Kogas, the world's biggest buyer of liquefied natural gas, will purchase its LNG at a 40% discount to market prices. from from Royal Dutch/Shell Group, Total SA and partners, the Korean government said.

The Ministry of Commerce, Industry and Energy said that two ventures involving Shell in Malaysia and Sakhalin, Russia, and one involving Total in Yemen will supply 5 million metric tons of LNG a year to Korea Gas starting from in 2008.

Malaysia LNG Tiga Sdn. will provide 1.5 million tons a year, while Shell's Sakhalin-2 venture will supply 1.5 million tons and Total's Yemen project will provide 1.3 million tons.

Korea imported 22.1 million tons of LNG in 2004. Under the new contract, Kogas can buy LNG for about 40% and has an option to buy a further 700,000 tons annually.

The LNG from the three firms was priced at $3.80 per British thermal unit, which compares with the current $6.20. The cost translates to between $197 to $217 per metric ton. The price was settled upon assuming a crude oil price of $40 a barrel.

Prices throughout the contract will be determined based on a system that links LNG to crude oil prices. But the price can only rise a maximum 29% even if crude oil prices double.

The new Korea Gas contracts will replace an accord with Indonesia's PT Arun NGL that ends in November 2007.

State-run Petroliam Nasional Bhd owns two-thirds of Malaysia LNG Tiga, while Nippon Oil Corp, Japan's largest refiner, has a 10% stake equal to that held by the Sarawak state government. Shell has 15%, while a unit of Japan’s Mitsubishi Corp holds 5%.

Shell owns 55% of Sakhalin Energy Investment Co. Mitsui & Co and Mitsubishi Corp of Japan own the rest the venture, which holds contracts to sell 3.4 million tons a year of LNG to Japan. It is in talks to supply other Asian countries, Mexico and the United States.

Total has a 43% stake in Yemen LNG. Yemen Gas Co owns 23% and Texlas-based Hunt Oil Co has 18%. Four Korean companies own a combined 16 percent