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