Korea Needs to Prepare for Global LNG War

Energy. What is it? Where does it come from? Korea recently celebrated its national Independence Day, but how can Korea provide for its own energy independence given that we as a nation are energy resource poor? Korea uses nuclear, hydropower, coal, oil and natural gas as its five primary forms of energy.
Every part of Korean life today, whether it is the heating or cooling of homes or the light by which we work, depends upon access to these five principal forms of energy.
Korea¡¯s mighty industrial complex, which has made us one of the largest value-added exporting nations in the world, is entirely dependent on imported energy.
Of the five primary forms of energy on which Korea¡¯s economic life depends, natural gas, primarily derived from imported cargoes of liquefied natural gas (LNG), is the cleanest burning and most efficient hydrocarbon energy available today.
Korea would be a cleaner, more carbon efficient economy with more LNG imports and greater use of natural gas in our energy mix.
With Korea¡¯s relatively fast-growing economy and large industrial base, LNG imports are expected to rise dramatically over the next many years. But where does LNG come from, and how does Korea protect its access to future LNG imports?
Korea Gas Corporation (KOGAS) is the principal importer of LNG into Korea and is the world¡¯s largest LNG importer. Korea imports nearly 25 percent of all LNG produced today.
KOGAS contracts with companies in Oman, Qatar, Malaysia, Indonesia and Australia for the majority of its LNG requirements. However, Indonesia and Malaysia have large and growing populations with growing economies that also want to use clean, efficient energy.
It is conceivable that these nations in combination with their regional ASEAN neighbors will monopolize natural gas use within their countries and within their region. In 2004, the regional Asia-Pacific energy powerhouse Indonesia became a net oil importer after nearly 100 years of being an oil exporter. How much longer can Indonesia be relied upon to be a reliable natural gas and LNG exporter? Thailand¡¯s large population and economy is already drawing in natural gas by pipeline from Myanmar and will potentially draw upon nearby Malaysia for additional natural gas imports. One day in the not too distant future may see the entire ASEAN energy market dedicated entirely to ASEAN nations.
However, if supply were Korea¡¯s only concern, perhaps the problem could be tackled relatively easily. The other major problem for energy independence is growing demand for LNG from nations that were not previously meaningful competitors. China has decided to utilize LNG imports as a means to reduce pollution, improve economic efficiency and increase overall energy supply. The United States¡¯ already oversized energy requirements are expected to overflow into world LNG markets. India has also announced its intentions to become an LNG importing nation.
All told, numerous industry analysts expect that by the early 2010s the demand from these new market entrants to roughly equal the current demand of both Korea and Japan. From near zero imports to almost equivalent demand in the span of some five or six years will dramatically impact Korea¡¯s competitive access to LNG imports.
Fair enough, if Asia-Pacific supply is likely to diminish or remain steady and if the United States, China and India are expected to increase their demand, the supply of which is logically achieved in the Asia-Pacific region, Korea should simply look to the Middle East, Oman and Qatar in particular, right?
Unfortunately, Europe, concerned about the rise of cross-border LNG alliances between Russia and Algeria and its growing dependence on Russian natural gas, has also decided to increase LNG imports. Europe is looking to the Middle East and Africa for its LNG supply. Therefore, Korea¡¯s access to Middle East LNG cannot be taken for granted.
Yet if the story ended with growing ASEAN regional demand overtaking ASEAN regional export capacity, the United States and China entering as large LNG importers and Europe creating increased competition in the Middle East, Korea may yet be able to compete, except for one major factor: Who owns the LNG export projects? Japanese corporations invested in the first Asia-Pacific LNG project in Brunei and have been large investors in Australian LNG export capacity. As a result, the Japanese have near LNG monopolies in both Brunei and Australia. Chinese corporations have led with investment dollars to secure their LNG import requirements. United States and European national energy champions are among the leaders in all future projected LNG export projects. As an investor in LNG export projects, Korea has made modest initiatives, principally in Oman. This is a step in the right direction and a credit to current and former leadership in government and Korean industry. But it is not enough.
Does Korea give up on natural gas and cede this clean and efficient energy supply to its neighbors and trading partners in China, Japan, the United States and India? Or should Korea make a characteristically decisive step towards achieving its own energy independence by proactively developing its own LNG supplies in the Asia-Pacific region and elsewhere?
Korea is the largest builder of LNG cargo ships. Korea is one of the leading fabricators of platforms and infrastructure products to the oil and gas industry generally. Korea has financial strength, and it has the business acumen to develop world-leading technology and automotive companies.
Surely, Korea can decisively enter the fray and develop its LNG resources in nations around the world where domestic energy demand cannot conceivably overtake energy export capacity.
The Korean government and Korea¡¯s financial and industrial leadership must take the initiative to own LNG production resources. It is in this way that Korea will remain the strong and independent nation we all expect it to be.
The writer is a member of board of directors of Korea Gas Corp.