South Korea elections positive for LNG, renewables; bad for coal, nuclear

The opposition victory in South Korea's general elections this week could pave the way for more LNG and renewables in the country's energy mix, faster scaling back of the nuclear fleet and a broader push to fight climate change, according to analysts and market participants.

With the main opposition party Democratic Party of Korea (DPK) winning a majority, President Yoon Suk Yeol is expected to find it challenging to push through major policies for the remainder of his term, including his support for nuclear power.

"It is unclear how the election will directly impact policies, but based on the values of each party, it seems that the attempts of President Yoon Suk Yeol's regime to develop nuclear power will receive some resistance from the opposition party, making it more difficult," said Helena Shin, LNG analyst at S&P Global Commodity Insights.

"Our forecast was already that it will be difficult for them -- People Power Party (PPP) -- to reach their current goals as they are quite ambitious and don't consider the time and administrative approvals that go into developing infrastructure for nuclear energy, but the result of the recent election adds more hurdles towards their goals," Shin said.

The previous President Moon Jae-in favored a nuclear phaseout, but President Yoon, who took office in May 2022, promised longer operation of nuclear plants to meet mounting power demand and keep electricity costs low for energy-intensive manufacturers.

Nuclear power accounts for around 28% of South Korea's electricity mix, coal accounts for around 33% and natural gas accounts for around 29%. The remaining comes from renewables and oil.

Shin said that for coal, campaign promises of both parties included limiting coal-fired power generation, but it was more extreme for the DPK that aimed for a full phaseout of coal plants by 2040, while PPP agreed to only shut coal plants in certain regions.

"It is unsure yet whether these promises will be kept but it can be expected that regulations against coal-fired power will be stricter with the opposition party gaining more seats in the national assembly," she added.

South Korea has been pausing an increasing number of coal plants during the December-March peak period for dust and pollution for several years. "However, since the opposition party places a bigger emphasis on decreasing the use of coal and the move towards cleaner energy, there is a possibility that the pause becomes more intense," S&P Global's Shin said.

LNG/Renewables

Shin said the curbs on coal imply a positive outlook for LNG and renewables in the power mix, and expects long-term LNG demand in South Korea to be higher than government forecasts.

"The opposition also has stronger support for renewable energy and will aim to develop it further," she said, adding that whether the ambitions will translate to policies remains unclear.

DPK had recently unveiled a plan to increase reliance on renewable energy sources to 40% by 2035 on the path to achieve 100% renewable energy.

South Korea has pledged to achieve carbon neutrality by 2050 by boosting renewables, phase out coal and build new technologies like hydrogen and carbon capture. The International Energy Agency has said that the carbon intensity of the country's electricity mix is above the average level of its member countries due to the high share of coal-fired power generation.

"Both parties show ambitions about combating climate change and decarbonization but historically we haven't seen it translate to policy implementations too much," Shin said.

She said that while PPP has a higher focus on building infrastructure for hydrogen power generation, the opposition DPK focuses more on decreasing carbon emissions, although both their climate-related policies are similar.

Market participants have also been watching the elections for signs of monetary and geopolitical policy developments. Bank analysts said the impact on the economy will be limited, and both parties have been pushing for fiscal stimulus to boost the economy, implying limited upside for broader energy demand.

"As for foreign policy, the current president has sought closer ties with the US and Japan, and this won't change significantly whoever wins, as parliament has little room to weigh in on the president's foreign policy agenda," ING Bank said in a note to clients.

The DPK has been vocal about the adverse impact of the US Inflation Reduction Act on South Korea's domestic automobile sector and had proposed its own version to remain competitive, even as the incumbent government had lobbied strongly to provide exemptions to Korean carmakers.

Several other energy-related policies could be impacted by the elections, as both parties have to be aligned for new legislation to come through.

This includes Korea's gas market liberalization policies as a new wave of second-tier gas companies and LNG importers had started to emerge, emissions reduction and carbon market development, intergovernmental agreements on cross border CO2 transportation to enable CCS, and hydrogen and ammonia usage in the power sector.