South Korea's 30% LNG Dependence Poses Risk Amid U.S.-Iran Tensions

Concerns are mounting that a potential war between the United States, Israel, and Iran could directly hit liquefied natural gas, South Korea's most vulnerable energy link.

The global energy market is in turmoil after Iranian drone strikes targeted Qatar's Ras Laffan Industrial City, which supplies roughly 20% of the world's LNG. While South Korea's LNG imports from the Middle East are relatively low compared to crude oil, analysts warn that supply chain bottlenecks and resulting price surges could weigh on the nation's industrial sector and consumer spending.

"South Korea currently holds LNG reserves well above the mandatory nine-day requirement, enabling us to respond even if Qatari supplies are immediately cut off," a government official said on Friday.

Though the government has not disclosed exact stockpile figures, Korea Gas Corporation operates storage tanks with approximately 5.47 million tons of capacity across five terminals nationwide. Private companies also maintain their own reserves. Industry analysts estimate combined government and private stockpiles cover slightly more than 30 days of consumption.

South Korea's dependence on Persian Gulf nations for LNG stood at approximately 15.5% last year, far below its 70% reliance on the region for crude oil.

"Spring brings lower heating and power generation demand for LNG. Considering scheduled LNG carrier arrivals from various countries, there shouldn't be major supply issues," an energy industry official said.

The real concern is price. Even with stable deliveries, rising global LNG prices will inevitably push up import costs. LNG futures on the Netherlands' TTF exchange, the European benchmark, surged 85% in two days, breaking through 60 euros per megawatt-hour. The Japan-Korea Marker for Northeast Asian LNG futures also jumped 47% to close at $15.77 per million British thermal units.

Rising global LNG prices are expected to significantly affect power generation costs. According to Korea Gas Safety Corporation, roughly half of LNG imports are used for electricity generation. LNG power plants generated 163 terawatt-hours last year, accounting for 27.4% of total generation of 595.5 terawatt-hours. While none of South Korea's five major power generators source LNG directly from Qatar, they remain fully exposed to global price volatility.

South Korea has historically seen electricity generation costs track global LNG price spikes. The 2022 Russia-Ukraine war offers a stark example. When Russian LNG was excluded from global markets, JKM prices surged from $23.705 per million BTU on February 1, 2022, to $69.995 by August 25 that year. South Korea's LNG power generation cost rose from 1.17 million won per ton in January 2022 to a record 2 million won by November. A prolonged Iran crisis could repeat this pattern.

Industrial facilities also face cost pressures. Most companies use city gas for heat supply, and many industrial complexes operate their own LNG power plants for on-site electricity consumption.

"Basic raw material costs like crude oil and LNG affect various manufacturing processes," an industry official said. "These typically filter through to product prices with a three-to-six-month lag."

Self-employed workers in the food and beverage industry, who rely heavily on city gas for cooking, are also expected to face difficulties.

During the Russia-Ukraine war, Korea Electric Power Corporation and Korea Gas Corporation absorbed much of the raw material cost increases internally. Analysts say this may not be possible this time, as both utilities have yet to fully recover from financial strains accumulated in 2022.

KEPCO's debt remains at 206 trillion won despite recording its best-ever results last year. Korea Gas Corporation's outstanding receivables exceed 14 trillion won.