Qatar LNG shock raises winter bill fears, gas prices at near 4-year high
Northeast Asian LNG prices have reached a near four-year high after damage to Qatar's main facility, threatening higher electricity and heating costs in Korea.
A liquefied natural gas production facility operated by QatarEnergy, Qatar's state-owned energy companyQATARENERGY
A prolonged disruption to Qatar's liquefied natural gas (LNG) exports after war damage to its main production facility is pushing Northeast Asian natural gas prices to their highest level in nearly four years, raising the prospect of higher electricity and heating costs in Korea this winter.
The November futures contract for Japan Korea Marker (JKM), the leading price benchmark for LNG delivered to Northeast Asia, closed the previous session at $27.765 per million British thermal units, or MMBTU, the highest level since January 2023, according to Investing.com data on Wednesday. The figure is also up 30.85 percent from a month earlier and 71.55 percent from six months earlier.
JKM is a key benchmark for LNG delivered to Northeast Asia, including Korea and Japan. Unlike crude oil, which is traded at broadly recognized global benchmark prices, LNG prices vary by region depending on supply and demand. JKM closely tracks the price Korea pays when purchasing LNG on the spot market.
At the heart of the price surge is the supply disruption in the Middle East. In March, an Iranian attack damaged two of the 14 LNG production lines at Qatar's Ras Laffan facility. QatarEnergy, the state energy company, said repairs to the damaged facilities would take three to five years, during which about 12.8 million tons of annual LNG production capacity would be unusable. To make up for the shortfall, QatarEnergy is reportedly negotiating long-term supply contracts with U.S. companies through 2031.
“Qatar's current pursuit of long-term LNG volumes from other producers to help Qatar deliver into their customer contracts indicates that Qatar now sees risk to their ability to export LNG for several years,” Saul Kavonic, head of energy research and advisory at MST Marquee, told Reuters.
Still, LNG is more vulnerable to supply shocks than crude oil. While crude can be stored in large quantities at room temperature, LNG must be kept at around minus 162 degrees Celsius (minus 260 degrees Fahrenheit) in specialized storage facilities, making it difficult to quickly expand storage capacity when supplies are disrupted.
Shell, the world's largest LNG trader, estimated that Middle East LNG supply has fallen by about 36 million tons this year. About 80 percent of Qatari LNG exports go to Asia.
A liquefied natural gas tanker is tugged toward a thermal power station in Futtsu, east of Tokyo, Japan, on Nov. 13, 2017.REUTERS/YONHAP
The bigger test will come in winter. Europe also needs to refill its own low gas inventories before the cold season. According to Gas Infrastructure Europe, the region's gas storage rate stood at about 68 percent as of Monday, the lowest for this time of year in 15 years, meaning competition with Asia for LNG supply could intensify further.
“European gas prices, which are usually cheaper than East Asia's, have actually become more expensive,” said Yoo Seung-hoon, a professor in the Department of Future Energy Convergence at Seoul National University of Science and Technology. “With supply limited, securing LNG and absorbing the price burden will be difficult this winter.”
Rising LNG prices could spill over into higher domestic electricity and gas production costs. When fuel costs for LNG-fired power plants rise, that feeds into a roughly one-month-lagged increase in the System Marginal Price, the wholesale electricity price, increasing the burden on Korea Electric Power Corporation's (Kepco) power-purchasing costs.
Higher LNG prices also raise the feedstock costs for city gas, adding to the burden on Korea Gas Corporation. Even if the government freezes electricity and gas rates as a matter of policy, the underlying costs don't disappear — they are simply absorbed by the two public utilities.
Household electricity rates have been frozen for more than three years since the second quarter of 2023, and the government is also pursuing a plan to lower industrial electricity rates outside the greater Seoul area.
That prolonged freeze has left Kepco to absorb rising fuel costs on its own balance sheet: as of the end of June, the utility's total debt stood at 210.7 trillion won ($154.5 billion).
“In the end, some level of electricity rate increase is something the public will have to accept,” Prof. Yoo said. “If the government doesn't want to raise rates, it will have to increase its contributions to Kepco and Korea Gas Corporation or provide direct subsidies.”
BY PARK YU-MI [lee.jian@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
