South Korea freezes electricity rates for Q3 2025 over LNG supply concerns

South Korea has decided not to reduce electricity rates for the third quarter despite lower fuel import costs for the past months, with mounting concerns about LNG supply disruptions due to the military tensions in the Middle East, the energy ministry said June 23.

The government has also decided to extend the consumption tax cut on LNG and coal used for electricity production to help prevent hikes in power production costs.

Initially, the government planned to reduce electricity rates for the peak summer season from July to September, based on decreased production costs from lower fuel import costs, including LNG.

However, the Ministry of Trade, Industry and Energy has opted to maintain the adjusted unit fuel cost, a crucial component of the country's electricity rates, for the next three months. The "adjusted unit fuel cost" is calculated based on the import costs of fuels like LNG and coal over the past three months.

This decision follows escalating tensions in the Middle East after the US bombed key Iranian nuclear facilities over the weekend, which led to Iran's parliament approving a motion to close the Strait of Hormuz, a vital passage for LNG imports from Qatar, one of South Korea's major LNG suppliers.

In response to the rising tensions, the MOTIE convened an emergency meeting with local oil and LNG importers on June 23.

"There have been no disruptions in imports of oil and LNG, and that all oil tankers and LNG carriers for South Korea are under normal operation," the ministry said in a statement.

Nevertheless, the government and local importers remain vigilant, preparing for any potential closure of the Strait of Hormuz, which could significantly impact South Korea's energy supply.

"South Korea has already reduced shipments from Qatar, while raising imports from Australia and the US," a MOTIE official said.

For the first five months, imports of Qatari LNG declined 14.6% year over year to 3.154 million mt, while shipments from Australia climbed 24.8% year over year during the cited period.

Australia has emerged as South Korea's top LNG supplier since last year, surpassing Qatar. South Korea is also considering raising LNG imports to help address President Donald Trump's trade pressures.

In a bid to help prevent hikes in power production costs, the government has also decided to extend the consumption tax cut on LNG and coal used for electricity production by an additional six months through the end of December.

Since August 2022, the government has lowered consumption taxes on LNG and coal used for electricity generation by 15% to help tackle inflation sparked by surging fuel costs.

Under the measure, the consumption tax on LNG has been reduced to Won 10.2/kg ($0.01/kg), from Won 12/kg, previously.

Consumption taxes on thermal coal have been lowered from Won 36.5/kg to Won 41.6/kg, depending on calorific values, compared with from Won 43/kg to Won 49/kg previously.

South Korea, the world's fourth-biggest crude importer and third-largest LNG buyer, relies heavily on energy imports. As such, it is vulnerable to global price fluctuations, which would deliver a major blow to the country's already struggling economy.