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FEATURE: S Korea's new taxi fuel policy to boost demand for gasoil

http://www.chemnet.com   Apr 01,2015 Platts
The South Korean government is planning to introduce taxis running on gasoil from September in a move that is expected to boost demand for the fuel, despite protests from LPG producers.

Under current rules, all taxis in South Korea run on LPG. The rules, meanwhile, prohibit passenger cars -- except those owned by the disabled -- from using LPG.

The pump price of LPG is around 60% of gasoil and 54% of gasoline. According to data from state-owned Korea National Oil Corp., the pump price of 92 RON gasoline as of March 30 was Won 1,511 ($1.37)/liter compared with Won 1,326/liter for gasoil and Won 807/liter for LPG.

In an effort to incentivize taxis to run on gasoil, the government will provide a subsidy of Won 345/liter in the form of tax refund from September 1, an official at the Ministry of Land, Infrastructure and Transport said, adding that the policy is part of efforts to diversify taxi fuels and liberalize taxi rules.


The government provides a subsidy of Won 198/liter to taxis running on LPG.

"Given higher prices and taxes imposed on gasoil, the tax refund is bigger for gasoil taxis," the official said.

GASOIL TAXIS TO ACCOUNT FOR 30% OF FLEET The government forecasts that the incentive will increase the number of gasoil taxis by 10,000 every year and will account for 30% of the country's entire taxi fleet in seven years, boosting gasoil demand in the country.

"We expect the introduction of gasoil-burning taxis to boost demand for the auto fuel," an official at the Korea Petroleum Association said, adding that it was difficult at the moment to say by how much.

There are currently some 250,000 taxis across the country, all burning LPG. Since it is difficult for a taxi to switch from LPG to gasoil, the government will look to run the new taxis, that are to replace the old LPG taxis, on gasoil.

"All of the gasoil taxis will be required to meet Euro-6 standards, and therefore, there is no need to worry about environmental impact," the ministry official said, dismissing concerns that gasoil-burning vehicles would produce more greenhouse gas emissions than LPG cars do.

Oil refiners, who have been battling declining domestic demand for their products, welcomed the plan.

South Korea consumed 144.76 million barrels of gasoil in 2014, up 1.2% year on year.

LPG DISTRIBUTORS PROTEST

The country's LPG distributors, meanwhile, are protesting against the plan, saying it would deliver a major blow to domestic demand of LPG.

"Taxis are major consumers of LPG [in South Korea]," said Lee Ki-Yeon, executive vice president of the Korea LPG Industry Association.

The transport sector accounts for 50% of the country's LPG demand, and consumption by taxis accounts for 40% of the transport demand, Lee said.

"The introduction of gasoil taxis will put LPG distributors on the edge," he said, adding that taxi drivers would prefer gasoil to LPG because of better fuel efficiency and much easier access to fuel stations, Lee said.

South Korea consumed 89.68 million barrels of LPG in 2014, down 3.6% year on year.

SK Gas, run by SK Group that also owns the country's biggest oil refiner SK Innovation, is the market leader with a 35% share in the domestic LPG market, followed by E1 Corp., with 27%.

SK Gas and E1 Corp import LPG to sell to the domestic market. Imported volumes met about 70% of the country's total LPG demand in 2014.
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