South Korea outlines crisis response for winter; raises gas and power prices

South Korea will undertake crisis response measures to tackle the coming winter, including curbs on energy demand, raising gas prices for city gas and power sectors, securing LNG supply and boosting finances of energy importers, according to statements made on Sept. 29 and Sept. 30.

The measures are similar to contingency plans laid out by the likes of Japan and China, as well as Europe, where record high gas prices have drained cash reserves of gas and power companies and forced governments to intervene with bailouts and price caps.

"With domestic energy supply highly dependent on imports and energy prices rapidly rising, Korea is suffering from a trade deficit despite robust exports," the Ministry of Trade, Industry and Energy said in statement Sept. 29. "Moreover, as fuel costs are not incorporated into price hikes in time, the losses of public energy companies are becoming more severe."

It said the government is making preparations for winter while seeking to reduce domestic energy consumption and expand stable sources of energy supply.

"Winter season energy supply will be secured early on, and the government, public energy corporations and private companies will be joining efforts for energy supply management through a joint emergency response system," MOTIE said.

"The goal for the coming winter is to reduce energy usage by 10%, led by government and public institutions placing caps on heating temperatures," it said. All central and provincial public entities will be required to save energy by limiting indoor heating of buildings and switching off exterior lighting.

The ministry said a more fundamental aim is to gradually raise energy prices and improve public companies' finances. It asked companies to monitor energy usage and commit to saving energy in preparation for winter, "as this crisis is expected to persist for a considerable length of time" and "a price adjustment is inevitable, starting with large-capacity users."

Higher gas prices

The government will raise natural gas prices for households and commercial users from Oct. 1 due to LNG import costs, MOTIE said Sept. 30.

Natural gas prices for households will climb by Won 2.7/MJ (0.19 cents/MJ), or 15.9%, to Won 19.69/MJ from Oct. 1. Natural gas prices for commercial use will rise by Won 2.72/MJ, or 16.4%-17.4%, to Won 18.32-19.32/MJ.

It marks the fourth increase in natural gas rates this year following a 7.0%-7.7% increase from July 1, a 1.8% rise from April 1 and an 8.4%-9.4% gain from May 1, which came after the country had frozen or lowered gas rates for three years.

Platts JKM LNG climbed to an average of $47/MMBtu in the third quarter, from $10/MMBtu in the first quarter of last year and $24/MMBtu in July 2020, according to the ministry.

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The hike in gas prices is also inevitable due to the snowballing unpaid bills of state-run Korea Gas Corp, which could disrupt the country's LNG imports, it said.

Unpaid bills refer to losses from failing to raise domestic prices to reflect LNG imports by Kogas. Unpaid bills of Kogas jumped to Won 4.5 trillion ($3.1 billion) as of end-March, from Won 1.8 trillion three months earlier due to sharp increases in import costs, according to the state utility.

Higher power prices

Separately, South Korea's state-run power utility KEPCO revised electricity tariffs to reflect adjusted fuel costs of Won 4.9/KWh and an additional tariff of Won 2.5/KWh effective in October, it said in a statement Sept. 30. This means electricity rates rise by Won 7.4/kWh for the fourth quarter.

"We have decided to increase the electricity tariff to reflect higher global energy prices and power generation costs," the KEPCO statement said.

The country's retail electricity price consists of a basic tariff and fuel cost, climate environment fee, as well as an adjusted unit fuel cost. The Korean government introduced the adjusted fuel cost component in 2021 to alleviate any losses that may be incurred by KEPCO during periods of high LNG prices.

Electricity rates for industrial use would further rise by Won 11.9/kWh to Won 16.6//kWh from Oct. 1. It marks the third hike in the country's electricity tariffs this year following a Won 5/kWh increase for the third quarter and a Won 6.9/kWh rise for the second quarter.

Hence South Korea's retail electricity and gas bills are likely to rise this winter amid record high LNG import costs, industry sources said.