BUSINESS

Kogas overhauls LNG pricing method to tackle cherry-picking of power utilities

  • Published : Oct 18, 2020 - 16:33
  • Updated : Oct 18, 2020 - 16:33
Kogas headquarters (Kogas)


Korea Gas Corp. said Sunday it would impose a new format for supplying liquefied natural gas starting 2022 to address cherry-picking by electricity suppliers which it says ultimately leads to higher electricity bills.

The state-run gas company has long provided supplied LNG to local power utilities at same prices based on the average import costs, dubbed as an “average tariffs” formula. Last year, Kogas imported LNG from about 15 countries including Qatar, Australia and the US and provided LNG to power utilities at the same average prices.

Starting 2022, however, Kogas will charge different prices to utilities through negotiations with each power utility, called an “individual tariffs” system.

Under the current average tariffs formula, when global gas prices are cheaper than the average gas prices offered by Kogas, some power utilities bypass Kogas and import it directly. For this reason, Kogas loses opportunities to import gas at cheaper prices and bring down average prices for its other customers.

But when global gas prices are higher than the average prices charged by Kogas, power utilities stop direct imports and ask Kogas for supply. To secure more gas in the short term, Kogas has to pay extra, which drives up average import costs, resulting in more expensive electricity bills.

The change, which will apply to all new contracts with Kogas beginning 2022, is expected to address the cherry-picking of direct LNG importers.

“The new system will bring down the costs of LNG generation and stabilize electricity bills and ultimately benefit the Korean people,” a Kogas official said.

By Kim Byung-wook (kbw@heraldcorp.com)
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