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South Korea Looks to Position as New LNG Bunkering Hub to Boost Bargaining Power

May 16, 2016

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South Korea will step up efforts to turn its coast into a regional LNG bunkering hub as it tries to boost its role as a major buyer, a senior government official said Friday.


"If South Korea establishes a major LNG bunkering center on its coast, it can increase LNG import volumes, which will help sharpen its bargaining power as a main buyer," Lee Kwan-Sup, vice minister of Trade, Industry and Energy, said on the sidelines of an LNG bunkering meeting.


"South Korea imports huge volumes of LNG for power generation and heating. LNG bunkering will add the country's import volume, strengthening its bargaining position," Lee said.


The demand of LNG as a marine fuel is expected to climb as more vessels switch the the less-polluting fuel, Lee said.


South Korea's LNG demand has been falling due to drop in consumption for electricity generation.


State-owned Korea Gas Corp., which has a monopoly on domestic natural gas sales, sold 31.46 million mt of LNG last year, down 10.6% from 35.17 million mt in 2014, the second consecutive year of declining sales. LNG sales fell for the first time in 2014 since 2009.


In the face of declining local demand, Kogas, the world's biggest LNG buyer, cut its imports by 13.5% to 31.41 million mt in 2015, the second consecutive year of decline.


The recent fall in LNG prices amid a supply glut was a chance for South Korea, the second-largest LNG importer, to play a bigger role in the global market, Lee said. "Producers would be more willing to listen to us," he said.


"The government will take necessary measures for LNG bunkering, such as providing legal foundation and building facilities, to boost South Korea's competitiveness in the environment-friendly maritime industry," Lee said.


South Korea's interest in LNG bunkering was initiated by its shipyards and shipping industry's requests and the need of new demand in LNG industry, according to Park In-Whan, executive vice president and COO of Kogas.


Park was elected as the first chairman of the newly formed Korea LNG Bunkering Industry Association at its inaugural meeting Friday. The association comprises 21 companies including shipbuilders, shippers and classification societies.


"South Korea houses the world's biggest shipyards and major ports in the Asia-Pacific and can be an ideal place for becoming an LNG bunkering hub in Northeast Asia," Park told S&P Global Platts.


"Use of environment-friendly maritime transportation fuel is a key trend we should follow," he said.


But local shippers were hesitant about turning their vessels into LNG-fueled ships due to it was costlier than fuel oil.


"In the wake of the sharp crude oil price drop since late 2014, fuel oil has become cheaper than LNG," said Kim Sung-Ick, vice president of SK Shipping.


"So, shippers are now less tempted to use LNG," he said, adding that price would be the key factor in going forward with the LNG bunkering project.


South Korea's demand for fuel oil jumped 28.9% year on year to 20.61 million barrels over January-May, driven by lower prices, according to Korea National Oil Corp.


Fuel oil demand as maritime fuel rose 15.3% to 6.87 million barrels in the first five months of this year. "Demand for fuel oil is likely to remain strong thanks to relatively low prices," a KNOC official said.

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