With the Middle East crisis sending international liquefied petroleum gas (LPG) prices sharply higher, domestic LPG supply prices are expected to jump again next month. This month's domestic LPG supply price rose only 50 won per kilogram, but the increase next month is likely to exceed the 100-won-per-kilogram range.
If the price of LPG, a representative fuel for working-class households, goes up, taxi fares and prices at neighborhood restaurants face strong upward pressure. LPG is divided into propane and butane; propane is used for cooking and heating in homes and restaurants, while butane is used as fuel for vehicles such as taxis.
On the 1st, SK Gas said it will raise April domestic LPG prices by 50 won per kilogram. The supply price to propane filling stations for household and commercial use will be 1,265.73 won per kilogram, 1,272.33 won for industrial use, and 1,622.55 won for transportation-use butane.
E1 also notified that it will raise LPG prices by 50 won per kilogram. The supply price to propane filling stations for household and commercial use was set at 1,263.17 won per kilogram, 1,269.77 won for industrial use, and 1,620.55 won per kilogram for transportation-use butane.
Initially, the industry assessed that there was a factor warranting a price increase of about 100 won per kilogram, but the actual increase was limited to half that, or 50 won. An industry official said the decision reflected the government's stance on stabilizing prices.
However, the increase is expected to double next month. Domestic LPG prices are set according to the international LPG price (CP, Contact Price) that Saudi Aramco, the state-owned oil company of Saudi Arabia, releases at the end of each month, and the April CP has surged.
Aramco on the 31st released the April CP at $750 per ton for propane and $800 for butane. Compared with the previous month, propane rose $205 and butane rose $260, surging 37.6% and 48.1%, respectively. On top of that, incidental expense required to import LPG, including shipping and insurance, is also soaring.
The period when LPG prices rose the most in Korea's LPG history was November 2021, when they jumped 165 won per kilogram. At the time, a spike in CP and a surge in the won-dollar exchange rate pushed LPG prices sharply higher. With a similar situation unfolding now, there are concerns that a similar increase will be repeated in the price-setting process next month. While CP has been rising quickly this year, domestic increases have been kept to a minimum, and the won-dollar exchange rate is moving unstably in the 1,500-won range.
An energy industry official said, "Based solely on the recently released won-dollar exchange rate applied to the April CP that Aramco released, we see a factor for a 400-won-per-kilogram price increase," adding, "If we reflect the price hike factors that have accumulated, the increase will be even larger."
If LPG prices rise, the taxi industry is expected to feel the squeeze first. According to the Korea National Joint Conference of Taxi Association, there are 246,381 registered taxis in Korea, 90% of which are LPG vehicles and the remaining 10% are electric. Taxi drivers typically spend 30% of their income on fuel.
Next, 1-ton LPG trucks mainly used for parcel delivery and light freight, outer areas without city gas (LNG) where LPG is used, older dwellings, and restaurants could also take a direct hit. LPG is widely used for heating greenhouses and controlling temperatures in poultry farms. Taxi fares, food prices, and grocery prices could all be affected in sequence.
Experts advise lowering the fuel tax burden applied to LPG and butane and fundamentally managing demand. On the 26th, the government decided to further cut the fuel taxes levied on gasoline and diesel, but LPG was not included in the fuel tax cut. Some also say noncommercial vehicle use should be managed.
An LPG industry official said, "This month we limited the increase to 50 won per kilogram, but if the war continues, we don't know how much it will rise next month," adding, "There is a limit to corporations continuing to absorb price hike factors."