Seoul (Platts)--8Nov2012/432 am EST/932 GMT

South Korea's second-biggest LPG importer E1 Corp said Thursday it would purchase 180,000 mt/year of LPG produced from US shale gas in 2014, which could lower its dependence on supplies from the Middle East.

E1 said it has signed the deal with Enterprise Products Operating LLC, a subsidiary of US gas company Enterprise Products Partners. The agreed volume is equivalent to 11.3% of E1's total sales volume of 1.58 million mt in 2011.

The company said prices of LPG from US shale gas were more than 10% lower than import prices of LPG produced in the Middle East.

"We will consider increasing import volume from US shale gas beyond 2014," a company official said, adding the shale gas deal would boost the company's leverage in price negotiations with Middle Eastern LPG producers.

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Increased LPG output from shale gas would help stabilize prices of the fuel, the official added.

"The deal would reduce our dependence on the Middle East and diversify import sources," the official said. The company declined to disclose further details of the deal, including prices.

SK Gas, the country's biggest LPG importer, said it was also considering buying LPG produced from shale gas to help lower import costs. It sold 2.23 million mt of LPG last year. SK Gas is an affiliate of the country's biggest oil refiner, SK Innovation, which along with the country's three other oil refiners -- GS Caltex, S-Oil and Hyundai Oilbank -- also produces LPG by refining crude.

The E1 deal is part of effort by South Korea to tap a US shale gas boom. The country aims to import more than 8 million mt/year of LNG produced from shale gas by 2020, mainly from North America, which equates to 20% of South Korea's total LNG demand.

The E1 deal also comes amid concerns that South Korea can no longer import LPG from Iran due to toughening EU sanctions that include a ban on importing and transporting Iranian gas.

South Korea imported 1.3 million barrels equivalent of LPG from Iran in September and 765,000 barrels equivalent in August, though it did not buy Iranian oil due to EU sanctions, according to state-run Korea National Oil Corp. South Korea typicaly imports around 1.5 million barrels equivalent of LPG a month. KNOC does not provide mt-based data. Other major LPG providers for South Korea include the United Arab Emirates, Qatar and Kuwait.

ALTERNATIVE TO LNG

South Korea has been seeking ways to increase LPG consumption as an alternative to LNG, for which demand is growing. LPG accounts for accounts for about 13% of the country's total energy consumption, compared with oil at 42%, coal 28%, LNG 13% and nuclear 13%.

The energy ministry has stressed the need to boost LPG's role as a complement to LNG as part of efforts to diversify energy sources, ensure energy security and promote efficient resource distribution.

As part of such efforts, the ministry has vowed to invest more in DME, a clean-burning fuel that can be blended with LPG or used on its own as transportation fuel as an alternative of LNG and LPG. DME, typically produced using methanol as a feedstock, is gaining attention from automakers also as it is cheaper than LPG and produces little pollution from combustion.

South Korea plans to introduce DME-fueled cars by 2013.

--Charles Lee, newsdesk@platts.com --Edited by Wendy Wells, wendy_wells@platts.com

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