Due to COVID-19... International Gas Prices Hit Record Lows

[Asia Economy Reporter Cho Hyun-ui] Due to the sharp decline in demand caused by the novel coronavirus disease (COVID-19) pandemic, international natural gas prices have fallen to an all-time low.

According to Standard & Poor's (S&P) Global Platts, an energy sector information and analysis company, all three major global natural gas benchmarks recorded historic lows on the 5th. The three major benchmarks are Henry Hub, the North American shale gas indicator; JKM (Japan Korea Marker), the Northeast Asian liquefied natural gas (LNG) price indicator; and TTF (Title Transfer Facility), the European gas benchmark based in the Netherlands gas hub.

S&P Global Platts reported that despite the sharp drop in demand due to COVID-19, supply has not decreased, causing the Henry Hub price to fall to a record low of $1.48 per MMBtu (the amount of gas that can produce 250,000 kcal) on the 3rd. Since November last year, the Henry Hub price has dropped by $1.25 per MMBtu (48%).

S&P Global Platts explained that unlike crude oil, the international natural gas market lacks an international organization like OPEC (Organization of the Petroleum Exporting Countries), which has led prices to plummet to historic lows, but no international production cut agreements have been made.

Given the difficulty of a rebound in international gas prices that have fallen to historic lows, it is expected to affect the domestic city gas consumer prices adjusted in July. Korea Gas Corporation calculates raw material costs every odd month by reflecting factors affecting LNG import prices such as international oil prices and exchange rates, and adjusts rates when there is a fluctuation exceeding ±3%.

However, fluctuations in international crude oil and gas prices are usually reflected with a time lag of 3 to 4 months, and retail prices are adjusted once a year in July with approval from local governments. Furthermore, as the government has suppressed rate increases, the raw material cost linkage system has not functioned properly, and Korea Gas Corporation’s unpaid receivables have reached trillions of won, limiting the possibility of retail price reductions.

Industry insiders expect that since policies prioritizing the settlement of unpaid receivables when gas prices fall are anticipated, it will be difficult for retail price reductions to be felt by the public.