Korea Electric Power Corp. (KEPCO, 015760.KS) posted operating profit of 3.8 trillion won in the first quarter, but the utility is expected to face the full impact of the Middle East war starting in the second quarter. With U.S.-Iran ceasefire talks stalled, liquefied natural gas (LNG) prices remain unusually elevated, inevitably pushing up KEPCO's power purchase costs. If the situation drags on, concerns are mounting that KEPCO could swing back into the red by the end of this year.
KEPCO disclosed its "first-quarter 2026 consolidated earnings" containing these details on Tuesday. First-quarter revenue came in at 24.3985 trillion won, up 0.7% from a year earlier. Operating profit of 3.7842 trillion won edged up just 0.8%.
The utility managed to extend its streak of quarterly operating profits to 11 consecutive quarters through the first quarter, but conditions from the second quarter onward are far from favorable, as international energy prices have jumped sharply in the wake of the U.S.-Iran war. Even in the first quarter, fuel procurement costs at KEPCO's subsidiaries rose 4.1%, or 207.7 billion won. Coal-fired power generation was increased 7.7% year-on-year amid concerns about LNG supply instability immediately after the war broke out, and coal prices also rose in tandem with international oil prices. According to KEPCO, the first-quarter bituminous coal import price stood at $119.9 per ton, up 13.4% from $105.3 a year earlier.
LNG import prices, which account for nearly 30% of total power generation, are swinging even more wildly. The Japan Korea Marker (JKM), the benchmark for LNG imported into Korea, stood at just $10.73 per MMBtu (million British thermal units) on February 27, just before the war broke out, but surged to $22.35 on March 19 before recently hovering around $17. That represents a nearly 70% jump from pre-war levels.
Amid these conditions, the LNG market is even seeing a reversal in which spring prices exceed those of the high-demand winter season. According to Korea Gas Corp., the May wholesale LNG rate for general power producers was 17,961 won per gigajoule (GJ), about 10% higher than January's 16,323 won. This "high-spring, low-winter" phenomenon is the first of its kind in five years since 2021, when demand surged with the end of the COVID-19 pandemic.
Such aftershocks are expected to be reflected directly in KEPCO's financial structure from the second quarter. Typically, LNG spot contracts affect import prices with about a two-month lag, while long-term contracts carry roughly a five-month delay. According to KEPCO, its average LNG purchase price from January through March was 892.9 won per ton, rising to 914.3 won in April.
The fact that electricity consumption peaks in summer also weighs on the outlook. There are limits to curbing LNG use by ramping up coal and nuclear generation as was done in the first quarter. In particular, LNG-fired power, which serves as a flexible generation source, sets the System Marginal Price (SMP) in 83% of cases, leaving KEPCO's financial structure extremely sensitive to global LNG prices. Given the circumstances, some brokerages have projected that KEPCO could post losses in the hundreds of billions of won in the fourth quarter.
"KEPCO has yet to fully resolve the cumulative operating losses from the Russia-Ukraine war," an industry official said. "The government is also reviewing policies such as region-based differential tariffs to ease rate burdens, so the cycle of KEPCO having to take on more debt to cover losses could repeat itself."
