South Korea to raise natural gas rates on higher LNG import costs

South Korea will raise domestic natural gas prices for households and commercial users by an average of 1.8% from April to reflect higher LNG imports costs, the Ministry of Trade, Industry and Energy said March 31.

Under the measure, retail natural gas price for households will climb by 1.2% and prices for commercial users by 1.2%-1.3% from April 1, the MOTIE said in a statement.

It is the first rise in city gas rates in nearly three years since the country raised the price by an average of 4.5% in July 2019.

It also marked the first change in city gas rates in 21 months since the country lowered the prices an average of 13.1% in July 2020.

With the rate increase, households are expected to pay Won 860 (71 cents) more per month, with the burden for commercial users likely to rise by the same amount.

"The rate hike is inevitable as international natural gas prices have been soaring since the second half of last year," the ministry said.

A MOTIE official said the government would raise natural gas rates again in May due to surging costs of LNG imports.

South Korean LNG importers led by state-run Korea Gas Corp. paid an average $16.27/MMBtu in February, up from $10.24/MMBtu a year earlier, according to customs data compiled by S&P Global Commodity Insights.

South Korea's LNG imports bills have climbed since May last year on higher crude oil prices and LNG spot prices.

Due to the spike in costs, South Korea's LNG imports fell 11.5% year on year to 8.476 million mt for the first two months this year, despite temporary shutdowns of several coal-fired power plants and nuclear reactors due to maintenance and air pollution reduction measure.

On March 29, the government decided to raise the electricity rate by Won 6.9/kWh (0.6 cent/kWh) in the second quarter on spikes in prices of fuels such as LNG, coal and oil.

Coal-fired power plants account for about 40% of South Korea's electricity mix, and LNG-fired power plants are responsible for around 25%, while nuclear reactors satisfy around 30% of demand. The remaining supply comes from renewables.