Energy Security of South Korea: All comes down to relations with DPRK?

by Soojeon Shin

South Korea is the ninth-largest energy consumer based on 2014 data by EIA. The energy consumption has continued to increase in line with economic growth. It relies heavily on imports to meet 97% of its total primary energy consumption as a result of insufficient domestic resources. As it does not have yet international oil or natural gas pipelines, it relies exclusively on tanker shipments of LNG and crude oil which also contributed the nation to become one of the world’s top on shipbuilding industry. Due to climate issue such as high seasonal variations in the weather and the rainfall in Summer, the potential for hydroelectric power is limited. Most energy producers are government enterprises such as KEPCO, KOGAS, KDHC, and KNO. In addition, KNOC (Korea National Oil Corporation) is the largest entity in South Korea’s upstream sector. In the downstream sector, Korea boasts several large international oil companies including SK energy, which is the nation’s largest IOC (International Oil Company), GS Caltex, and S-Oil Corporation, as well as operating one of the largest and the most advanced oil refineries in the world. According to FGE (Facts Global Energy), the country exported about 1.1 million b/d of refined oil products in 2014, mostly in the form of middle distillates such as gasoil and jet fuel. As its economy heavily depends on exports, the economic situation and relationships to trading partners are significant.

According to EIA data from 2014, the nation consumed petroleum and other liquids places 39%, coal 31%, and natural gas 16%. The four main Middle East countries, Saudi Arabia, Kuwait, and UAE are the biggest trading partners on crude oil imports which accounted for more than 84% of oil imports. Regarding LNG imports, Korea relies on Qatar for 35%, Indonesia 14%, and Russia for the remaining 5%. In addition, South Korea imported 42% of its coal from Australia, 28% from Indonesia, and 14% from Russia.

In the Middle East: nuclear technology

As one of the major energy import partners, Korea tries to maintain a stable relationship in the Middle East. Recently, South Korea and Saudi Arabia agreed on SMART cooperation starting in 2017. SMART is a 330 MWt pressurized water reactor with integral steam generators. Korea, via technology transfer, will help Saudi Arabia to attract investment and employment opportunities as it localizes alternative energy industries and assure the importance of utilizing alternative sources of generating electricity.

 The Key to Including North Korea in Regional Cooperation: Engage Russia

In the later 19th century, the idea of Trans-Korean railway crossing linked from the Trans-Siberian was initiated. However, after the 1905 Russo-Japanese War, plans were suspended. In 2000, the idea was re-discussed by three nations, which is now called as the Rajin-Khasan Railway. Raijin is a city located in the north of North Korea, and Khasan in south-east part of Russia. Russian Railways has already invested US$ 300 million, making this project possibly the largest Russian commercial and political project with North Korean participation. According to Lyudmila Zakharova, a Korean expert from the RAS Institute of Far East Studies, South Korea’s strong reaction to its northern neighbor’s satellite launch and nuclear tests makes it clear that Seoul will not return to the project at least until 2018. Meanwhile, it is still regarded as an important and beneficial project to all of three participants. Russia would gain the viewpoint that the nation works not only with North Korea, but both Korean governments. In addition, through coal supplies via Rajin-Khasan, local consumers in South Korea could save up to 15% in transportation costs. Furthermore, maintaining a stable relationship with Russia does not only help stability of domestic imports, but also raises the possibility of holding Six Party Talks.

Maybe Russia is Not Enough… So Here Comes the United States

South Korea is the United States’ sixth-largest goods trading partner with a trillion-dollar economy. These two nations through Mutual Defense Treaty, KORUS FTA, and coordinating closely on the North Korean nuclear issue and the denuclearization of the Korean Peninsula, maints a comprehensive alliance that endures today. the nation supports a development of energy industry in the U.S. These two nations recently agreed on imports of higher amounts LNG from the U.S. starting in 2017. According to Mark Mills, a senior fellow at the Manhattan Institute think tank, “If you’re a buyer in, say, South Korea, and you’re offered the same price from Saudi Arabia, Russia and the U.S., you’re going to make the obvious choice: the U.S.,” “It’s the one supplier you know is never going to threaten you or cut off supplies, which is certainly not the case with Saudi Arabia, Russia or Iran.”

South Korea, where 97% of its total primary energy consumption relies on imports, has suffered from occasional shortages in electricity and gas due to country’s rapid economic growth which fastened an energy demand. Therefore, maintaining a stable relationship with energy exporting partners is a significant task in order to secure the country’s energy supply. Although South Korea recently increased the amounts of energy imports and investment from non-OPEC partners like the U.S. and Australia, still more than 80% of crude oil and 50% of gas are shipped from the Middle East partners. The country has progressed in several projects such as SMART Cooperation with Saudi Arabia, the Rajin-Khasan railway project with Russia, and increasing investment to the United States’s energy development. Its attempt is not only to support the country’s stable relationship with main trading partners but also to bring economic and political benefits for the future.

 

 

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