Boston, MA -- (ReleaseWire) -- 03/14/2014 -- While there are efforts to stimulate upstream oil and gas activity, there is little to suggest that South Korea can develop significant resources, meaning the country is set to remain a key importer of crude and natural gas in liquefied form. The government is planning initiatives aimed at reducing oil and LNG consumption, though a safety scandal in the nuclear industry is driving demand of LNG imports to provide short-term cover for lost power generation.
The main trends and developments we highlight for the South Korean oil and gas sector are:
- The impact of the US's shale gas boom has been particularly felt by South Korea's petrochemical industry. This is one of the chief reasons for the government's push for greater Korean involvement in global shale gas developments, as it hopes that upstream asset control can allow for greater supply security and lower gas import prices.
- Korea has also made considerable efforts to modernise and upgrade its refining sector. The focus has been on expanding production of high margin products such as paraxylene, to become more competitive in the regional and global downstream sector.
- Scandals regarding bogus safety certificates in the nuclear sector have shut down three facilities while delayed a further three from being commissioned. The loss in power generation from nuclear is spurring higher demand for imports of LNG, with gas making up the difference. In 2013, LNG imports rose by 12.1%. In October 2013, the government announced that it would aim for 29% of power generation by 2030 to come from nuclear, versus a previous target of 41%.
- Given that South Korea produces negligible volumes of gas, additional demand will have to be met with imports and in the form of LNG, due to the absence of infrastructure in the country to support pipeline imports. This will further increase the country's LNG imports.
- There is considerable uncertainty with regard to import demand created from the scandal in the nuclear sector. Our base case scenario anticipates reduced demand for oil and we see import costs falling from a forecast US$95.7bn in 2014 to US$90.4bn in 2018. From 2017 we expect small demand increases to be counter-balanced by falling crude prices, leaving oil import costs relatively stable around US$90.4bn. As the second largest LNG importer, natural gas costs will remain high and rise slightly from a forecasted US$29.9bn in 2014 as Korea manages the difficulties in its nuclear power industry. We expect coal and nuclear to play a bigger role in the longer term, reducing LNG imports to US$26.6bn in 2018.
- Korea's upstream sector maintains its bleak outlook, with no positive developments in oil or gas prospecting seen in 2014. The country's only producing gas field Donghae-1 is expected to be largely depleted by 2017 and could be converted into a storage facility.
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