Due to COVID-19 Impact, LNG Prices Drop... Coal Power Fuel Costs Gap Hits 'All-Time Low'

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[Asia Economy Reporter Kim Bo-kyung] The fuel cost gap between LNG, a natural gas power generation fuel, and bituminous coal, a coal power generation fuel, has narrowed to an all-time low.

This is due to a significant increase in natural gas supply and a drop in natural gas prices along with international oil prices caused by the impact of the novel coronavirus disease (COVID-19).

According to the Electric Power Statistics Information System (EPSIS) on the 15th, the fuel cost for LNG power generation this year averaged 82.93 KRW per kilowatt-hour (kWh), only 30.49 KRW higher than the coal power generation fuel cost of 52.44 KRW. This is the narrowest gap since the Korea Power Exchange began compiling fuel cost unit prices in 2001.

The unit price of LNG power generation fuel decreased by 43%, from 145.54 KRW per kWh in 2014 to 82.93 KRW this year.

On the other hand, the unit price of coal power generation fuel increased by 42% during the same period, from 37.02 KRW per kWh to 52.44 KRW, reducing the gap between the two fuel costs to about one-third of the 108.52 KRW difference in 2014.

The reason for the reduced fuel cost gap between LNG and coal power generation is that while taxes on bituminous coal for power generation were raised last year, taxes on LNG for power generation were significantly reduced, and the U.S. shale gas revolution greatly increased natural gas supply.

Additionally, as global oil consumption decreased due to the spread of COVID-19, gas prices linked to oil prices were also affected, leading to a decline in LNG prices.

Conversely, bituminous coal prices rose due to increased individual consumption tax and reduced supply following the closure of major overseas coal mines in 2018.

Considering this trend, the government plans to actively utilize LNG power generation in its energy transition policy. In the draft announcement of the 9th Basic Plan for Electricity Supply and Demand on May 9, it proposed boldly reducing coal power generation while expanding LNG power generation alongside renewable energy.

The coal power generation capacity is planned to be reduced from 34.7 GW in 2020 to 29.0 GW in 2034, while LNG power generation capacity is expected to increase from 41.3 GW to 60.6 GW during the same period.

An industry official said, "Since LNG prices are expected to remain stable at a downward level for the time being, it is the right time to introduce environmental dispatch to reduce greenhouse gases."

Until now, the 'economic dispatch' method supplied electricity by using energy sources in order of cheapest price, such as nuclear → coal → LNG, but 'environmental dispatch' proposes supplying electricity by prioritizing energy sources that have less environmental impact even if they cost more.

Normally, nuclear and thermal power plants alone were sufficient to meet electricity demand, so there were few opportunities to operate LNG power plants, but with the introduction of environmental dispatch, the operating rate of LNG power plants will also increase.

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