The South Korean government has announced an ambitious plan to position the nation as one of the major players in the global bio-health market. As
South Korea’s Coal-to-Gas Switch Could Provide a Remedy for the Worst Winter for LNG
By Songyee Jung, Commerce and Energy Researcher
Asian spot prices for liquefied natural gas (LNG) recently dropped to the lowest seasonal price in a decade, due to milder winter weather depressing demand for heating gas, a weaker Chinese economy lowering purchases, global LNG oversupply, and rising floating storage, which offsets buying interest.
“The average LNG price for December delivery into northeast Asia LNG-AS was estimated at $5.40 per million British thermal units (mmBtu), $0.30/mmbtu down from last week” according to Reuters. This is a fourth consecutive weekly drop in the LNG spot price.
Japan, China, and South Korea are the world’s largest LNG importers. However, the LNG spot prices in Northeast Asia may continue to drop this winter with a weakening Chinese economy slowing China’s coal-to-gas switch. Furthermore, Japan’s weather bureau has forecasted the weather will be warmer than usual through January 2020.
“Milder winter weather is forecast across northeast Asia. Although long-range forecasts are highly uncertain, the prospect of milder weather and weaker demand is weighing on market sentiment,” said James Taverner, director at research and consultancy firm IHS Markit.
The temperatures in China are also up to 3 degrees Celsius higher than normal in some regions, according to the Ministry of Emergency Management. The warmer weather combined with a Chinese economic slowdown could further affect low spot prices. Ultimately, the potential weaker demand in LNG is expected to further damage the earnings of gas producers, some of whom have reported lower quarterly revenues due to subdued energy prices. Many are expressing concerns about the low demand for buying LNG in the market.
However, there is good news for LNG Cargo sellers to Northeast Asia, where there’s could be an increase in demand from South Korea. The Korean government is planning to halt coal-fired plants this winter to reduce air pollution, which could provide a remedy for the global LNG market. South Korea has 60 coal-fired power plants in operation today, which together generate around 40% of the country’s electricity. These coal-fired power plants and older diesel vehicles have been blamed for worsening air quality in the country. On November 1, the Prime Minister’s office announced that six of the older coal-fired power plants will be retired by 2021, a year ahead of their original plan.
In addition, in recent years, to further curb air pollution, South Korea has temporarily stopped operations for a few months at some aging coal-fired power plants during winter. The National Council on Climate and Air Quality, established by President Moon Jae-in and chaired by former U.N. Secretary-General Ban Ki-moon, recommended closing up to 14 power plants during the winter months, bolstering the government’s anti-pollution measures. The final announcement of whether to temporarily close some of these power plants will be announced in late November.
If the government decides to temporarily stop power generation from up to one-quarter of the coal-fired power fleet during the winter, there could be an upside in demand for this lagging LNG consumption.
Songyee Jung is a Commerce and Energy Researcher at the Embassy of the Republic of Korea.