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South Korea to cut LNG taxes by 74% in April, raise thermal coal tax by 27%

  • Author
  • Charles Lee
  • Editor
  • Elizabeth Thang
  • Commodity
  • Natural Gas

Seoul — South Korea has decided to lower taxes on LNG by as much as 74%, while raising taxes on thermal coal by 27%, from April this year as part of efforts to reduce the country's heavy reliance on coal in power generation, government officials said Friday.

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"The government approved the tax rate revision so as to reduce consumption of coal blamed worsening air pollution," a senior official at the Ministry of Trade, Industry and Energy said.

Under the measure, taxes on LNG that include consumption tax and import tax will be lowered to Won 23 ($0.02) per kilograms from Won 91.4/kg currently, he said.

"Furthermore, import tax will be refunded for LNG used for combined heat and power," he said.

Whereas, taxes on thermal coal will further increase to Won 46/kg from Won 36/kg currently, he said. The rise came one year after the thermal coal taxes climbed to Won 36/kg in April last year from Won 30/kg previously.

"The new tax rates would be effective from April 1 this year," the official said.

"The tax rate revision is aimed to encourage consumption of the cleaner fuel in power generation by boosting LNG's price competitiveness against coal," the ministry official said.

The tax revision is in line with President Moon Jae-In's push for energy transitions from nuclear and coal to renewable sources and LNG.

"The tax revision is expected to increase the portion of LNG in power generation to over 20%, while reducing coal's portion to under 40%," the ministry official said.

Currently, coal-fired power plants generate a little more than 40% of the country's entire electricity supply, while LNG accounts for about 20%. Nuclear reactors provide about 30% with oil and renewable sources, such as hydropower, solar, wind and fuel cell, accounting for around 10%.

President Moon is pushing to reduce the portion of coal in the country's actual power production to 36.1% in 2030, while boosting LNG to 18.8% in 2030. The share of nuclear would also decline to 23.9% in 2030, while the share of renewables will account for 20% in 2030.

President Moon who took office in May 2017 has pledged to shut down ten aged coal-fired power plants before his five-year term ends in May 2022. Among them, four coal-fired power plants have been already closed, and two more will be permanently shut down by December this year.

The government has also pushed for converting some coal-fired power plants under construction into LNG-based ones.

The series of measure is expected to boost the country's LNG demand and LNG imports.

LNG sales by state-run Korea Gas Corp., which has a monopoly in domestic natural gas sales, jumped 12.6% to 36.22 million mt in 2018, compared with 32.16 million barrels in 2017, according to estimates by S&P Global Platts.

According to the Korea International Trade Association, South Korea's LNG imports reached an all-time high of 44.04 million tons last year, up 17.3% from 37.53 million mt in 2017.

Qatar was South Korea's largest LNG import source, accounting for 32.4% of the total. In particular, the LNG imports from the U.S. last year more than doubled to 4.66 million tons from 1.96 million tons a year earlier, the KITA said.

South Korea became the largest LNG importer from the US in 2018, outstripping Mexico, it said.

-- Charles Lee,

-- Edited by Elizabeth Thang,