Korea's public power companies seeking direct LNG sourcing to save costs

[Source: Korea Gas Corporation]

Korean state utilities are going directly to bring home liquified natural gas (LNG) from overseas markets to improve profitability amid a surge in energy prices due to general supply concerns and the escalation involving Ukraine.

Utilities usually go through Korea Gas Corporation (KOGAS) which procures LNG at different prices from various suppliers in Qatar, Australia, and Malaysia.

According to sources on Sunday, Korea Southern Power Co., a KEPCO’s power subsidiary, is preparing to purchase LNG fuel directly from overseas markets for its new power plant to go operational in early 2024. Other subsidiaries like Korea East-West Power Co., Korea Western Power Co., and Korea South-East Power Co. are considering direct LNG sourcing for their new power plants. Korea Midland Power Co. is the only already power subsidiary of KEPCO that uses directly purchased LNG as fuel for its plants.

The energy industry estimates profits of these companies to improve by 10 to 15 percent under direct LNG sourcing, given the current earnings gap between public and private energy providers. For example, SK E&S, a private energy company, earned a net profit of 156.6 billion won ($130.4 million) from its power generation business for the first nine months of last year whereas the public power companies achieved only 44.4 billion won on average in the same period.

Demand for LNG is expected to continue to rise as the fuel is increasingly used as a bridge energy source to realize carbon naturality.

The move for direct introduction of LNG by KEPCO’s power subsidiaries is being accelerated by the Ukraine crisis that has fanned energy prices.

Public power generation companies have long been promoting direct LNG sourcing for their new power plants, but there are hurdles under the current law. They must register as a business for import and export of natural gas in accordance with the Urban Gas Business Act, while having storage facilities that can store 30 days' worth of self-consumption.

To meet this requirement, public power generation companies are leasing storage facilities from KOGAS, which owns more than 90 percent of gas storage facilities in Korea. Public power generating companies are pushing to build their own storage facilities. Korea Midland Power and Korea Southern Power applied for a preliminary feasibility study last year. Results are expected to come in the first quarter of this year.

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