are around $19 mmBtu.
It was not immediately clear if KOGAS would agree to the price hike. But its options are limited, given strong regional demand for LNG and
South Korea's growing dependence on the fuel to feed its power plants, due to cuts in nuclear power.
KOGAS has said it aims to cut its reliance on spot market purchases of LNG, citing difficulties in obtaining cargoes, due to high prices.
Sources at both Petronas and KOGAS said the negotiations are continuing. A KOGAS source said that talks with Petronas are ongoing,
and might be wrapped up at the end of the year, or in early January.
A KOGAS spokesman said he had no knowledge of the matter, while Petronas declined to comment.
Petronas' 20-year supply contract with KOGAS began in 2008, and prices can be reviewed every five to eight years.