Global LNG supply controls put pressure on Korea

The site of Gascade and Deutsche ReGas in Lubmin, northeastern Germany, Aug. 30. Korea Times file

By Lee Kyung-min

Concerns are growing over a possible shortage of liquefied natural gas (LNG) in the upcoming winter as prices are expected to soar due to Russia's supply cut to European buyers and Australia's move to curb exports of key natural resources, market watchers said Tuesday.

Of particular concern to Korea is Australia's move to secure the resources for domestic winter heating demand, pushing up LNG prices, certain to deepen energy woes for countries in Europe and the Asia Pacific region.

The Australian Competition and Consumer Commission (ACCC), Australia's competition regulator, recommended that its government restrict LNG exports, out of concerns about supply being overshot by demand next year.

Data from the Ministry of Trade, Industry and Energy showed Korea imported over $6 billion (8.2 trillion won) worth of LNG from Australia in the first half of this year. This is almost twice the amount bought from Qatar ($3.63 billion) in the same period, followed by the U.S. ($2.5 billion), Oman ($2.3 billion dollars) and Malaysia ($2.2 billion).

Experts say the geopolitical uncertainties from Russia's invasion of Ukraine could develop into a full-blown energy crisis in the months to come, a much-dreaded scenario for Korea, with an energy self-sufficiency rate of 3 percent.

Price drop not likely

“The elevated prices of LNG will not come down, at least not any time soon,” Korea Energy Economics Institute (KEEI) oil policy research team head Jung Jun-hwan said.

“Russia's weaponizing of its key natural resource is working, and Russia knows it. European countries will have to bear the full brunt of the supply cut, including soaring prices,” he added.

Korea's concern is more about gas rate increases rather than an outright LNG shortage, in his view. However the country's winter heating costs will sharply rise due to continued wild fluctuation in global key commodity prices in the face of Russian risks.

“The price will hike if the Russia-Ukraine crisis takes a turn for the worse, a scenario we cannot completely rule out.”

Figures

Data from Investing.com an investment information service provider, the futures price of Platts Japan Korea Marker (JKM), the Northeast Asian spot price index for LNG delivered ex-ship to Japan and Korea assessed by S&P Global Platts stood at $53.950 per 1 million British thermal unit (BTU), a unit of heat as of end of last month, more than doubling from $18.2 a year ago.

The figure hovered around $18 as of August last year, but spiked to $51.76 March after Russia's invasion of Ukraine.

It sank to around the $25-range in the first six months, but soared again in June and has since risen to $50.

The energy ministry plans to secure early energy supplies ahead of the winter, as monitored by the weekly supply-demand status at local LNG inventories. LNG consumption will be lowered in part by increasing the use of liquefied petroleum gas (LPG).

The ministry will consider issuing administrative orders to control the volume and timing of exports and imports of privately traded LNG.

“We have secured a lot of energy sources and plan to continue to do so in the months to come,” a ministry official said. “We do not expect an energy crisis in the winter, but will continue monitoring the developments in regions including Russia, Ukraine and Europe.”