Global crude prices up $17–$27 per barrel across grades in three months

Korea Electric Power's debt tops 210 trillion won; bond issuance cap set to tighten

Korea Gas Corporation carries 14 trillion won in uncollected residential fees, 40 trillion won in total debt

Motorists refuel at a gas station inside the Mannam Service Area in Seocho-gu, Seoul. [Yonhap]
Motorists refuel at a gas station inside the Mannam Service Area in Seocho-gu, Seoul. [Yonhap]

Global oil prices have surged past $117 a barrel, raising alarm over energy costs ahead of the heating season. Crude import prices jumped more than 50 percent year-on-year last month, and LNG prices have also spiked, putting pressure on both household energy bills and industrial production costs. The rise in raw material prices is feeding through to domestic manufacturing costs and consumer prices, while calls for electricity and gas tariff increases are growing louder.

Brent crude futures, the global benchmark, climbed as high as $117.45 a barrel during trading Friday, according to Korea National Oil Corporation's Opinet. The contract settled at $116.72, up 3.14 percent ($3.55) from the previous session — its highest close since April 29.

Dubai crude, the main grade imported by South Korean refiners, also rose to $116.90 a barrel, while West Texas Intermediate reached $103.27, crossing the $100 mark for the first time in about a month. Compared with July 22, prices for Brent, Dubai crude and WTI have risen by roughly $16 to $27 per barrel over three months, depending on the grade.

Given that international oil price movements typically take two to three weeks to feed through to domestic pump prices, upward pressure on gasoline and diesel prices is expected to intensify from early next month.

LNG prices are also climbing. Supply has tightened due to production disruptions in Qatar — one of the world's largest LNG producers — and uncertainty over shipping through the Strait of Hormuz, while competition between European and Asian buyers scrambling to secure LNG ahead of the winter heating season is adding further upward pressure.

The JKM December futures contract, the benchmark LNG price for Northeast Asia, hit $30.010 per MMBtu on Oct. 19 — the first time it has topped $30 since December 2022, when the Russia-Ukraine war was at its height. The price has risen 13.7 percent in a month compared with Sept. 21.

Shipping data firm Kpler estimated Qatar's LNG exports last month at roughly 1.6 million tons, less than a quarter of the country's pre-war monthly average, according to Reuters. Exports this month are expected to fall further to around 600,000 tons. An Iranian missile strike on Qatar's Ras Laffan Industrial City in March damaged production facilities there, affecting about 17 percent of the country's total LNG export capacity, and some equipment may take three to five years to repair.

The shock of surging energy import prices is already showing up in import price data. The Bank of Korea said crude oil import prices rose 54.4 percent year-on-year in September. Crude oil, LNG, naphtha and thermal coal were among the items making the largest contributions to the rise in won-denominated import prices. There are growing concerns that higher energy and key raw material costs will increase the burden on manufacturers and stoke consumer prices.

The bigger worry for households is heating bills and electricity tariffs this winter. Higher LNG import costs raise the fuel cost burden for city gas suppliers, while rising power generation fuel costs push up the unit cost of electricity production. If cost increases cannot be passed on through tariff adjustments, losses and debt at state-run energy companies will mount.

Korea Electric Power Corporation is already carrying enormous debt and interest costs. After fuel costs surged following the Russia-Ukraine war, electricity tariff increases were held back, and the utility's total debt exceeded 200 trillion won. Its total debt in the first half of this year stood at 210.7 trillion won, with borrowings of around 133 trillion won — equivalent to daily interest costs of 11.5 billion won.

The National Assembly Future Research Institute said in a report last December that freezing electricity tariffs had transferred the burden of rising fuel costs onto Korea Electric Power, triggering a serious financial crisis at the utility.

According to Korea Electric Power and the National Assembly Budget Office, a special provision allowing the utility to issue corporate bonds up to five times the combined total of its paid-in capital and reserves is set to expire at the end of next year, with the cap reverting to two times from 2028. With the utility's outstanding corporate bond balance reaching 71.5 trillion won in the first half of this year, the tightening cap could make it significantly harder to raise additional funds.

A government plan to introduce regionally differentiated industrial electricity tariffs could also weigh on Korea Electric Power's profitability if it results in lower rates in some areas.

The utility's financial strain could also affect power grid investment. Expanding the grid on a large scale is essential to support power-hungry advanced industries such as semiconductors, physical AI and AI data centers, but a deepening funding crunch could delay timely grid construction.

Korea Gas Corporation faces a similar predicament. When gas tariff increases were suppressed during the 2022 energy crisis, uncollected residential fees accumulated to around 14 trillion won, and total debt reached 40 trillion won. As international energy prices remain elevated, the same dilemma keeps recurring: holding down tariffs deepens the financial strain on state energy companies, while passing on costs raises energy bills for households and businesses.


oskymoon@heraldcorp.com