Asia Pacific Energy Research Centre

South Korea’s Energy Strategies and Prospects

Asian Energy Security and Implications for the U.S.Seattle, 28 – 29 Sept 2004

Yonghun JUNG Ph.D.Vice President

Asia Pacific Energy Research Centre

Jung 2

Outline of PresentationEnergy Demand and Supply of Korea

Drivers for Energy DemandOutlook of Total Primary Energy DemandCrude Oil Supply SourcesEnergy Seasonality

Energy Efficiency ImprovementImportance of Nuclear Power GenerationKEDORegional Cooperation

Pipeline Gas ProjectsPower Interconnection Projects

Summary of Korea’s Energy Situation and ProspectsImplications to the U.S.

Jung 3

Characteristics of Energy Demand and Supply, and Energy Policy in Korea

DemandStrong demand for industry, transport and residential and commercial

sectorsSeasonal differences in peak demand

Peak demand for electricity falls on summer, while that of gas comes in winter.

SupplyVery few domestic energy sources

High import dependency (Oil: the world 4th importer, LNG & Coal: 2nd )

Short-term orientationEconomics first rather than security (high reliance on Saudi)

PolicyPopulous policy

No full privatization of KEPCO and KOGAS is insight.Strong opposition from labor union

Jung 4

Key Energy Indicators of Korea

The world’s 10th largest energy consumerLittle indigenous energy resources ⇒ dependence on overseas 97%

(Oil: the world 4th importer, LNG & Coal: 2nd )Put influence on global energy supply market and cargo prices

Unit 1980 1990 2002 1980-1990 1990-2002Real GDP (1995 Prices) Billion USD 149 342 680 8.7% 5.9%Population Million 38 43 48 1.2% 0.9%Total Primary Energy Demand Mtoe 41.4 92.7 203.5 8.4% 6.8%Oil Dependence Share in Total 65% 54% 50%Energy Intensity toe/million USD 278 271 299 -0.2% 0.8%Energy per capita toe/person 1.1 2.2 4.2 7.1% 5.8%

Annual Growth Rate

Source: APERC Analysis (2004), based on data from EDMC database, IEA (2004), “Energy Balances of OECD Countries” and World Bank (2004), “World Development Indicators”

Jung 5

Drivers for Energy Demand (1999-2020): Indexes of Macro Variables

Source: APERC Analysis (2004), based on data from DRI-WEFA (2001)

Strong growth for non-energy intensive industries and energy intensive industries

0.02.0

4.06.08.0

10.0

12.014.016.0

18.020.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Inde

xes

(198

0=1)

Real GDPPopulationValue Added for Energy Intensive IndustriesValue Added for Non-Energy Intensive IndustriesValue Added for Services

Korean Air Effect

Jung 6

Industry Structure: Share of Value Added for Industries

10%

10% 10%

11%

9% 9%

14%

9% 8% 11%7% 6%

23%

21%14%

30%

27%

16%

32%

26%18%

41%

23% 20%

54%

66%73%

49%

62%

73%

48%

63%72%

47%

69% 73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Kore a Japan USA Kor e a Japan USA Kore a Japan USA Kor e a Japan USA

Agriculture Energy Intens ive Industries Non-Energy Intens ive Industries Services

1980 1990 1999 2020

Source: APERC Analysis (2004), based on data from DRI-WEFA (2001)

Jung 7

Total Primary Energy Demand of Korea

Source: APERC (2002), “APEC Energy Demand and Supply Outlook”. EIA(2004), “International Energy Outlook”, and IEA(2002), “World Energy Outlook”

0

50

100

150

200

250

300

350

400

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Mto

e

TPED (History) IEA Outlook EIA Outlook APERC Outlook

Outlook (1999 – 2020)

APERC EIA IEA1999-2010 4.0% 3.0% 3.6%2010-2020 2.8% 3.5% 2.3%

1971-1980: 10.4% p.a.

1980-1990: 8.4% p.a.

1990-1999: 7.6% p.a. Average Annual Growth Rate

Jung 8

Outlook of Total Primary Energy Demand

-20

-10

0

10

20

30

40

50

60

70

80

Coal Oil GasM

toe

Power and heat generation Other

Industry Transport

Commercial Residential

Growth by Fuel Type and Sector

0

50

100

150

200

250

300

350

400

1999 2005 2010 2015 2020

Mto

e

Coal Oil Gas Hydro Nuclear NRE

TPED by Fuel Type

Source: APERC (2002), “APEC Energy Demand and Supply Outlook”

Jung 9

Income and Energy Demand (1980-2020)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000

GDP per capita (1990 US$)

toe per capita

Japan Korea Northeast Asia China Russia APEC USA

Russia

AverageNortheast Asia*

APECChina

Korea

Japan

1980

1999

2005

2010

20152020

1980

2020

1995

USA

2020

1980

Source: APERC (2002), “APEC Energy Demand and Supply Outlook”

Jung 10

Crude Import Dependences on the Middle East

44%

25% 29%20%

14%

30%16%

0%

21%

0%

37%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Korea China Japan USA

IndonesiaCanadaKuwaitRussiaLibiaUKMexicoNigeriaVenezuelaNorwayUAEIranSaudi Arabia

High reliance on the Middle East

Source: World Oil Trade, Blackwell Energy Research

Jung 11

Energy Price Trends: Natural Gas

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

January-00

March-00May-0

0July-00

September-00

November-0

0Jan

uary-01March-01

May-01

July-01

September-01

November-0

1Jan

uary-02March-02

May-02

July-02

September-02

November-0

2Jan

uary-03March-03

May-03

July-03

September-03

November-0

3Jan

uary-04

USD

/MM

BTU

Henry Hub, La. LNG Import Prices into EuropeLNG Import Price to Japan LNG Import Price to KoreaLNG Import Price to US

Source: APERC Analysis (2004), based on data from EDMC database

Jung 12

Korea’s Energy Seasonality

South Korea: LNG Seasonality

0

5

10

15

20

25

30

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec

1999 2000 2001

MM

tpa

-- an

nual

rate

TotalCity gasElectricity Generation

Source: David Nissen (2002), “Flexibility in LNG Trade”, A Paper Presented at APERC Annual Conference in 2002

Jung 13

Efforts to Improve Energy Efficiency

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Ener

gy In

tens

ity (t

oe/to

n)

KoreaJapanUSAUKGermanyChina

China

KoreaJapan USA

Germany

UK

Inter-country comparison of energy intensity for iron and steel industry highlights Korea’s strong improvements in energy efficiency.

Source: APERC Analysis (2004), based on data from EDMC/IEEJ (2004) “EDMC database” and IEA (2004), “Energy Balances of OECD and Non-OECD Countries”

Jung 14

Nuclear Power Generation

Role of nuclear as to enhance energy securityIn 2002, Nuclear accounted for 15% of TPED, and 36% of total electricity generation output.

Onsite storage will be full by 2008

To secure new repository site,Government awaits for the application from local provinces

Bu-An prefecture is likely to apply for the new siteHowever …

Jung 15

Governor of Bu-An Prefecture

Jung 16

KEDO (Korean Peninsula Energy Development Organization) ProjectObjective

KEDO was established in 1995 to implement the agreed framework between the United States and North Korea, under which North Korea will freeze and dismantle its existing nuclear program. In exchange, KEDO agrees to offer alternative energy sources:

Construction of 2 nuclear power units (1000MW*2, LWR) that follows international safety standardsSupply heavy fuel oil (500,000 ton) for heating and power plant

by the time the 1st nuclear unit starts operation

Participating CountriesExecutive members (EU, Japan, Korea and US) and 9 countries.

Current StatusDue to the North Korea’s violation to the agreed framework, KEDO

has been suspending;heavy fuel oil supply, andconstruction of nuclear power plant.

Jung 17

Regional Cooperation

Inter-governmental cooperationThe APEC Energy Working Group on “Energy Security

Initiative”

The ASEAN + 3 “Osaka Initiative” and “Manila Declaration”

Private sector cooperationKorea East and West Power Corp and Tohoku Electric Power

Corp. (Dec. 2002)

Cooperation on Coal Procurement

Korea Gas Corporation and Tohoku Electric Corp (May 2003)

Emergency Preparedness for LNG Supply Disruption

LNG tanker swap

Jung 18

Irkutsk

ChinaKorea Japan

Russia

Mongolia

Beijing●

●

●

Krasnoyarsk●

Yakutsk

●●

Yuzhno Sakhalinsk

●

●

Khabarovsk

Vladivostok

Shenyang●

Seoul

Shanghai●

Tarim

Plan for Gas Projects in NE Asia

Source: Korea Gas Corporation

Jung 19

1

6

5

3

2

4

MONGOLIA

RUSSIA

CHINA JAPANJAPAN

Sea of Japan

Sea of Okhotsk

SapporoSapporo

TokyoTokyo

Beijing

SeoulPyongyang

KoreaKoreaDPRKDPRK

East China SeaShanghai

Shenyang

ChangchunHarbin

Ulan Bator

Irkutsk Chita

Khabarovsk

Bratsk

Buryatia

Uchur

BureyaSakhalin

Island

Plan for Power Interconnection Projects in NE Asia

Source: Podkovalnikov (2002)

Jung 20

Summary of Korea’s Energy SituationConventional fuel will maintain dominant share.

Share by energy type (2020): Coal 20%, Oil 49%, Natural Gas: 12%, Nuclear: 15% and NRE 1%Robust energy demand growth is expected.

Transportation sector to lead oil demand, and power sector to lead coal and natural gas demand.Nuclear expansion – hurdles lying ahead

Government plans to install additional 9 units by 2015, but hurdles are lying ahead. → repository issue and difficulty for siting Kyoto Protocol

Ratified Kyoto Protocol in November 2002

Potential for regional cooperationStill lingering regional rivalry: “Nationalism”

Financing projects for North Korea

Jung 21

Implications for the U.S.US has and will have vital interests in energy markets for Korea and Northeast Asia.

Trade volume with Northeast Asia is on the rise.China, Japan and Korea are among the top 10 trading partners with US.

Russian Far East: West Coast ConnectorPotential for LNG and oil from Sakhalin II to USA

Exposure of US firms to Northeast Asia offers greater business opportunity.

Funding sources from US-lead private banks, export credit agencies, international lending institutions could be extended to projects in Northeast Asia.

US firms could generate value added in this growing market.

Jung 22

For your refreshment …

Source: Korean Air (2004)

Jung 23

Korea’s population growth is stabilized.

Source: Korean Air (2004)