Korea diversifying oil supply





Long-term policy emphasizes future-oriented energy outlook


Faced with the uncertainties posed by high international oil prices and tight global supply, Korea's dependence on oil imports has led to a policy of promoting efficient use of and diversifying its oil supply.

The world's fourth-largest oil importer has short and mid- to long-term approaches for coping with its oil needs. The approaches entail a future-oriented energy consumption system and aggressively pursuing overseas oil exploration projects, the Ministry of Commerce, Industry and Energy says.

Deprived of domestic oil reserves, Korea imports 97 percent of its crude oil, which makes up the largest share of the country's total energy consumption. Petroleum accounted for 54 percent of the country's primary energy consumption in 2002. In 2004, the nation consumed about 2.14 million barrels a day (bbl/d), down from a high of nearly 2.3 million bbl/d in 1997. Last year, the country's primary energy consumption during the first nine months rose by 4 percent compared to a year ago, according to the Korea Energy Economics Institute.


Eighty-one percent of the country's oil imports come from the Persian Gulf region, with Saudi Arabia supplying about one-third, the Energy Ministry said. By energy category, from January to September 2005, consumption of nuclear power and alternative energy increased significantly from 2004, according to the KEEI. Demand for coal and liquefied natural gas was comparatively low.

In the short-term, Asia's fourth-largest economy has a strategic petroleum reserve that the state-owned Korea National Oil Corp. manages. Strategic stocks, which serve as a buffer against supply disruptions, are enough for about 90 days of supply. This period of "import cover" was expanded from 60 days in early 2001 to meet the requirements for entering the International Energy Agency, an intergovernmental body committed to advancing security of energy supply and environmental sustainability through energy policy cooperation.

From the mid- to long-term perspective, the government's plan includes taking proactive steps by establishing a future-oriented energy management system. This will include forming a committee comprised of more than five members from relevant ministries, civil experts and citizens' groups. Their objective will be to mitigate energy issues and risks affecting the public.

The Energy Ministry's 2006 policy initiative outlines long-term policy goals that aim to balance environmental changes and the outlook for supply and demand. Since the 1997-98 financial crisis, the country has felt a greater need to rethink its reliance on imported oil for domestic energy demand.


Diverse exploration


The reliance on imported oil has pushed the government to focus more on developing renewable energy resources and necessary technologies. Along with its goals in the 21st century of promoting green development, such as increasing the use of photovoltaic power and fuel cells, the country's environmental outlook depends on its ability to shift its energy supply to cleaner-burning fuels and reduce the emissions of greenhouse gases blamed for causing global warming.

Another long-term policy objective is staking out oil and gas fields for not only securing energy needs to reduce reliance on foreign oil, but also for strengthening national competitiveness in the global economy.

Korea National Oil Corp. is seeking equity stakes in oil and gas exploration around the globe. The state-run energy management body has more than 17 overseas exploration and production projects in over 13 countries. This includes four producing fields in Yemen, Argentina, Peru, and the North Sea, and five fields under development in Kazakhstan, Yemen, Venezuela, Libya and Vietnam.

The KNOC is also exploring domestic blocks off the shores of the Korean Peninsula. The government hopes the KNOC will provide for 10 percent of the nation's oil needs by 2008. As of last 2004, its output covered 4 percent of the country's import requirement.

Demand for renewable and alternative energy resources here accounted for merely 2.2 percent of the country's total energy consumption, underscoring its sensitivity towards fluctuations in the international market.

Korea is also heavily dependent on imported liquefied natural gas for its natural gas. It began producing a small quantity of natural gas in one offshore field in November 2003. Imports of LNG began in 1986 with the founding of the state-owned LNG importer Korea Gas Co.

The country relies on Qatar, Indonesia, Malaysia and Oman, as well as other minor contributors, including Brunei, for its LNG. Korea, the world's second-largest importer of LNG, imported 896 billion cubic feet of LNG in 2003. Qatar is its largest exporter.

In response to the growing demand of LNG, the Korean government plans to improve the supply system by expanding the infrastructure needed for efficient and greater distribution. Natural gas demand is almost equally split between the electricity sector and the residential heating sector. Petrochemical plants consume a smaller portion.

KOGAS's projects include expanding LNG receiving terminals. The government is already increasing capacity at its existing terminals in Pyeongtaek and Incheon. A receiving terminal was completed in Gwangyang last year.

While the country began producing a small amount of domestic natural gas in 2003, the government is attempting to explore a natural gas pipeline from the Kovykta natural gas deposit in Irkutsk region of Eastern Siberia. This pipeline would supply China and South Korea.

Coal, another energy source, accounts for about 21 percent of Korea's total energy needs. Most of the coal is imported, as the coal available at home is of low quality anthracite that is used to heat homes and in small boilers. Bituminous coal, used for as steam coal for power plants and industrial boilers and metallurgical coal for steelmaking, is mostly shipped in from Australia and China. Korea Electric Power Corp. has invested in several Australian coal mines. But the government has been seeking a "rationalization" of policies for the coal industry since 1989.

Anthracite demand for briquets is continually declining, while demand for KEPCO's power generation is increasing. As a result, anthracite for power generation accounts for 67 percent of total demand, the government said.

As of 2001, domestic production of coal totals 3.82 million tons, and 10 mines are in operation. The demand of the coal has also changed from demand for briquets taking up 90 percent of total demand in 1988 to demand for power generation accounting for 67 percent in 2001. Coal demand for power generation is being maintained at 2.5-2.8 million tons. State funds for supporting production have been on a gradual decline.

But budget allocations for supporting restructuring, such as the closure of mines and developing mining areas are increasing.

Korea relies on a combination of thermal (oil, gas and coal), nuclear and hydroelectric capacity to meet its demand for electric power. As of 2002, the country's total power generation capacity was 54 gigawatts. The government estimates that its electricity demand will rise at an average annual rate of about 4 percent per year until 2015.

In order to maintain stable electricity supply and demand, the government said it will strengthen demand management and expand facilities. The country's capacity for electricity ranks the 12th largest globally.

Plans are also underway to develop more nuclear power plants to cut down carbon dioxide emissions. Although Korea has ratified the Kyoto Protocol calling for curbing greenhouse gas emissions, its status as a "non-Annex I state" means it has not yet taken steps to meet specific targets.

The government expects to continue to promote nuclear power plant construction for the long-term stable supply of electricity. As it expects securing sites, construction and operation of nuclear plants will become even more difficult in the future, the government is trying to enhance public acceptance by transparent policymaking and an assistance system to neighborhoods near the plants.

About a dozen additional nuclear plants have been planned before 2015, which is expected to significantly raise Korea's nuclear share of power generally.

Energy Minister Chung Sye-kyun recently stressed the need for Korea to nurture world-class energy corporations.

"Considering the volume of energy we consume, nurturing energy corporations that rank top globally would be a huge benefit to our country," said Chung. "I believe in providing aggressive support for establishing the infrastructure that will help develop such companies by pushing for a successful oil development fund."

(sohjung@heraldm.com)