Energy Cooperation and Energy Security: Korean Perspective

1
Energy Cooperation and Energy Security Korean
Perspective

• Professor Sang-Gon LEE, Ph.D.
• Korea Energy Economics Institute
• prepared for
• Energy Cooperation in Northeast Asia
• Directions and Implementation
• Seoul, October 18, 2002

2
Contents

• Energy Situations of Korea
• Energy Security A New Angle
• Energy Security Measures of Korea
• Significance of NEA Energy Cooperation
• NEA Energy Situations and Cooperation
• North-South Korea Energy Cooperation

3
Energy Economic Growth of Korea
4
Energy Consumption Trend by Source
5
Energy Demand Projection by Sector
60
50
40
56.0
52.9
50.8
30
20
24.6
22.6
23.0
22.0
20.6
21.6
10
2.1
2.1
1.7
0
Residential Commercial
Industry
Transport
Public Others
6
Energy Demand Projection by Source
(Unit Million TOE)

• Oil dependency lessens (52 in 2000 ? 44.8 in
  2020), but oil will remain the most important fuel

311.8
263.6
192.9

• LNG demand is projected to grow by 5.4 between
  20002010

• Coal and nuclear are to grow steadily along with
  the electricity demand growth

7
Energy and GHG Emission Projection
Energy-related CO2 Emission
8
Security Aspect of Korea Energy Supply

• Energy demand 198.4 million TOE
• Energy import US 37.6 billion
• Korea ranks in the world
• No. 10 in energy demand
• No. 4 in oil imports
• No. 2 in coal and LNG imports
• High Import Dependency
• 1990 87.9 ? 2001 97.3

(unit )
9
Energy Security

• Traditional Focus - Quantity Risk
• Political or Strategic Energy Supply Disruption
• Price Risk Quantity Risk
• Short-term Supply Shortage ? Price Shocks
• Environmental Risk Price Risk Quantity Risk
• Economic Vulnerability to Environmental Sanctions
  
• Energy Security - Stable, Cost-Effective and
  Sustainable Supply of Energy
• Set up an efficient and environment-friendly
  energy supply system emergency preparedness
  International cooperation

10
Energy Security A New Angle

• 3 Dimensions of Energy Security
• Energy Supply Security
• Traditional Concern of Securing Stable Energy
  Supply import source and fuel diversification,
  contract flexibility, reliable delivery routes
  system, domestic infrastructure integrity,
  storage, participation in resource development,
  ...
• Energy Economic Security
• Broader Perspective of Fortifying Economic
  Security from Energy Instability reduce
  vulnerability to price volatility, enhance energy
  efficiency, market liberalization, minimize
  impacts from environmental issues, ...
• Energy for Security
• Geopolitical Aspect of Energy energy as a
  catalyst for international economic cooperation,
  easing international tensions

11
Energy Security Measures of Korea

• Solidify the Basis of Energy Supply Stability
• Oil Stockpiling
• Government stockpiling started in 1980 private
  sector in 1992
• Enhance Natural Gas Supply Stability
• Long-term import contracts expand supply
  infrastructure
• Enhance Electricity Supply Stability
• Construct power generation facility prepare
  measures for electricity supply stability
  following the electric power industry
  restructuring
• Minimize Exposure to External Shocks
• Fuel and import source diversification
• Encourage Energy Resource Development
• Develop East Sea gas field and encourage
  participation in foreign resource development

12
Energy Security Measures of Korea

• Streamline Energy Economic Foundation
• - Efficientization of the Energy Sector
• Establish Environment-friendly Energy Structure
• Promote Energy Efficiency and Savings
• Spread New and Renewable Energy
• Expand Environment-friendly Energy Supply
  Technology
• Liberalization of Energy Industries
• Deregulation of Domestic Oil Price, Elimination
  of Entry Barriers to Oil Industry
  Rationalization of Coal Industry
• Electric Power Industry Restructuring in Progress
• Gas Industry Restructuring being Pursued
• Eliminate Distortions in Energy Prices
• Energy Price Reform being Implemented

13
Energy Security Measures of Korea

• Geopolitical Potentials of Energy
• Seed for Broader International Economic
  Cooperation
• Northeast Asian Regional Energy Cooperation
  easier to implement because of coinciding
  practical interests
• Reduce Political Tensions and Promote Harmony
• Inter-Korean Dialogue of Energy and Economic
  Cooperation
• Development of European Coal and Steel Community
  after WWII to todays European Union
• Consolidated Approach to International Energy
  Trade
• East-West Asia Dialogue Recognition of Economic
  Interdependency
• Strengthen Bargaining Power through Unified Voices

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Why NEA Energy Cooperation?

• Korean Perspectives
• Strengthen Energy Supply Security
• Import source fuel diversification
• From isolated to continent-integrated energy
  system
• Address Energy-Environment Issue
• Wider access to environment-friendly energy
• Alleviate siting problems
• Cost-Effective Energy Supply
• Transport cost reduction due to adjacency
• Avoided costs on infrastructure investment
• Catalyst for North-South Korea Cooperation

15
NEA Energy Security Threatening Factors

• Rapid Growth of Energy Demand
• EIA forecast of annual growth rate for 19992020
  
• China 4.7, South Korea 2.8, World Average
  2.2
• Growing Dependency on Oil
• Oil becoming the leading primary energy in NE
  Asia
• Japan (2nd largest consumer), China (3rd), South
  Korea (6th)
• Increasing Import from Outside the Region
• 76 of NE Asia oil imports from the Middle East
  in 1999 Japan (86), S.Korea (72), China (46 ?
  79 in 2020)
• Vulnerability to Environmental Issues
• High dependency on coal (64 in China) and oil
  (S. Korea 51, Japan 50, China 30)

16
Why NEA Energy Cooperation?

• Economic Benefits
• Resource development
• Improvement in facility use
• Spillover Effects market liberalization, etc.
• Environmental Benefits
• Utilization of abundant environment-friendly
  energy
• Emergency Preparedness
• Less vulnerable to factors outside the region
• Enable emergency swap of energy supply

17
Overview of Northeast Asia

• A Diverse Mixture of Countries with
• Different stages of economic development
• Disparate political and social situations
• Divergence in energy reserves

18
Primary Energy Production/Consumption in NEA
19
Long-term Outlooks of NEA

• Total Energy Consumption Forecast (EIA)

• Carbon Dioxide Emission Forecast (EIA)

20
Energy Cooperation Schemes

• Natural Gas
• Development Trans-NEA Pipeline Construction
  Irkutsk, Sakhalin, Yakustk...
• Electricity
• Power Grid Interconnection Power Swap
• Oil
• Joint Utilization of Storage Facility, Joint
  Transportation, Joint Efforts to Correct the
  Asian Premium

21
Prospective PNG Projects
22
Power Grid Interconnection Prospect
23
Obstacles to NEA Energy Cooperation

• Political and Institutional Obstacles
• Relations among the countries within NEA
  Inter-Korean tension
• Uncertainty in investment and market conditions,
  esp. in transitional economies
• Economic Obstacles
• Financing of huge investment costs
• Competition with other energy projects outside of
  NEA
• Geographical/Technological Obstacles
• Technological difficulties in the tundra area

24
Implementation Requisites

• Dialogue for NEA Cooperation
• Address political institutional concerns
• Investment protection treaties, Assurance of
  fiscal stability (tax, tariff), Dispute
  settlement mechanism for resolving trans-boundary
  jurisdiction, Harmonization of technical
  standards, etc.
• Governmental, commercial research Sector
  interchange
• Senior Officials Meeting, Expert Forum, Business
  Forum
• An Institutional Vehicle for Infrastructure
  Financing
• NEA Development Fund (Bank)
• Finance infrastructure investment/economic
  development in NEA
• Mobilize international capital market for NEA
  infrastructure needs
• Reduce investment risks with governments as its
  shareholders

25
North-South Korea Energy Cooperation

• Stable North Korean Economy Solidifies NEA
  Security
• Resolving energy shortage is a prerequisite for
  economic boost
• Mutually Beneficial Energy Cooperation
• Utilize comparative advantages
• South(capital, technology) vs. North(labor, land)
• Implications of North-South Korea Energy
  Cooperation
• Open up crossing gate of energy trade and system
  interconnection
• Induce foreign investment and stable political
  circumstances
• Foster a market-oriented institutional transition
  in N. Korea

26
Recent Development in North Korea

• Economic Changes in North Korea
• Currency Wage Reform - Introduction of
  market-Based Elements
• Sinuiju Special Administrative Region - Readies
  Capitalism entry
• Toward Reconciliation and Cooperation
• Reconnecting severed railways/roads between the
  North and South
• Started clearing mines in DMZ
• Agreed construction of industrial complex in
  Gaesung
• Reconciliation with Japan
• Participation in Busan Asian Games
• Possible resumption of US-N.Korea Talk
• Recent revived interests in NEA Development Bank
  as a solution for financing problem
• ? A positive sign for economic and energy
  cooperation,
• and for the prospect of peace and security
  for NEA

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Concluding Remarks

• NE Asian Energy Cooperation for Energy Security
• Less import dependency from outside the region
• Cost-effective supply due to area adjacency
• Abundance of environment-friendly energy
• Improvement in facility use
• Facilitate market liberalization
• Obstacles can be superseded by practical
  interests
• Interests of Nations are increasingly moving
  towards the same direction
• Much to be done requires concerted efforts

28
Energy...
could be either the source of conflict,
or a cooperative catalyst for strong regional
ties and peaceful coexistent prosperity!
Thank You Very Much!
Gam-Sa-Ham-Ni-Da!