UPDATE 4-S.Korea strikes $84 bln LNG deals with Shell, Total

* Australia to supply most of the gas
    * KOGAS to buy 10 pct stake in Shell's Prelude LNG project
    * Deals to import 5.64 mln T/yr LNG to be signed in Sept

    By Cho Mee-young and Rebekah Kebede	
    SEOUL/PERTH, Aug 17 (Reuters) - South Korea announced
long-term agreements on Wednesday worth $84 billion with energy
giants Royal Dutch Shell and Total to buy gas
from LNG projects in Australia.       	
    Asia's largest economies are competing for Australia's
rapidly growing supplies of liquefied natural gas (LNG) to
secure the energy to fuel expansion.	
    South Korea, the world's second-largest buyer of LNG after
Japan, needs the deals to replace supply from Indonesia,
Malaysia and Brunei under agreements due to expire between 2013
and 2015.	
    State-run Korea Gas Corp (KOGAS) will import a
combined 5.64 million tonnes per annum (mtpa) of LNG from 2013
to 2035 under the agreements, the economy ministry said in a
statement. The volume is equivalent to about a fifth of the
country's LNG imports in 2010, and the deals are due to be
signed next month.	
    Worth 90 trillion won ($84.1 billion) over their lifetime,
the deals are the nation's largest ever long-term gas supply
    KOGAS, the world's largest corporate buyer of LNG, will also
acquire a 10 percent stake with an additional investment of $1.5
billion in Shell's fully-owned Prelude project in Australia, the
ministry said. 	
    Analysts had expected KOGAS to buy LNG from Prelude as
Samsung Heavy Industries Co Ltd is building the
giant vessel in South Korea to process and liquefy gas from the
    "Everyone has been waiting for KOGAS to sign up for Prelude
because it's being built there-- it's a matter of national pride
that the first floating LNG is being built in their yards. That
was always going to happen," said Noelle Leonard, a consultant
for Facts Global Energy. 	
    The floating vessel will be the world's largest, a ship
longer than four soccer fields and six times heavier than the
biggest aircraft carrier. Prelude is expected to become the
world's first floating LNG project when it starts operating in
2017, with a capacity to produce and ship 3.6 mtpa of
    The purchase of a stake in Prelude adds to KOGAS's growing
portfolio of projects in Australia, which is on course to become
the world's second-largest LNG supplier after Qatar by the end
of the decade.	
    KOGAS already has a 15 percent stake in the
Santos-led Gladstone 7.8 mtpa project to produce LNG from coal
seam gas. The South Korean firm will buy 3.5 mtpa over 20 years
from the project in Australia's eastern state of Queensland.
    KOGAS has also signed preliminary agreements with Chevron
 for LNG from the Wheatstone and Gorgon projects, and is
in talks with Chevron for a stake in Wheatstone. 	
    Industry sources said the supply deals with Shell and Total
have been in the works for some time and they expected more
deals to be finalized soon.	
    South Korea's scramble to replace its expiring contracts
comes as the regional LNG sector goes through a sea change.
Indonesia and Malaysia, long the top exporters and key suppliers
to north Asia, are seeing their exports fall as rising domestic
demand eats up more of their declining output.	
    At the same time, Japan's massive March earthquake has
forced it to rely more on gas-fired power as it tries to
compensate for idled nuclear reactors, a factor which has
tightened fundamentals in the regional and global market. 	
    Japan's demand is expected to jump over 12 percent this year
alone, according to a Reuters poll of analysts. 	
    The deals with Shell and Total would help "stabilise South
Korea's LNG supplies as global energy supply concerns have been
on the rise since Japan's March earthquake," the country's
economy ministry said.	
    Seoul said it had bought the LNG more cheaply than Japan's
latest agreements for Australian supply, with the ministry
estimating the savings at $110 million annually compared to
those deals.	
    "It seems that KOGAS has a discount thanks to the large
volume, and such lower cost of LNG imports will help buoy South
Korea's LNG demand more," said Chang Lee, head of research at
Woori Investment and Securities.	
    Other analysts said the prices seemed roughly in line with
other recent deals, but that KOGAS may have benefited from
having started supply negotiations prior to Japan's earthquake.
Spot LNG prices in Asia have risen about 50 percent since the
    South Korea's LNG demand is expected to remain relatively
flat through the next decade, inching up to 34 million tonnes by
2024, up from 32 million in 2010, according to government
    Shell and Total will supply LNG mainly from Australia's
Prelude and Ichthys projects under the deals, with some
additional supply coming from Shell and Total's LNG portfolios.	
    Ichthys has yet to receive the final go ahead from
developers Inpex and Total, who are expected to take their
investment decision in the fourth quarter this year and begin
production in 2014. LNG project developers typically seek and
sign long-term deals to sell their gas before they begin
    Inpex Corp said earlier this year it had secured
buyers to cover the entire annual output of 8.4 million tonnes
from the Ichthys project. Inpex owns 76 percent of the project,
with the rest held by Total. 	
    Shell has said it expects Prelude to come online by 2017.
The ministry estimated the start up date would be in 2016. Until
it can supply gas from Prelude, Shell will ship a million tonnes
per year from Nigeria and Russia to South Korea, the ministry
    Details of the deals approved by the Korean government are
as follows:	
    -- Deal with Shell 	
    Year       Volume (in T/Y) Supplier  Origin (Gas field) 	
    2013- *    1 mln           Shell     Nigeria, Russia	
    *   -2035  3.64 mln        Shell     Australia (Prelude)	
    Note: * KOGAS will receive 1 million tonnes per year from
Shell's gas fields in Nigeria and Russia until Shell's Prelude
project starts to export LNG. From Prelude, KOGAS will receive
3.64 million tonnes per year for 20 years, it added.   	
    -- Deal with Total 	
    Year       Volume (in T/Y) Supplier  Origin (Gas field) 	
    2014-2031  2 mln           Total     Australia (Ichthys),	
                                         Nigeria, Norway, Egypt