While the 8% growth over 14 years looks disappointing, the latest forecast is already a major upgrade over the 12th Natural Gas Supply Plan which had anticipated gas demand to reach 35 Mt by 2029. Indeed, analysts expect Korea’s gas demand is forecast to fall before growing again post 2025, mainly due to the additions of coal and nuclear capacities between now and 2023.
“Our analysis forecasts 4 GW and 5 GW net additions (new capacities minus retirements) for coal and nuclear respectively over the next five years. These new builds are already under construction and approved under the 8th Electricity Plan,” said Wood Mackenzie principal analyst Kiah Wei Giam. “With the electricity market facing oversupply over the next few years, it will be even harder for gas to displace coal or nuclear based on pure economics,” he commented but the Government's policies limiting coal or nuclear generation will help to alter the power mix.
In the 8th Plan, all coal units that are over 30 years of age are required to shut down in the spring period when electricity demand is low. Based on WoodMackenzie analysis, even with gas-friendly policies in place, gas demand will still decline to hit a trough of 34 Mt in the 2022/23 period.
Post 2014, however, gas demand will turn the corner as 4 GW of coal and 5 GW of nuclear are retired between 2024 and 2031. Moreover, as per the 8th Electricity Plan, electric utilities are not permitted to add any new power generating units based on coal nor nuclear beyond those that have been already approved.
The shortfall in renewables energy additions could prompt yet another upside to gas demand. Solar and wind generation was expected to grow by nine times between 2017 and 2031 but even if this increase will materialise it is still insufficient to meet electricity demand growth. The government of President Moon targets renewables to account for 20% of the electricity generation by 2030 while WoodMackenzie forecast the share will only reach 15%.
“As such, gas will be needed to make up for the shortfall; hence we expect gas demand to reach 42 Mt by 2031, around 2 Mt higher than the government's forecast,” Mr Giam commented. While the latest gas plan does not live up to early expectations, it is more positive for gas than the 12th Plan. The 13th Plan also confirms the increasing role of gas in the electricity generation mix as outlined in the 8th Electricity Plan.
Lowering of tax on LNG imports or introducing environmental dispatch which includes emission costs would increase the competitiveness of gas and, if implemented, will provide upside to gas demand, he recommended, concluding “President Moon may not have delivered on his electoral promise to substantially increase the share of gas in overall generation mix, but he has successfully laid the foundations for gas to take centre stage in South Korea's future energy mix.”