Uptrend Likely to Remain for Years to Come
South Korea is one of the largest LNG importers in the world. Japan’s annual LNG imports are approximately 88 million tons and South Korea and China import 40 million tons of LNG a year each. South Korea’s imports are on the increase. The volume reached 44.02 million tons in 2018.
An appropriate inventory management is essential when the inventory is excessively greater than the demand. This means that LNG is vulnerable to price fluctuations although it is a low-carbon energy source. Experts point out that the South Korean government’s plan to reduce coal and nuclear power generation and increase LNG power generation instead will lead to more energy cost fluctuations.
The recent LNG price spike evidences the possibility of rapid price fluctuations attributable to demand and supply factors. According to the Korea International Trade Association, South Korea’s LNG imports fell from 44.02 million tons to 40.75 million tons in 2019, when the winter was the warmest since records began. The Korea Gas Corp. drew up its 2020 inventory plan in view of the situation. COVID-19 led to a decline in power demand and the LNG import price dropped to an all-time low of US$1.675 in April last year.
At present, however, the power demand is in a critical situation after the unprecedented cold wave that started last month. With the LNG in stock dropping amid a decrease in coal-based power generation, the corporation bought spot LNG in a hurry. With the supply limited and the demand soaring, the LNG price in the spot market jumped to US$21.453 per million BTU on Jan. 8, more than four times the January 2020 price. According to Bloomberg, a company in South Korea bought spot LNG at a record-high price of US$27.8 early this month.
The rising LNG price is likely to continue for years as the economy recovers. Bloomberg pointed out that the soaring price shows how volatile the prices of LNG and renewable energy sources are.