In 2019, the Korean government announced the 9th Basic Plan for Electricity Supply and Demand, under which 24 old coal power plants will be converted to natural gas (12.7 GW) by 2034. In addition, according to the 10th Basic Power Supply and Demand Plan, which will be established by the end of this year, four additional coal power plants will be converted to natural gas by 2036. (1.4 GW) Following this trend, the four state-run companies under the Korea Electric Power Corp. plan to build their own LNG terminals to supply power plants that convert from coal to natural gas. Since these projects are carried out by public corporations, projects that invest more than KRW 50 billion are required to conduct a feasibility study through the Korea Development Institute (KDI). Two out of four projects passed the feasibility study earlier this year and are planned to start construction between 2023 and 2024. The two projects are located in Boryeong, Chungcheongnam-do, and Hadong, Gyeongsangnam-do, and the project size are USD 471M and USD 550M, respectively. We have been monitoring the projects since the beginning of this year, as the LNG terminals will lock-in the demand for LNG power generation going forward. We analyzed the KDI's feasibility study reports and found that (a) future LNG demand is overestimated, (b) construction costs are underestimated, and (c) overlapping investment problems arise when all four public companies expand their LNG infrastructure at the same time. If these factors are reflected, the project's feasibility (B/C ratio) will all be lowered to less than 1.0, contrary to KDI’s assessment, raising the possibility of becoming a stranded asset. Please see more details as below. Thank you.
