Global boom in shale gas reshaping fuel market in Korea

Global boom in shale gas reshaping fuel market in Korea. September. 05, 2012 00:18. mint4a@donga.com.

The global boom in shale gas is reshaping the reorganization of the Korean vehicle fuel market. The rising supply of shale gas is prompting a decline in the price of compressed natural gas, or CNG, which is used in environment-friendly buses.

The Land, Transport and Maritime Affairs Ministry on Tuesday said the number of CNG-powered vehicles steadily increased over the past year to 35,456 in July. With the economic downturn pushing up the prices of gasoline, diesel and liquefied petroleum gas, or LPG, more taxis and passenger cars are being converted to run on CNG.

Just 27 won (2 cents) of individual consumption tax is imposed per liter on CNG, whereas 221 won (20 cents) of petroleum tax is imposed on LPG, 746 won (66 cents) on gasoline, and 529 won (47 cents) on diesel. In addition, there are no legal restrictions on converting existing vehicles to being powered by CNG.

With the market for CNG expanding, the oil refinery and LNG businesses are on alert as the state-run Korea Gas Corp. said it will import shale gas from 2017. If the gas company imports 2.5 tons of LNG over the next 20 years, which is equivalent to 20 percent of Korea`s annual energy consumption, the prices of CNG will fall 25 percent.

An LNG industry source said, "If the price of low-tax CNG falls, the domestic vehicle fuel market can suffer an imbalance."

Taxi companies, which are the main users of LPG, requested an exemption of petroleum tax in using diesel, giving LPG businesses a sense of crisis. Taxis account for 40 percent of LPG for transport.

An energy industry source said, "Oil refinery businesses are strongly opposed to revising the law allowing ordinary people to buy LPG-powered passenger cars, which are used only by the disabled. Fearing encroachment on their markets, oil refinery companies are increasing spending on research and development on new diesel-powered vehicles."

CNG companies are also setting their eyes on the automotive transport market as the growth of the city gas industry has reached its limit. According to the companies, they are preparing to expand the number of CNG gas stations nationwide, though safety remains a problem since the 2010 explosion of a CNG-powered bus.

In addition to developing new cars running on CNG, energy companies are continuing to make their positions understood to the Knowledge Economy Ministry and the Environment Ministry. The market structure is expected to change if ordinary people are allowed to purchase LPG-powered passenger cars and a tax is imposed on CNG is similar to existing taxes imposed on other cars. The rise in the number of hybrids that use fossil fuels and electricity is also a variable.