Gas Buyers Poised to Commit on South Korea Atomic Shift

South Korea’s plan to almost halve its use of atomic power will prompt the world’s second-largest buyer of liquefied natural gas to sign new supply deals for the fuel, according to Woodside Petroleum Ltd. (WPL)

The shift away from nuclear in Korea will give buyers such as Korea Gas Corp. (036460) confidence to commit to gas to comply with government policies, said Peter Coleman, the chief executive officer of Woodside, Australia’s second-largest oil and gas producer. The company plans to decide in mid-2015 whether to proceed with its Browse project that would liquefy gas on a ship offshore Australia for delivery by vessel.

“There’s such a long lead time on this stuff that the earlier you can get clear policy direction, the earlier that the buyers -- whether it be Kogas or others -- are able to act,” Coleman said in an interview yesterday at an industry conference in Daegu, South Korea. “If buyers are not willing to make those commitments, then projects won’t get built. People don’t build LNG projects on spec.”

At the weekend, South Korea, which imports all its energy, proposed scaling back nuclear power to 22 percent to 29 percent of its energy mix by 2035 from a previous target of 41 percent. That follows public concern about safety after the Fukushima nuclear disaster in Japan and a scandal in the industry at home.

Photographer: SeongJoon Cho/Bloomberg

Korea Gas Corp. liquefied natural gas tanks stand at the company's terminal in Pyeongtaek, South Korea. Close

Korea Gas Corp. liquefied natural gas tanks stand at the company's terminal in Pyeongtaek, South Korea.

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Photographer: SeongJoon Cho/Bloomberg

Korea Gas Corp. liquefied natural gas tanks stand at the company's terminal in Pyeongtaek, South Korea.

On Oct. 11, the government said it would indict 100 officials on corruption and bribery charges after a probe into the nuclear industry found widespread use of faked safety documents for components.

LNG Winner

The pullback from nuclear will be decided this year pending public feedback and Cabinet approval. Atomic energy accounted for 26 percent of power generation capacity as of the end of 2012, according to the energy ministry.

“The new long-term energy policy is heavily focused on expanding the use of LNG,” Jang Gil Soo, a special adviser for Korea Electric Power Corp. (015760), the country’s monopoly electricity distributor, said at the conference. “It doesn’t have any restrictions, like coal, which creates environmental problems.”

Taiwan is another Asian country rethinking nuclear. The island is building its fourth atomic plant, but the fate of the project may go to a public vote after leaks were found in used fuel pools of another station. President Ma Ying-jeou has said atomic energy will be abandoned as soon as economically and environmentally viable alternatives are found.

Play the trend

“This is part of a trend we’re seeing in Japan, Taiwan and now South Korea,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said yesterday by phone. “We are seeing certainly a slowdown in plans for nuclear expansion, and LNG remains the beneficiary of this trend.”

Woodside will probably seek to sell LNG from its Browse project to South Korea, Beveridge said. With PetroChina Co., Mitsubishi Corp. and Mitsui & Co. partners in Browse, China and Japan will likely be “anchor” customers, he said.

Liquefying gas from the Browse field on giant vessels offshore will cost an estimated $46 billion over the life of the project, compared with about $70 billion for an onshore plant, Citigroup Inc. said last month.

“We are developing a technology base that is broad enough to be able to develop LNG in a number of different ways, not just the traditional onshore plant way,” Coleman said.

Big Ships

Samsung Heavy Industries Co. will probably build the three floating LNG plants for the Browse project, according to a Sept. 23 report from Goldman Sachs Group Inc. Samsung Heavy is now building its first floating LNG plant to tap Shell’s Prelude gas field in Australia.

Korea Gas owns a stake in Prelude and is a partner in Santos Ltd.’s $18.5 billion LNG project on Australia’s east coast that’s scheduled to start exports in 2015.

Driven by Asia, the outlook for LNG demand remains strong, with customers needing contracts for another 70 million tons a year by 2020 and 180 million tons by 2025, Goldman Sachs said in its Sept. 23 report.

The shift to gas from nuclear still leaves a place for atomic power, said Toshiba Corp. Vice Chairman Norio Sasaki in an interview in Tokyo.

“Nuclear power has a role as a cleaner energy,” he said. “Gas prices cannot be kept at low levels based on the latent demand in emerging economies.”

The company is building four nuclear plants in China and another four in the U.S. and targets 31 more orders by March 2018, said Sasaki, 64, who was CEO of Toshiba Power Systems Co. in 2006 when it bought Westinghouse Electric Co.

Still, with Japan moving to a lower nuclear percentage in overall energy demand and South Korea following, that’s a supply gap for gas, Royal Dutch Shell Plc (RDSA) Chief Executive Officer Peter Voser said at a press conference in South Korea.

“In the shorter term it’s probably gas that will fill that,” Voser said. “In the longer term it’s probably a combination of renewables and gas.”

To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; James Paton in Sydney at jpaton4@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

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