Deficit Gas Corporation Faces Difficulties in New Ventures... Incheon Port LNG Cold Chain Drifts into Crisis

Korea Gas Corporation

[Asia Economy Sejong=Reporter Dongwoo Lee] The liquefied natural gas (LNG) cold chain project being promoted by Korea Gas Corporation at Incheon New Port is facing a crisis. As the rise in raw material costs has made the project's economic feasibility uncertain, there are internal calls within the corporation to reconsider the project.

According to comprehensive reporting on the 28th, Korea Gas Corporation notified in an internal comprehensive audit last month that it would re-conduct a feasibility study on the Incheon New Port cold chain project. This is due to the expected significant impact on economic feasibility caused by increased construction costs and delays in the project schedule, in accordance with the 'Investment Project Management Guidelines (Article 14)'.

The cold chain project promoted by Korea Gas Corporation centers on operating a refrigerated and frozen specialized logistics center within the Incheon New Port hinterland by recycling ultra-low temperature cold energy at minus 162 degrees Celsius discharged from the LNG Incheon base headquarters. The core of the project is to effectively utilize about 200 kcal of cold energy per kilogram generated when LNG is vaporized. The importance of this project has grown as part of the previous government's five-year national agenda plan to promote 'activation of unused thermal energy.' In September last year, the corporation's board approved the basic plan for the New Port cold chain cluster project, and in November of the same year, it established a special purpose corporation (SPC) for the construction and operation of the cold chain cluster together with Gas Technology Corporation, Korea Cryogenics, Belstar SF Holdings, and EMP Belstar.

The problem is that since early this year, construction raw material costs such as bituminous coal, cement, and ready-mixed concrete have surged. Korea Gas Corporation initially set the construction cost at 379 billion KRW at the board meeting, but the bid held in March failed as participating companies proposed 592.6 billion KRW. The planned groundbreaking scheduled for December last year has been delayed as the construction company has not been decided as of this month. The corporation analyzed that due to the Russia-Ukraine war in the first half of this year, the rise in key materials for logistics warehouse construction and the surge in raw material prices limited the number of companies willing to participate in the bidding.

As the project faces a crisis, the internal audit pointed out that to minimize the increase in the Incheon New Port cold chain project costs, the scale of the support building should be reduced and the use of the warehouse building should be changed. It also stated that since project financing (PF) loans from commercial banks have become difficult, negotiations on the formation of the lending consortium and loan conditions should proceed after selecting the construction company.

However, difficulties in project promotion are expected next year as well. The construction cost index, which indicates the comprehensive construction cost including raw materials, labor, and equipment, surpassed 140 this year. The construction cost index estimates direct construction costs based on 2015 prices set at 100 and has reached its highest level since 2000. The construction industry forecasts that the rise in major raw material prices will continue next year, making damage inevitable. The Incheon Port Authority, which owns the cold chain project site, is also increasing concerns as the second call for tenants in the specialized zone was unsuccessful. Investment sentiment is shrinking, causing project operators to hesitate to participate in logistics complex development.

Korea Gas Corporation stated, "We plan to select a preferred negotiation partner according to the ongoing second bidding process. If the bid fails, we will carefully review the project and decide whether to re-conduct the feasibility study after reporting to the management committee and the board of directors."

Bird's-eye view of the cold chain specialized zone.

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