11 June 2006
S. Korea steps up its quest for oil
For
decades, South Korea has completely depended on imported oil, 80 percent of which has been
supplied by Gulf and other Middle Eastern petroleum exporters. This, however, seems to be changing
now.
With the domestic consumption being on the rise and
skyrocketing oil prices hindering its economic growth
South Korea, the world’s fourth-largest
oil importer, has become as
highly concerned as China and India about securing and diversifying
energy supplies through
direct investments in overseas
energy projects.
In
the past two years, it
has launched what can be described
as its largest-ever quest for energy overseas. As a result, it is now
engaged in 82 oil and gas projects
in 24 countries around the
world, with a total of US$ 1.3 billion in investments. The figures are expected to increase by the end of this
year, owing to a fresh plan by the government to invest $900 million
more in the energy sector abroad.
The new strategy seems
to be working well. Evidence can be derived from
Seoul’s success in securing
more than 5 billion barrels of oil
abroad as of the end of 2005, according to a
report by South Korean analyst Kim Yoo-seung.
The quantity secured is “six times larger than
the country’s consumption of about 800 million barrels during the entire
year of 2004”.
Much of this is attributed to the efforts and efficiency of the nation’s leading
oil companies such as the state-owned
Korea National Oil Corp. (KNOC), private refiner SK Corp, and Daewoo International Corp. KNOC
is involved in 21 energy projects in 14 foreign countries, while SK Corp. is currently
exploring and developing oil in 19 fields in 12 countries. On the other hand, Daewoo is engaged in operating or developing
several oil and gas fields
in Myanmar, Peru, Oman, Russia,
and Vietnam.
Among South Korea’s most successful energy projects overseas is the development
of Vietnam’s 15-1 oil block, estimated
to contain 1.14 billion barrels, which
now produces 700,000
barrels a day. Other successes included the exploration of two offshore oil fields in Nigeria containing an estimated 2 billion
barrels, and an oil field in Russia holding an estimated 3.7 billion barrels.
Energy experts, however, argue that
South Korean oil firms may
not be able to continue such
successes in future due to the
fierce competition from the state-backed
Chinese and Indian companies. According to them, Seoul needs to extend continuous and full-fledged support to these firms and
to encourage them to merge into “a world-class major energy corporation”. This is an
important issue, given the involvement in oil projects abroad normally bears many risks, not to mention such projects do not pay off after a small amount of investments.
South Korean President Roh Moo-hyun’s tour of a number
of oil producing countries
in May, therefore, was viewed by many as a diplomatic effort aimed, among other things,
at facilitating the involvement of South Korean companies
in overseas energy projects and diversifying
the country’s petroleum import sources.
During Roh’s visit to the
UAE, South Korea’s second largest
oil supplier after Saudi Arabia, a memorandum of understanding on stockpiling Emirati oil in South Korea
was signed. According to the deal, South Korea will
rent out facilities for stocking UAE crude oil against considerable
fees, and will have a prior guarantee for purchasing the stockpiled crude. For the UAE, this is important too as it will
give the country a
marketing gateway to Northeast
Asia, one of the world’s fastest growing markets for oil consumption.
His visit to Azerbaijan,
on the other hand, resulted in an agreement under which KNOC would participate in the exploration of
the Inam oil block, estimated to contain 2 billion barrels of crude,
against the acquisition of 20
percent in the project or
an estimated 400 million barrels. With
this, Seoul has reinforced its position in
Central Asia, a region that has been witnessing fierce competition over its energy
resources in recent years. Seoul’s only other energy partner
in the region is Kazakhstan, where KNOC has obtained the exclusive right to
explore and develop two oil fields
and two gas
fields.
Roh’s
trip to the three oil-producing African states of Egypt, Nigeria, and Algeria, the first
of its kind since former president Chun Doo-hwan’s visit to Africa in 1982, was also in the line with the country’s
policy of securing more
deals for its oil and other companies.
Related to the topic is India’s proposal to South Korea for strategic gas swap arrangements. Seoul agreed last year to seriously consider the proposal,
which enables both countries to off-take gas supplies at points closer to them. For example, India can swap supplies from Russia’s
Sakhalin-1 block, which is closer to South Korea than to India,
with supplies contracted by
the latter from Sumatra, which is closer
to India than to Korea.
*Academic researcher and lecturer on Asian affairs