SEOUL (Dow Jones)
Korea Midland Power said Monday that it has struck a $3.4 billion deal with Switzerland's Vitol SA to buy liquefied natural gas under a long-term contract.
The deal marks the first successful attempt by a Kepco unit at buying LNG directly from suppliers instead of purchasing through the country's LNG supplier, Korea Gas Corp. (036460.SE).
The power-generating unit of Korea Electric Power Corp. (015760.SE), known as Komipo, will buy 400,000 metric tons of LNG a year from Vitol from 2015 to 2024, it said in a statement.
The deal with Vitol comes with an option for Komipo to purchase more than the initially contracted volume, depending on changes in market prices.
The company didn't disclose price details but said the deal was signed at a "relatively competitive price" compared with recent long-term deals signed with other Asian countries.
The 400,000 tons account for approximately 17% of the company's annual LNG needs. The deal volume is "quite small," compared with what had been expected, Woori Investment & Securities analyst Chang Lee said.
Similar deals from South Korean companies are likely to happen "slowly," over a long period, while the impact of the deal on Komipo's earnings will depend on how much cheaper the LNG is in comparison with Kogas prices, Lee said.
As Komipo doesn't have a LNG terminal, it will use Posco's (005490.SE) terminal, a person familiar with the matter told Dow Jones Newswires.
South Korea has four LNG terminals in operation, of which Kogas runs three. Kogas also has a terminal in construction, with four tanks to be built by 2014.
The government has allowed companies to import LNG for their own consumption since 2001, but Kepco's power generation units, including Komipo, have been unable to find a supplier.
Only SK E&S, an affiliate of SK Group, Posco and GS Caltex buy LNG directly from overseas suppliers, an official at the commerce ministry's gas division said.
Local companies other than Kogas are still not allowed to import LNG for trading purposes.
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