(Source = Reuters Union)
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Gas-related stocks surge day after day on news of city gas rate hike

(Source = Reuters Union)

Following the liquefied natural gas (LNG) crisis caused by Russia’s invasion of Ukraine, domestic gas stocks are shaking up with news of city gas rate hikes. This is largely due to the fact that the Ministry of Trade, Industry and Energy announced that it would raise city gas rates for civil (housing and general use) by 8.4% to 9.4% from May 1.

At 1:40 pm on April 29, Daesung Energy is trading at 17,500 won, up 14.38% from the previous trading day. GS is also trading at 7,490 won, up 4.90%. On the 27th and 28th of April, the news of Russia’s total cessation of natural gas supply to Poland and Bulgaria drew sharp rises in both, and on this day, the news of city gas rate hikes is also believed to have acted as a factor in the share price rise.

This increase in city gas is a measure that has been predicted since last year. Last year, the cost of raw materials soared due to an increase in the unit price of LNG imports, but the receivables of Korea Gas Corporation increased as the price increase was delayed to stabilize prices. The receivables amounted to 1.8 trillion won as of the end of last year, which was the amount that Korea Gas Corporation did not receive as a gas fee among the LNG imports. Accordingly, the government decided to resolve the receivables by gradually raising the settlement unit price three times in May, July, and October of this year. The Ministry of Trade, Industry and Energy said, “It is an expense that occurred because we did not receive the fee we were supposed to receive in line with the cost of raw materials last year.”

The city gas fee consists of the ‘raw material cost (standard raw material cost + settlement unit price)’, which is the unit price of LNG import, and ‘wholesale and retail supply cost’, which is the sum of the supply cost of wholesale and retail suppliers and investment fee. The part that the Ministry of Industry and Trade will increase is the ‘settlement unit price’ of raw material costs, which will be raised by 1.23 won per MJ (caloric unit) starting in May.

According to the Ministry of Industry, the price for housing in May will increase by 8.4% from 14.6543 won per MJ to 15.881 won per MJ. The fee for ‘Business 1’ (restaurant business, cafeteria, hairdressing business, lodging business, swimming pool, etc.) rose 8.7% from 14.2631 won to 15.51 won, and ‘Business 2’ (bathroom, waste treatment plant, garbage incineration plant, etc.) fee from 13.2614 won It is raised by 9.4% to 14.5083 won. Overall, the average gas bill per household increases by 2,450 won from 29,300 won to 31,750 won per month.

The problem is that LNG prices soared due to Russia’s invasion of Ukraine, and a considerable amount of accounts receivable is expected this year. This is because the ‘standard raw material cost’ increase factor was not reflected in the measure of the gas rate hike in May. The Ministry of Trade, Industry and Energy explained, “Recently, international gas prices have risen sharply due to the instability of the gas market. The price of natural gas futures on the New York Mercantile Exchange surged 2.68 times in the past year, from $2.91 to $7.82 per 1 MMBTU (natural gas calorific unit).

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