LNG-Coal Fuel Cost Price Gap Hits Record Low... 2.1 KRW per 1kWh

LNG Price Decline is the Main Cause... Coal Share Decreases

[Asia Economy Reporter Moon Chaeseok] Liquefied natural gas (LNG) prices have fallen as sharply as coal prices. The fuel cost gap has narrowed to an all-time low.

According to the Electric Power Statistics Information System (EPSIS) of the Korea Power Exchange on the 8th, the price gap between coal and LNG fuel costs for power generation was 2.1 KRW/kWh as of last month. This is the smallest gap since power statistics began in 2001.

The price gap between the two fuel costs has continuously decreased from 31.3 KRW/kWh in May to single digits in September (6.1 KRW/kWh).

In January 2009, when the price difference between the two fuels was the largest at 125 KRW/kWh, LNG and bituminous coal prices were 179.2 KRW and 54.2 KRW per kWh, respectively, with LNG being more than three times as expensive as bituminous coal. After more than 10 years, the prices have become almost similar.

The decline in LNG fuel costs contributed to the narrowing of the price gap. Last month, the LNG price was 50.2 KRW/kWh, which is 45% lower than 91.2 KRW/kWh in October last year.

On the other hand, the bituminous coal fuel cost was 48.1 KRW/kWh, only 13% lower than 55.1 KRW/kWh in October last year, showing a smaller drop compared to LNG.

The recent sharp drop in LNG prices is due to an increase in global natural gas supply and a decline in oil prices caused by the impact of the novel coronavirus disease (COVID-19).

Since LNG prices are linked to oil prices and reflected with a 3-4 month delay, it is analyzed that the oil price bottomed out in January this year influenced LNG prices starting from May.

The International Energy Agency (IEA) recently forecasted in the "World Energy Outlook 2020-2040" that renewable energy will account for 90% of global electricity demand within the next 20 years, while coal will not recover to past levels.

In particular, it analyzed that the share of coal in energy demand will shrink to below 20% for the first time in energy history by 2040.

Coal power generation is also expected to lose ground domestically. Earlier, the 9th Basic Plan for Electricity Supply and Demand Working Group announced in May that 30 out of 60 coal power plants will be shut down by 2034, and 24 will switch their fuel to LNG.