Korea Gas Corporation Moves to Stabilize LNG Supply: Strengthening Average Tariff System and Considering Stockpiling Obligations

Launch of Research on “Measures to Enhance the Competitiveness of the Average Tariff System for Power Generation”

Expanding Long-term Contracts to Reduce Spot Exposure... Minimizing Volatility Even During Price Surges

Receivables Burden: 14.2 Trillion Won in Outstanding Balances Remains a Financial Strain

Korea Gas Corporation has begun developing measures to enhance the competitiveness of the average tariff system for power generation liquefied natural gas (LNG), aiming to ensure stable supply. This move comes amid concerns that the rise in direct LNG imports by power generators could increase Korea Gas Corporation’s spot market procurement burden if international prices soar and direct import volumes decrease. The company is broadly reviewing options such as bolstering incentives for choosing the average tariff system, imposing stockpiling obligations on direct importers, and creating a gas industry infrastructure fund.

As of October 6, Korea Gas Corporation announced that it has started research to devise 'Measures to Enhance the Competitiveness of the Average Tariff System for Power Generation' within this year. The average tariff system supplies LNG to power generators at a price averaged from various import contracts secured by Korea Gas Corporation. A key advantage is that averaging import prices lowers volatility, even during spikes in international prices at certain points, thereby supporting stable national supply and demand management.

By contrast, when prices are low, direct imports increase, but if prices rise, direct importers may reduce their procurement, heightening the possibility that Korea Gas Corporation will have to procure the shortfall on the spot market. Power generation LNG direct imports decreased from 6.36 million tons in 2020 to 4.47 million tons in 2022, but then rose again to 5.85 million tons in 2023 and are projected to reach 7.39 million tons in 2025.

Accordingly, Korea Gas Corporation is reviewing ways to enhance the price competitiveness of the average tariff system by expanding long-term contracts to lower spot procurement ratios and allocating import surcharges differently across direct imports, individual tariff systems, and the average tariff system. The company is also considering establishing a gas industry infrastructure fund, modeled after the power industry infrastructure fund (which accumulates 2.7% of the rate). The fund would be used to reduce rates for vulnerable groups, alleviate burdens when raw material prices spike, and help build a short-term strategic inventory system. For direct imports and individual tariff systems, Korea Gas Corporation is examining how to distribute responsibilities such as stockpiling, supply obligations, and supply-demand management costs to maintain national gas supply stability. Measures to limit excessive profits from direct imports and individual tariff systems are also under study.

Korea Gas Corporation will also analyze the impact of the three major mega-projects and of the expansion of electricity demand due to the rise of artificial intelligence data centers (AIDC). This includes studying the implications of major conglomerates entering the energy market and the integration of state-run power generation companies. If companies with large-scale power needs expand self-sourcing or increase direct participation in the energy market, this could change the LNG demand structure that has traditionally centered on power generation companies.

Korea Gas Corporation’s drive to strengthen the average tariff system’s competitiveness is also motivated by its massive accounts receivable issue. These receivables are a form of 'uncollected credit' that accrue when gas is supplied below cost, increasing the company’s borrowings and interest burdens as the total grows. As of the first half of the year, combined accounts receivable for city gas and power generation totaled 14.178 trillion won, a slight increase from the previous year’s 14.135 trillion won. If energy prices rise without a corresponding rate hike, these unpaid balances are likely to increase again, further straining cash flow and efforts to reduce debt.

A Korea Gas Corporation official stated, “Because generation from renewable energy sources such as solar and wind fluctuates irregularly depending on natural conditions, uncertainty in supply and demand is rising due to intermittency and the limitations of fossil fuels. Drawing on the experience of extreme supply-demand instability and price volatility stemming from selective direct imports, especially during the 2022 Russia-Ukraine war and the 2026 Iran war, it is clear that the average tariff system’s role is critical for ensuring stable electric power and gas supply.”

This content was produced with the assistance of AI translation services.