As the spot import price of liquefied natural gas (LNG) soared to an all-time high this year, there are concerns that it may lead to a chain rise in domestic city gas and electricity rates. The photo shows POSCO Energy’s Gwangyang LNG Terminal 5 tank, which directly imports LNG. yunhap news
–
This year, the price of imported liquefied natural gas (LNG) rose sharply, soaring to an all-time high. This is because LNG demand has soared due to the addition of a record cold wave and an anti-coal policy. City gas and electricity bills are also expected to have a chain wave.
![[단독] LNG prices tripled in a month… City gas and electricity rates rise](https://img.hankyung.com/photo/202101/AA.24972838.1.jpg)
–
–
According to Standard & Poor’s Global Platz, a global energy information analysis company on the 11th, the price of LNG in the Korean and Japanese spot markets (JKM) on the 8th recorded $21.453 per 1 million BTU (calorie unit). It is the highest since 2009 when the investigation began. It has nearly tripled in just a month from $8.065 earlier last month.
Compared to the record low at the end of April last year ($1.675) in the aftermath of the novel coronavirus infection (Corona 19), it surged almost 13 times in nine months. The price of JKM futures (January) traded on the New York Commercial Exchange (NYMEX) also soared to the $15 level on the 8th.
Korea Gas Corporation, which supplies LNG to domestic power generation companies and city gas companies, imports about 70% of its annual volume through long-term contracts. The remaining 30% is purchased as a spot deal in winter when heating demand is high. Due to the recent record cold wave, the import unit price has soared as demand has greatly exceeded expectations.
The surge in demand for LNG with low carbon emissions due to the government’s de-coaling policy is also pointed to as the cause of the price surge.
A gas corporation official also told the Financial Times (FT) on the 8th, “As the demand for LNG increases due to the government’s coal-free policy, we have no choice but to stock up even at high spot prices.
Energy experts pointed out, “As the dependence on LNG with high price volatility increases, it could be a factor in increasing city gas and electricity rates linked to it.”
Demand surge called by’Green New Deal’… LNG price, from 5 to 21 dollars a year
Reduced coal power generation and hit a record cold… LNG inventory plummeted
“In the international energy market, Korea can be marked as a’bong’.”
An energy expert said this while watching the recent surge in liquefied natural gas (LNG) prices. They pointed out the dangers of increasing LNG’s energy dependence according to the government’s Green New Deal policy. There are also concerns that uncertainties about domestic city gas and electricity rates may increase.
![[단독] LNG prices tripled in a month… City gas and electricity rates rise](https://img.hankyung.com/photo/202101/AA.24972779.1.jpg)
–
–
LNG imports increasing every year
According to the energy industry on the 11th, Korea is considered as a major LNG importer along with Japan and China. Japan is the largest at 8 million tons per year. Korea imports about 40 million tons a year along with China. The volume of domestic LNG imports is increasing every year. In 2018, it soared to 4402 million tons. The government’s official explanation is that the amount of LNG generation increased as the maintenance volume of nuclear power plants increased in addition to the increase in heating demand caused by the cold weather at the time.
Korea Gas Corporation, a domestic energy public company, manages inventory every year in consideration of the weather and power generation in the year. If the LNG inventory exceeds demand, the management cost increases, and proper inventory management is essential.
The problem is that LNG emits less carbon, but it has the disadvantage of being vulnerable to price volatility. Usually, LNG futures prices are linked to international oil prices, which are sensitive to the economy. In the situation where the supply of spot goods is brought in in a timely manner through oil tankers is limited, prices can rise or fall depending on demand. Experts point out that instead of reducing the proportion of coal and nuclear power generation, the larger the proportion of LNG power generation, the more widespread energy costs are.
Gas Corporation to quickly buy in-kind
The recent surge in LNG prices clearly shows the possibility of sudden price fluctuations caused by such anxiety in supply and demand. According to the Korea International Trade Association, LNG imports in 2019 were 4,075 million tons, down from 4402 million tons last year. 2019 is the warmest winter year since weather observations. According to this, the KOGAS prepared an inventory plan for 2020. As demand for power generation decreased due to the aftermath of the novel coronavirus infection (Corona 19), LNG import prices fell to a record low of $1.675 in April of last year.
However, since the end of last year, a record cold wave has hit the Northeast Asian region, causing an emergency in demand for electricity. As LNG stocks were also sharply decreasing while the operation of coal power plants was being reduced, KOGAS hastily bought LNG spots. LNG prices in the Korean and Japanese spot markets (JKM) soared to $21.453 per million BTU on the 8th as demand surged under limited supply. It is more than four times higher than the $5 of January 2020, just before the coronavirus. An official of the KOGAS said, “For the time being, there will be enough stocks,” he said. “If this continues, you will have to buy the spot even at a high price.” According to Bloomberg News, a Korean company also bought spot LNG at an all-time high of $27.80 earlier this month.
Will city gas rates continue to rise?
Japan, whose energy supply and demand structure is similar to that of Korea, is suffering from a shortage of LNG supply, and wholesale electricity rates are soaring to an all-time high. On the other hand, the government emphasized that it is unlikely that an increase in LNG prices will lead to an increase in city gas rates. It is explained that the KGAS usually imports about 70% of the total volume in mid- to long-term contracts for 5 to 10 years, so it is not affected by spot prices.
The opinions of experts are different. Unlike general electricity rates, city gas rates are applied in conjunction with LNG raw material costs. The raw material cost item, which accounts for about 80% of the rate, is adjusted in conjunction with the domestic import price of LNG. In fact, the government also lowered city gas rates by an average of 13.1% in July last year as LNG import prices decreased in the aftermath of Corona 19. On the contrary, if the import unit price rises, it is a structure that has no choice but to raise the rate unless KOGAS takes a deficit.
The rise in LNG prices is expected to continue for several years in line with the economic recovery trend. Bloomberg News pointed out, “The surge in LNG prices in Korea and Japan showed how large the volatility of LNG along with renewable energy is.” Professor Joo Han-gyu of the Department of Nuclear Engineering at Seoul National University pointed out that “the international LNG price cannot be controlled by our own power.”
Reporter Kang Kyung-min/Seong Soo-young [email protected]
–
