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South Korea to raise domestic natural gas price again to reflect LNG import costs

Highlights

To raise rates by 7%-7.7% from July 1

Marks third hike in gas rates this year

South Korea will raise domestic natural gas prices for households and commercial users by 7% to 7.7% from July 1 to reflect higher LNG imports costs, the Ministry of Trade, Industry and Energy said June 29.

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It marks the third hike in natural gas rates this year following a 1.8% rise from April 1 and an 8.4%-9.4% increase from May 1. April's 1.8% rise marked the first rise in nearly three years since the country raised the price by an average of 4.5% in July 2019.

"The hike is inevitable as global oil and natural gas prices have soared and the local currency has weakened sharply since the second half of last year, but the government tried to keep the increase rate at a minimum level given its impact on inflation," the ministry said in a statement.

"International oil price rose 61% and LNG spot prices jumped 141% from a year earlier, which has put pressures in hikes in domestic natural gas prices," it said.

The country's LNG importers have been less affected by soaring spot prices because nearly 80% of their purchases are based on long-term contracts whose prices are linked to international oil prices.

The government plans to further raise natural gas rates from Oct. 1 to reflect higher LNG import costs and address mounting unpaid bills by state-run Korea Gas Corp, which has a monopoly on domestic natural gas sales, according to the ministry.

"Additional hikes in domestic natural gas are inevitable due to snowballing unpaid bills of Kogas," the ministry said in a statement.

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 ($3.5 billion) as of end-March, from Won 1.8 trillion three months earlier due to sharp rises in import costs, according to the state utility.

South Korean LNG importers led by Kogas paid an average $14.02/MMBtu in May, up from $7.86/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.

Despite stronger prices, South Korea's LNG imports led by Kogas rose 1.3% year on year to 20.273 million mt for the first five months this year, compared with 20.004 million mt in the same period last year, in line with the country's push to reduce coal-fired power plants blamed for air pollution.