HOUSTON — South Korea-based SK E&S imported less than 1 billion tons of LNG to China last year. That number is expected to quadruple by 2020.
The figure, given by Shaun Parvez, president of SK E&S Americas, is part of the reason why the company, an affiliate of conglomerate SK Group, has joined oil and gas companies targeting the Asia-Pacific region as the destination for gas and LNG. The energy and services division of SK Group—which has more than 80 affiliates focusing on energy and chemicals, telecommunications, semiconductors and more—is working to capture the entire energy value chain.
Oil may be dominating talk today, but gas—including that for oil-price-linked LNG—is on people’s minds, too. Companies across the world have sought shale gas assets in recent years, especially in the U.S. where technology has led to abundant supplies. SK is among them. The recent downturn, marked by lower oil prices and supply-outpaced demand, might have caused unease among some companies but not all.
Some Asian companies are probably discouraged by lower oil and gas prices, said Mayer Brown partner Toshi Yoshida, but others are motivated. They see opportunity with lower exploration risks.
“Those who are in the LNG import business or LNG tolling facilities, they need feedstock gas for their tolling facilities,” Yoshida said, before mentioning how Asian companies bought into shale plays years ago to gain fracking knowledge.
Tapping Gas Assets
SK is working with Oklahoma-based Continental Resources to tap shale gas in the Woodford Shale. The two formed a joint venture last year to develop Northwest Cana Woodford gas assets, which include 37 producing wells, in a $360 million deal. SK has 49.9% interest.
In 2012, SK acquired a 37.5% interest in the Barossa-Caldita gas fields offshore Australia’s Northern Territory in the Timor Sea. The Bonaparte Basin assets, which will be developed as an LNG project, are operated by ConocoPhillips. Santos is a partner.
“Through our LNG strategy we’ll be roughly doubling our net income for the next five years,” Parvez said May 13 during Mayer Brown’s Global Energy Conference. “We look at LNG from beginning to end.”
The company has gone from being a traditional consumer or purchaser of LNG from an integrated supplier like a BP or a Shell.
“We are [also] sourcing gas or LNG through contracts in Indonesia. We now also have liquefaction capacity in Freeport, and we are about to finish construction of a re-gas and receiving terminal in Korea,” Parvez said. “We’re now trying to integrate that value chain internally.”
In all, SK has eight production projects, including the Camisea LNG project in Peru, and 20 exploration projects with liquefaction capacity at Freeport LNG, Peru LNG, Yemen LNG, Ras Laffan LNG and Oman LNG, totaling 29 MTPA, and six LNG carriers.
“China is going to be a huge LNG market. How that pans out … remains to be seen,” he added, posing lingering questions. How will the contracting structure look? Will the Chinese go directly to the U.S. for gas or LNG? Will they work through large buyers in Japan and Korea?
Regardless, “You can’t discount how important China is going to be in this LNG market,” Parvez said.
In addition, LNG needs will be great in Korea and Japan, where Yoshida said there is little domestic hydrocarbon production and heavy reliance on imported crude and gas (LNG) for the primary energy supply. The Toyko Electric Power Co.-Chubu Electric Power Co. alliance in October 2014 created the world’s largest LNG purchaser. But Japan’s LNG needs could be impacted if nuclear power plants restart.
Unlike Japan and Korea, China has options and could develop its own energy resources, Yoshida said. In addition to conventional resources, China has 1,115 trillion cubic feet of technically recoverable shale gas resources, according to the U.S. Energy Information Administration (EIA). That is more than any other country in the world. China, however, lowered its shale gas target after running into technical difficulties. Still, expectations remain high with several hundred wells already drilled, he said.
China tops others in the world when it comes to coal production, consumption and imports as well as net petroleum imports, according to the EIA. Gas and LNG use and imports are also rising as China works to lower coal use and diversify energy supplies.
In the long-run, the Chinese government thinks the U.S. has the cheapest source of LNG, Yoshida said. The EIA forecasts that gas production in the U.S. will average a record 72.4 Bcf/d in 2015.
Meanwhile, the number of companies gaining permission to export LNG to countries with and without a Free Trade Agreement (FTA) with the U.S. continues to grow.
The latest came May 12 when the U.S. Department of Energy said it gave the Corpus Christi Liquefaction Project permission to export domestically produced LNG, up to the equivalent of 2.1 billion standard cubic feet per day of gas for 20 years, to countries without an FTA.
U.S. Corpus Christi Liquefaction is a subsidiary of Cheniere Energy.
Contact the author, Velda Addison, at email@example.com.
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