Barossa gas now supplies about a fifth of SK Innovation E&S's LNG portfolio

Set against the roughly 6 million tons a year that SK Innovation E&S runs through its portfolio, Barossa's 1.3 million tons is about 22% of the total ^[1]. That tonnage is only the company's 37.5% slice ^[4]. The field as a whole therefore implies output of about 3.5 million tons a year ^[2], and the company's share over the 20-year term adds up to 26 million tons ^[3]. The company first put money into the field in 2012 ^[12].

Kang Ryun-kwon, head of management planning, met reporters in Darwin ^[8] and described the benefit in terms of spot purchases. "When new volumes come in, the bigger effect will be reducing the share we had been buying on the spot market," Kang said ^[6]. With spot prices surging, Seoul Economic Daily reported, that means buying that much less expensive gas ^[9]. The account does not include the spot share of the 6 million tons, or what a ton of Barossa gas costs to land in Boryeong ^[5].

If the company had been buying 1.3 million tons or more at spot and prices stay high, every Barossa ton replaces an expensive one. If the spot share was smaller, the surplus goes to Prism, the Singapore trading unit it set up in 2017 ^[12], and the gain becomes a trading margin. If the Middle East disruption eases and spot falls, the same lock-in works against it. Extracting gas directly fixes part of the cost ^[10], and a fixed cost is a drag once the market price drops below it.

I think the first case holds for now. According to Seoul Economic Daily, LNG prices have climbed faster than crude oil as the Middle East supply crisis drags on ^[1], and a company that only buys on the market sees its costs rise in step ^[10]. The counter-case is duration. A 20-year import term ^[4] will outlast this crisis, and the price that decides whether Barossa was a good buy is the spot price in the years after it. The thesis is wrong if spot LNG settles below Barossa's landed cost for long stretches of those 20 years, because then the company's own gas is the dearest ton it burns.

The well-to-plant description is looser than it sounds. In the United States the company buys gas, moves it by pipeline and contracts even the electricity used for liquefaction at the Freeport terminal under a tolling arrangement ^[13]. Seoul Economic Daily's own description is renting someone else's plant ^[13]. The company does not own that liquefaction capacity. Its capital has gone into the Barossa stake, the Woodford shale field, the Boryeong terminal and plants such as Yeoju, which came online in 2023 ^[12].

The structure began as a single line. From 2006 the company imported gas for its Gwangyang plant under a 20-year contract for Indonesia's Tangguh project, with the seller delivering to the terminal and the plant burning it ^[11]. "If you hold multiple options, the number of possible combinations linking them grows exponentially, and your ability to respond to market shifts rises," Kang said ^[7].