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Energy Cooperation and Energy Security: Korean Perspective

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Title: 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

14
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

27
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!
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