South Korea’s state-run Korea Gas Corp. (Kogas) said Sunday its new liquefied natural gas (LNG) pricing formula will benefit power consumers, preventing utilities from picking and choosing when to source the fuel from Kogas.
“The new system will bring down the costs of LNG generation and stabilize electricity bills and ultimately benefit the Korean people,” the company said.
As previously reported by Kallanish Energy, Kogas wants to change the way it supplies LNG from 2022 to address “cherry-picking” by utilities. It’s creating the so-called “individual tariffs” system, under which it will negotiate prices individually with each buyer.
Currently, the company provides LNG supply under the “average tariffs” formula, which offers the same prices to all power utilities based on the average import costs.
However, buyers take advantage of this method, increasing costs that are ultimately passed on to end-users. When international LNG prices are cheaper than Kogas’ LNG prices, utilities source the fuel directly from traders and exporters, bypassing Kogas.
Yet, when global prices are higher, then utilities take advantage of Kogas’ prices and domestic demand surges. To secure supply, Kogas has to pay extra, which ends up driving the average import costs up.
The change was first announced in January, but details of how it will be implemented are yet to be released.
South Korea is the third largest LNG importer in the world, with Kogas importing roughly 35 million tonnes per annum.