Due to COVID-19-induced oil price drop... LNG prices cheaper than anthracite coal for the first time ever

[Asia Economy Reporter Kim Bo-kyung] For the first time ever, the fuel cost per unit of LNG (liquefied natural gas), a fuel for natural gas power generation, has reversed with that of anthracite coal. The fuel cost per unit of LNG has become cheaper than that of anthracite coal.

According to the Electric Power Statistics Information System (EPSIS) on the 6th, the LNG fuel cost per kilowatt-hour (kWh) in August was 63.83 won, which was below the anthracite coal cost of 69.00 won. Since the Korea Power Exchange began compiling fuel costs in 2001, this is the first time the two fuel costs have reversed.

The difference with bituminous coal, the main fuel for coal power generation, which costs 50.91 won, has also narrowed to 12.92 won, the smallest gap ever recorded.

The smallest difference between LNG and anthracite coal fuel costs was in October 2002, when LNG was 50.61 won and anthracite coal was 45.07 won, a gap of 5.55 won.

The reversal of the two fuel costs is due to the recent sharp decline in LNG fuel costs. The LNG fuel cost of 63.83 won in August is the lowest in 15 years since July 2005 (62.65 won).

Compared to January 2009, when LNG fuel cost was the highest at 179.22 won, it has dropped to about one-third.

Most of the natural gas imported domestically is linked to oil prices, which are typically reflected in LNG prices with a lag of about 3 to 4 months. The impact of the COVID-19 pandemic caused international oil prices to plummet, which has been reflected in LNG power generation fuel costs this month.

Following the decline in LNG fuel costs, the system marginal price (SMP) for electricity wholesale prices has also continued to fall.

The integrated SMP, which was 84.54 won per kWh in January this year, dropped to 70.91 won in May, just four months later, and recorded 70.92 won in June. The SMP essentially determines the generation cost of LNG power plants.

An industry official from the LNG sector said, "Even considering only economic factors excluding environmental ones, LNG has sufficient price competitiveness," adding, "If environmental factors such as carbon emissions are also considered, LNG will establish itself as an eco-friendly power generation energy source to replace coal."