Soaring Oil Prices Trigger Cutthroat Competition... 'Ghost Gas Stations' Emerge Amid High Demolition Costs (Comprehensive)

Survival Stories of Gas Stations in the Era of High Oil Prices
Closures and Shutdowns Continue Nationwide

On the 6th, citizens are refueling their vehicles at the Altteul Gas Station in Mannam Square Rest Area, Seocho-gu, Seoul. Although the fuel tax reduction rate was increased from 30% to 37% starting this month, the decrease in fuel prices has been minimal, so consumers do not feel the impact. According to Opinet, the oil price information site of the Korea National Oil Corporation, the average nationwide gasoline price at gas stations on the afternoon of the 5th was 2,117.18 KRW per liter, down 3.40 KRW from the previous day, and the diesel price was 2,150.78 KRW per liter, down 2.30 KRW from the previous day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] Jo Sang-hyun (62, pseudonym), who operates a gas station in Giheung, Yongin-si, Gyeonggi-do, put his gas station up for sale last month. Although the location was near two golf courses and a large shopping mall, with heavy vehicle traffic even on weekdays, customers have sharply declined recently due to rising fuel prices. He considered closing the business but decided to sell after hearing that the land remediation alone would cost over 200 million won. However, he has been distressed as there have been no purchase inquiries for over a month.

As fuel prices soar, gas station closures are occurring one after another. Drivers, faced with fuel prices that rise overnight, seek out gas stations with even 10 won cheaper prices, causing stations with higher prices than their surroundings to lose customers.

The number of ‘ghost gas stations’ that have temporarily closed due to expensive demolition costs is also increasing. Unable to bear closure costs of up to around 300 million won, some stations are left abandoned. Although criticized for ‘reckless operations’ by selling expensive fuel during high oil price periods, some gas stations are being pushed to the brink.

According to the Korea Gas Station Association on the 6th, the number of gas stations nationwide stood at 11,064 as of May. From 12,594 in 2017, 1,530 stations have closed over five years. Following 213 closures last year, 122 gas stations nationwide have ceased operations from the beginning of this year through May.

On the 6th, vehicles lined up at the Mannam Square Rest Area budget gas station in Seocho-gu, Seoul, waiting to refuel. Although the fuel tax reduction rate was increased from 30% to 37% starting this month, the decrease in fuel prices has been minimal, so consumers do not feel the impact. According to Opinet, the oil price information site operated by the Korea National Oil Corporation, the average nationwide gasoline price at gas stations on the afternoon of the 5th was 2,117.18 KRW per liter, down 3.40 KRW from the previous day, and the diesel price was 2,150.78 KRW per liter, down 2.30 KRW from the previous day. Photo by Kim Hyun-min kimhyun81@

Industry insiders say that closures increase proportionally as fuel prices rise. A gas station industry official said, "As interest in fuel prices grows, drivers tend to flock to cheaper gas stations, inevitably leading to cutthroat competition among stations," adding, "With rising labor and logistics costs and card fees, it becomes difficult to make a profit."

Discount gas stations, known as Altteul Gas Stations, which offer cheaper fuel, are also cited as a factor making the gas station industry difficult. Introduced by the government in December 2011 to stabilize domestic oil prices, Altteul Gas Stations operate by having Nonghyup and the Korea National Oil Corporation purchase fuel in bulk from refiners and supply it at lower prices than regular gas stations, with incentives paid per station.

The number of gas stations available for lease is also on the rise. A broker specializing in gas station leases explained, "Outside the metropolitan area, rents have dropped to below 1 million won per month with a deposit of 5 million won for about 300 pyeong (approx. 991 square meters). Cases of converting to leases are increasing amid difficulties in temporary or permanent closures."

With profits declining, some are tempted to illegally distribute counterfeit fuel, taking advantage of high oil prices. During the first special inspection conducted by the Korea Petroleum Quality & Distribution Authority from March 15 to April 30, 43 retailers distributing counterfeit fuel were caught. The Authority plans to conduct a second inspection targeting gas stations nationwide by the end of August, when summer vacations peak.

However, from the consumer perspective, dissatisfaction grows as fuel prices are not lowered promptly, unlike international oil price cuts or fuel tax reductions. After the additional fuel tax cut on the 1st, 6 to 7 out of 10 gas stations nationwide did not reduce prices. According to the Energy and Oil Market Monitoring Group, among 10,976 gas stations nationwide, 6,798 stations (61.9%) did not change their gasoline prices compared to the previous day on the 1st.

An official from the refining industry said, "There is a time lag due to existing inventory depletion, but prices will drop as competition intensifies," adding, "Given that most price information such as international oil prices and taxes is publicly available, it would be appreciated if people understand that gas stations are unlikely to make excessive profits."

On the 6th, citizens are refueling their vehicles at the budget gas station in Mannam Square Rest Area, Seocho-gu, Seoul. Although the fuel tax reduction rate was increased from 30% to 37% starting this month, the decrease in fuel prices has been minimal, so consumers do not feel the impact. According to Opinet, the oil price information site of the Korea National Oil Corporation, as of the afternoon of the 5th, the average gasoline price at gas stations nationwide was 2,117.18 KRW per liter, down 3.40 KRW from the previous day, and the diesel price was 2,150.78 KRW per liter, down 2.30 KRW from the previous day. Photo by Kim Hyun-min kimhyun81@