S. Korea revises up LNG demand forecasts on plan to reduce coal, nuclear

Singapore (Platts)--9 Apr 2018 303 am EDT/703 GMT

South Korea has revised up its LNG demand projections for the next several years on the back of its efforts to reduce reliance on coal and nuclear for power generation, the energy ministry said recently.

LNG demand is now forecast to grow to 40.49 million mt in 2031, up 11.1% from this year?s estimated 36.46 million mt, the Ministry of Trade, Industry and Energy said in its Long-term LNG Supply Plan.

LNG demand for power generation is projected to increase 0.26% each year on average to 17.09 million mt in 2031, up from 16.52 million mt estimated for 2018.

Demand for retail gas for households and businesses is forecast to rise 1.24% annually to 23.4 million mt in 2031, up from 19.94 million mt estimated for 2018, it said.

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The forecast puts total LNG consumption growth at 0.81% annually over the next 13 years, well below an annual average rate of 5.1% the past 13 years.

The new forecasts reverse the trend projected in the previous Long-term Supply Plan in December 2015, when the ministry said LNG demand would decrease to 33.96 million mt in 2022 and 34.65 million mt in 2029, compared with 2014 consumption of 36.49 million mt, due to lower power generation demand.

"But LNG demand is expected to get stronger as the country is shifting away from coal and nuclear fuel," the ministry said Thursday.

President Moon Jae-in, who took office in May last year, has vowed to increase power generation using LNG and decrease the use of coal and nuclear in order to address mounting public concerns over air pollution and nuclear safety.

Under the country's long-term Basic Blueprint for Power Supply released in December last year, LNG's share in actual electricity production would climb to 18.8% in 2030, up from 16.9% in 2017.

Coal's share in the power mix would fall to 36.1% in 2030 under the blueprint, from 45.3% in 2017, and nuclear would decline to 23.9% in 2030 from 30.3% in 2017, while the share of renewables would rise to 20% in 2030, compared with 6.7% in 2017.

"As part of effort to ensure a stable supply, South Korea will diversify LNG imports sources," the MOTIE statement said.

More than 80% of import volumes in 2017 came from five countries - Qatar, Australia, Oman, Malaysia and Indonesia - up from 78.9% in 2012, which means South Korea's dependence on the five suppliers grew in the past five years.

"We will look for the potential of Russian and US LNG projects as part of efforts to reduce the heavy reliance on several existing producers," a ministry official told S&P Global Platts, noting Russia's Yamal LNG project and the US shale boom.

South Korea, the world's No. 3 LNG importer, will also step up cooperation on flexible contracts, volume swapping and facility sharing with Japan and China, the world?s biggest LNG importers, the ministry said.

"We will seek to have more flexibility in mid- and long term contracts through cooperation with major LNG buyers," the ministry said in the statement.

The main sticking points in fixed LNG supply contracts are: "take or pay" clauses that force buyers to pay for cargoes even if they do not need them; "destination clauses" that prevent buyers from selling on cargoes; and oil-linked pricing.

The ministry said South Korea would also build more storage facilities as part of efforts to secure stable supply.

State-owned Korea Gas Corp is pushing to build its fifth LNG storage terminal by 2031 with a capacity of 2 million kiloliters, which it said would help the country store 3.56 million kl of LNG that year.

To that end, some Won 5.8 trillion ($5.46 billion) will be spent, according to the ministry.

--Charles Lee,

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