For gas imports, size doesn’t matter
Korea Gas said keeping the current system that gives buying power to the state-run corporation as a single purchaser will bring in gas at cheap prices, but it turns out that SK E&S imported 1 ton of liquefied natural gas (LNG) from Indonesia at 399,145 won ($360), while Korea Gas spent 928,267 won for the same gas, according to a report obtained by the JoongAng Ilbo.
SK E&S has been directly importing 600,000 tons of LNG annually from Indonesia since 2004.
It generates electricity through a 1,000-megawatt LNG power plant in Gwangyang in South Jeolla and sells it to Korea Electric Power Corporation (Kepco).
According to an insider report by the Ministry of Trade, Industry and Energy on expanding direct gas imports, SK E&S imported LNG at $4 per million BTU and generated electricity. This helped Kepco save 123 billion won last year alone, it said.
Posco, which has been importing 550,000 tons of LNG annually since 2004, also pays much less than Korea Gas.
But the government report reached a different conclusion, saying that a large quantity does not always bring down the unit price.
It said it costs $12-$13 per million BTU for 5 million to 6 million tons of LNG. For 1 million to 2 million tons, the import price is $5 or less.
The fact that Korea Gas needs a large amount of gas as a sole purchaser is actually a disadvantage in negotiations, experts said.
“Private direct importers are signing relatively cheaper contracts by importing 500,000 to 800,000 tons of gas,” the ministry said in the report. “It will be efficient for the country to [encourage more] direct imports [by private importers] as they give Korea Gas Corporation a clear goal and motivation, which as a result pressures it to find ways to import gas at cheaper prices.”
The issue surrounding expanding direct imports is likely to spark heated debate in the National Assembly.
Saenuri Party lawmaker Kim Han-pyo proposed in April a partial revision of the urban gas business act, which aims to allow expansion of direct imports of LNG.
The revision bill is scheduled be put on the agenda at the National Assembly’s standing committee in June. If the revision is eventually passed, Korea Gas would have to compete with private companies.
Current law prohibits private importers from reselling imported natural gas to third parties in Korea. The revision will allow importers to sell imported gas to other private companies.
The Korea Gas labor union lashed out at the proposed legislation, saying it would benefit conglomerates and end any chance of reducing gas bills for the general public.
Past attempts to introduce competition into the country’s natural gas import market have failed due to strong opposition from the Korea Gas labor union and some politicians.
The Korea Gas monopoly and its disadvantage in negotiating natural gas prices have caused LNG import prices in Korea to shoot up at a time when prices in international markets have plunged due to U.S. production of shale gas.
At the New York Mercantile Exchange, natural gas futures are traded at about $4 compared to $14 in the summer of 2008. The LNG import price in Korea is $15, up 25 percent since 2008.
In the same period, residential gas bills have surged 47 percent to 859 won per cubic meter from 586 won.
Market observers say the domestic LNG price doesn’t reflect the global trend because Korea Gas Corporation signed a long-term contract with countries in the Middle East and Southeast Asia that links LNG to crude oil prices.
“Korea Gas Corporation is a monopolistic body that passes gas import costs to consumers and there are fundamental limits to the company’s efforts to cut costs,” said Representative Kim of the Saenuri Party. “Korea is the only country in the OECD that guarantees a gas monopoly.”
Cho Sung-bong, economics professor at Soongsil University, echoed Kim’s opinion.
“A competition system would bring down gas import prices and stabilize electricity and gas bills,” Cho said. “This will not only generate a positive effect on local industries, but also on stabilizing consumer prices.”
By Yoon Chang-hee [email@example.com]