Global supplies of LNG are set to expand by almost 50 per cent between 2015 and 2020 © Bloomberg
South Korea’s shift from coal and nuclear towards renewables and liquefied natural gas for power generation could help soak up growing supplies of the super-cooled fuel in the coming years.
The newly elected left-leaning President Moon Jae-in has put environmental protection at the heart of energy policymaking in response to mounting anxieties about air pollution and nuclear safety.
Now the world’s fifth-largest thermal coal importer and the nation with the sixth-biggest fleet of nuclear reactors is overhauling the country’s energy mix, prompting a reappraisal of the country’s LNG demand assumptions.
Global supplies of LNG are set to expand almost 50 per cent between 2015 and 2020, raising concerns about from where new buyers will emerge.
LNG producers have primarily targeted markets that have not been traditional buyers, from Latin America to the Middle East. But the move by South Korea — the world’s second largest importer — highlights how established buyers might be tempted to increase their purchases just as supplies are primed to grow.
“From a country which looked like gas demand would drop because of the focus on coal and nuclear, we’re now preparing for an increase in coming years,” said Trevor Sikorski, gas analyst at consultancy Energy Aspects.
“We are seeing a dramatic change in strategy. There has been a big question over when the market would tighten between 2020 and 2030. The change in policy in Korea brings the date forward.”
South Korea generates two-thirds of its electricity from thermal coal-fired power plants and nuclear reactors, with the government in recent years using tax incentives to create abundant and affordable power supply after blackouts became a common occurrence.
The new government, however, has committed to stop the construction of new coal and nuclear plants.
Almost all of the gas consumed in South Korea is LNG, and on the campaign trail Mr Moon said he would like to increase its share of power generation to about 27 per cent by 2030, from 19 per cent today. For renewables the aim is to raise the share to 20 per cent by 2030, from 5 per cent.
While South Korea has been an underperformer in promoting renewables and gas, and there are doubts as to how far the country will go, the promise to scale back reliance on coal and nuclear gives momentum to a global transition towards cleaner fuels and gas.
Shasha Fesharaki, at consultancy FGE, said the drive in recent years to use coal to generate affordable baseload electricity in a timely manner had created air pollution in big cities such as Seoul.
“The increase in fine dust emissions . . . is impacting the health of citizens. People rebelled and fine dust became a major political issue in the election which Moon campaigned against,” he said.
Meanwhile, nuclear safety has only grown in prominence in recent years, said Keun-Wook Paik, a senior research fellow at the Oxford Institute for Energy Studies, who is helping government advisers on policy.
“The Fukushima disaster in Japan a few years ago followed by the strongest ever earthquake last year in South Korea has shaken the belief that the country can be free of these natural disasters,” he said.
Following years of stagnant LNG demand growth in South Korea, and a dip still expected for the next few years as new policies take time to take effect, industry analysts expect consumption to increase from 2019 onwards to reach more than 37m metric tonnes by 2022.
FGE now expects South Korean gas demand to grow 2.2 per cent a year through 2040 compared with its previous forecast of 1.5 per cent, spurred by gas for power generation.
South Korea, which is a big importer of Qatari LNG, could also help to soak up additional supplies from the Gulf nation that is the world’s largest exporter.
Qatar announced this week that it planned to raise LNG capacity by 30 per cent in the next few years in a show of strength against neighbouring Arab states that have severed diplomatic ties and imposed political and economic sanctions on Doha.
The increase in Qatari supply overlaps with efforts by US companies to raise exports which are a vital aspect of President Donald Trump’s plans for US “energy dominance”.
While there are still questions about a short-term glut, said Mr Sikorski, “in Korea you’ve got at least one big, long-term buyer that wasn’t there before”.
