LNG price by contract of Sakhalin Energy and Kogas in 2014 rose after cancellation of price restrictions

The LNG price by the contract between Sakhalin Energy and Kogas (South Korea) in 2014 rose significantly after the cancellation of the price restriction. This is the assessment of the National Energy Safety Fund.

In the mid 2000s Kogas signed a long-term agreement with Sakhalin Energy for the purchase of 1.5 mln tons of LNG a year from Sakhalin-2 project, with an option for the additional 0.5 mln tons. The average price by this agreement didn’t exceed $200 per ton from the moment of the start of supplies in late 2009. The additional volumes by the contract were shipped at high market prices peculiar for APR for the past years (higher average price at certain months is explained by that).

“A low price was stated in a 5-year contract. Both the supplier and buyer gained the right to bring it to the market conditions if they significantly differ. By our assessment, Sakhalin Energy was $3.5-4 bln short of net profit from the gas supply at a fixed price”, analysts of National Energy Safety Fund say.

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