Why do gas prices rise faster in Korea than in Japan?

Gas prices in Korea and Japan are almost the same, but differ in the range of fluctuations.

According to the Japanese Oil Information Center, a liter of gas in the fourth week of February was 1.79 U.S. dollars (143.5 yen) in Japan, just a cent higher than the 1.78 dollars (1,989.62 won) in Korea over the same period. The price of gas in Japan grew 0.3 percent this month, but that of Korea rose as much as 0.6 percent.

Japan`s average gas price has remained almost the same since the end of last year, rising from 143.4 yen to 143.5 yen. Korea, however, saw its figure rise 2.8 percent from 1,935.05 won to 1,989.62 won over the same period.

The rise in Korea`s gas price is more remarkable given the effects of foreign exchange rates. The yen`s value against the U.S. dollar fell 3.6 percent to 80.5 Tuesday from the end of last year. In contrast, the won`s value rose 2.4 percent over the same period. Given that oil is traded in dollars, Japan`s gas price should have risen more than Korea`s since the yen`s value has fallen.

Korean oil refineries blame their country`s oil tax for the rise in gas prices. In Japan, the oil tax is fixed at 56.8 yen per liter regardless of fluctuations of international oil prices. By contrast, Korea`s oil tax moves in sync with international oil prices as the value-added tax attached to the oil tax is proportional.

A refinery industry source said, "The share of the oil tax in gas prices is 46.2 percent in Korea, but just 39.8 percent in Japan," adding, "Due to the value-added tax, Korea`s gas prices fluctuate more than Japan`s."

The Korean government and other experts, however, blame differences in gas price-setting methods and market structures in the two countries. The value-added tax, which is just 10 percent of the gas price, cannot explain the price rise, they say.

Gas prices in Korea are more sensitive to fluctuations of international oil prices due to the country`s price-setting structure. Japan`s prices reflect the import prices of oil as well as the prices of oil futures at the Tokyo Commodity Exchange.

By contrast, Korean refineries set gas prices in sync with Singaporean spot prices from the previous week. Accordingly, if international oil prices rise, those of Korea also rise after a week regardless of the volume of imported oil.

Unlike in Korea, refineries in Japan compete against each other, which is another reason for Japan`s stable gas prices, according to experts.

Korea`s refinery industry is an oligopoly with SK Innovation, S-Oil, GS Caltex, and Hyundai Oilbank controlling 98.1 percent of the market. These four companies monopolize all oil businesses from imports and refinement to distribution. In such a market structure, gas stations are forced to buy oil at prices set by the four refineries.

The situation in Japan is different, however. Nine refineries and eight large oil purchasing companies that buy gas from refineries and supply it to gas stations competing against each another.

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