According to industry sources on February 20, the Ministry of Trade, Industry & Energy is planning to come up with a new plan on natural gas procurement next month. The plan is expected to include direct LNG procurement policy considering various factors such as price, supply stability, infrastructure conditions and public interests.
The direct LNG procurement is because LNG imports are on the rise based on LNG power generation expansion. For the first 10 months of last year, the amount totaled 30.1 million tons, up 15.5% from a year earlier. During the past couple of years, the amount was approximately 33 million tons a year. At present, direct LNG procurement is only for limited purposes, such as power generation and industrial use, and Korea Midland Power, SK E&S and GS EPS are doing it. Their combined direct import volume is about three million tons a year.
According to the ministry’s plan released in December last year, the ratio of LNG power generation of South Korea is scheduled to increase from 34.7% to 38.6% between 2017 and 2030 so that the ratios of coal-fired power generation and nuclear power generation can be reduced. According to the plan, six coal-fired power stations with a total capacity of 2.1 GW will be turned into LNG power stations between 2023 and 2030. The global LNG production volume, in the meantime, is estimated to skyrocket for five years to come and a buyer-friendly environment is expected to be created in the early 2020s.
South Korean power generation companies are regarding direct LNG procurement as a way of enhancing their price and production competitiveness. In this regard, they are conducting feasibility studies, working on plans related to the use of infrastructure like gas storage facilities and discussing the establishment of a fuel supply company for joint purchase.
Cooperation with LNG suppliers is essential for more direct procurement by power generation companies. Korea Midland Power is currently working with POSCO, which has an unloading terminal in Gwangyang, South Jeolla Province. SK E&S and GS Energy made a joint investment in a similar terminal in Boryeong, South Chungcheong Province and the terminal was put into operation in the second half of last year. According to SK E&S and GS Energy, the terminal’s cost reduction effect amounted to 8.6 billion won in January this year alone and direct LNG procurement through the terminal will be increased this year.
The Ministry of Trade, Industry & Energy is currently examining the feasibility of direct LNG procurement and is yet to clarify its stance. The ministry’s cautiousness is because there are a lot of things to consider and power generation companies and LNG suppliers such as the Korea Gas Corporation (KOGAS) have different stances. Likewise, the KOGAS is rather cautious about the issue involving national energy supply, bargaining power, price stability, infrastructure investment efficiency, etc. At present, the KOGAS is supplying 94% of the gas used in South Korea based on 30-year contracts expiring in 2026.
Tasks related to an increase in direct LNG procurement include the expansion of infrastructure such as LNG storage facilities and gas pipe networks and how to handle the imported LNG in the event of a decline in demand. The LNG terminals of the private-sector companies located in Gwangyang and Boryeong currently have little remaining capacity.