With the United States and Iran at war damaging major industrial facilities in Qatar, which signaled it may be unable to fulfill its liquefied natural gas (LNG) export contracts, anxiety is growing in Korea's steel industry. Major steelmakers such as Hyundai Steel and Dongkuk Steel Mill have increased their use of electric arc furnaces in recent years, raising the likelihood that industrial electricity rates will surge if LNG supply gets tangled.
According to Reuters on the 25th local time, QatarEnergy, Qatar's state-owned oil corporations, declared force majeure on its long-term LNG supply contracts with Korea, China, Italy, Belgium, and others the day before. A force majeure declaration is a notice to avoid legal liability such as damages when a contract cannot be performed normally due to war, natural disasters, and similar events.
QatarEnergy said key LNG production lines suffered direct damage from Iran's attacks, paralyzing 17% of its export capacity. It projected that restoration could take three to five years. This raises the possibility that Korea's imports of Qatari LNG could be disrupted for up to five years.
Industry watchers say the force majeure declaration on Qatar's LNG supply contracts will particularly hit the steel sector. Steel mills that produce via electric arc furnaces bear a large share of industrial electricity rates in their overall expense, and the likelihood has grown that rates will jump sharply due to LNG supply disruptions.
Last year the unit price of industrial electricity was 181.9 won per kilowatt-hour (kWh), up 13.7 won (8.15%) from 168.2 won in 2024. Industrial electricity rates have been raised seven times since 2022. Many expect rates to rise faster on the recent uptrend in LNG prices.
In fact, due to the war between the United States and Iran, LNG prices are rising rapidly in the global market. According to statistics from a private LNG industry association, as of the 17th, Northeast Asia natural gas futures were $19.1 per MMBtu (a heat unit), up 19% from the previous week.
Among domestic steelmakers, Hyundai Steel is seen as the one most likely to be hit by higher power bills stemming from LNG supply disruptions. That is because the share of electric arc furnaces in its product output is relatively large compared with rival POSCO.
At Hyundai Steel, blast furnaces and electric arc furnaces each account for 50% of steel production. In line with its carbon neutrality goals, the company has shifted its production system in recent years from a blast furnace focus to an electric arc furnace focus.
In his New Year's address early this year, Hyundai Steel President Lee Bo-ryong said, "2026 is an important point for a full transition to a carbon-reduction production system," and signaled the company would continue to expand the production share of electric arc furnaces.
Hyundai Steel is currently building an LNG power plant to self-procure electricity for its steel mill in Dangjin, South Chungcheong. The plant is scheduled for completion in 2028. With this in mind, the company is said to be planning to add the export and import of natural gas to its articles of incorporation as a business purpose at the regular shareholders' meeting on the 26th.
With imports of Qatari LNG now facing possible disruptions for the next five years, Hyundai Steel, which consumes large amounts of power and has even invested in an LNG power plant, faces a headache. A steel industry official said, "It will be difficult for Hyundai Steel to avoid the hit from higher industrial electricity rates," adding, "It's time to seek alternatives, such as securing U.S. LNG in place of Qatari supplies."
Dongkuk Steel Mill also fears a direct hit from higher electricity rates due to LNG supply disruptions. The company relies 100% on electric arc furnaces. Dongkuk Steel Mill spent 300 billion won on electricity alone last year. Struggling with rising industrial power rates and a deteriorating steel market, it even halted operations on some production lines last year.
In POSCO's case, blast furnaces account for nearly 100% of production. For that reason, it is less directly affected than Hyundai Steel if Qatari LNG supplies are blocked. However, it is building electric arc furnace facilities to reduce carbon emissions and currently operates an LNG power plant, so it is keeping a close eye on the supply situation and price of Qatari LNG.
In Feb. 2024, POSCO invested 600 billion won at its Gwangyang steel mill in South Jeolla to begin construction of a large electric arc furnace with annual capacity of 2.5 million tons (t). The furnace is slated to start operations in the first half of this year. If the current rise in LNG prices is prolonged and industrial electricity rates keep climbing, POSCO, too, will find it difficult to avoid damage.
POSCO operates in-house LNG power facilities at two sites, including the Gwangyang steel mill and the Pohang steel mill in North Gyeongsang. POSCO has already signed a supply contract for U.S. LNG, so it will not be directly affected even if Qatari LNG supplies are blocked. However, if Qatar's LNG production continues to be disrupted, LNG prices in the global market will also rise, increasing the expense burden.
Recently, the steel industry has been asking the government to reduce the burden of electricity rates. The unions of POSCO and Hyundai Steel held a press conference at the National Assembly press room in Yeouido, Seoul, on the 19th, saying, "Steelmaking is an industry where power consumption is absolute, and if the massive energy expense burden continues, the very survival of the industry as a national security sector will be impossible," and appealed for relief from the rate burden.