Tue, Jul 23 2024 23 July, 2024

South Korea’s Yoon Suk Yeol approves gas development but costs astronomical

South Korean President Yoon Suk Yeol continues to foresee oil and gas as an integral part of the country’s energy supply future, even as environmental groups in the country push back.

Storage tanks in Gwangyang port, South Korea (Photo: Adobe Stock/Igor Groshev)

On June 3rd, South Korean President Yoon Suk Yeol approved exploring for oil and gas off the country’s east coast, near the port city of Pohang, within the country’s 200-nautical mile exclusive economic zone.

Yoon said in a press briefing at the Yongsan presidential office that there’s a “very high” possibility that the deep sea area holds 14 billion barrels of oil and gas, with gas thought to represent about 75 percent and the rest oil.

He added that exploration will begin near the end of the year, with hopes of finding reserves by the first half of 2024. The 14 billion barrels, if confirmed, would be valued at US$1.4 trillion, five times the market capitalisation of Samsung Electronics, the Korean Economic Daily reported.

To put the possibility of tapping that much oil and gas into perspective, Yoon added that this would be more than 300 times the size of the East Sea gas field found in the late 1990s, adding that the country could use natural gas from the discovery for up to 29 years and the oil reserves for four years.

New East Sea gas could take pressure off of South Korea’s energy sector which has an overweighted reliance on imported oil and liquefied natural gas (LNG) to drive its highly industrialised economy. The country imports nearly 95 percent of its energy and natural resources needed for consumption.

South Korea is the world’s third largest LNG importer after China and Japan, taking in some 44.15 million tonnes (mt) of the super-cooled fuel in 2023, a drop of 2.2 million mt from the previous year. Despite a population of only 52 million people, South Korea also ranks as the world’s fourth largest crude oil importer. In 2023, it imported 1.06 billion barrels of crude oil, worth US$86 billion.

Slashing the cost of LNG imports

The addition of domestic gas reserves for South Korea’s power sector would help it save billions of dollars spent on often high-priced and market volatile oil and LNG imports. In 2021, South Korea spent US$135.9 billion on energy imports, equivalent to nearly 22.1 percent of total imports, according to government data. 

Developing this potentially vast oil and gas reserve could also save the country from a new, arguably misguided, LNG import terminal spending plan that has prompted criticism both within and outside of the country.

Despite having seven LNG import terminals, with a combined regasification capacity of around 153 mt per annum, the second largest in the world after Japan, along with 6.3 mt of LNG storage capacity, South Korea has earmarked as many as 11 more LNG import and storage terminals.

This plan, according to an Institute for Energy Economics and Financial Analysis (IEEFA) report, is unnecessary since existing South Korean LNG terminals have some of the lowest utilisation rates in the world.

This seemingly knee-jerk response to increase its LNG capacity is attributed to record-high LNG prices of around US$70 MMBtu in 2022. Prices for the fuel spiked after Russia invaded Ukraine then cut off most of its gas supply, with subsequent gas disruptions to Europe.

The IEEFA report estimated that South Korea’s new LNG import terminals could cost around US$8.7 billion. However, gas supply from South Korea’s East Sea could alleviate the need for these new LNG terminals, and save the country billions of dollars.

Environmental impact

Though South Korea could trim expensive LNG imports, scrap its LNG terminal development plans and forge a higher level of energy security by developing these potential resources, those benefits have to be weighed against what could be an even higher cost for the country – its environmental impact.

“This move threatens to unleash a carbon bomb, with potential emissions over seven times the country’s current annual greenhouse gas emissions,” Dongjae Oh, Oil and Gas Programme Head at Seoul-based Solutions for Our Climate, told Gas Outlook.

He added that the announcement directly contradicts South Korea’s latest electricity policy which aims to halve the country’s gas generation by 2038. “According to this policy, gas generation (78.1 TWh) must fall to a third of the renewable energy generation (230.8 TWh),” he said. “Expanding public investment in fossil fuels rather than renewable energy misaligns with the country’s own energy strategy.”

Developing East Sea gas reserves would also compromise South Korea’s commitment to the Global Methane Pledge (GMP) by significantly increasing annual methane emissions. At the COP26 climate summit in Glasgow in 2021, more than 150 countries signed the GMP – a voluntary framework calling on nations to collectively reduce emissions by 30 percent from 2020 levels by 2030. This could eliminate over 0.2˚ Celsius of global warming by 2050.

No guarantee of success

However, both government energy planners and environmental groups could have miscalculated since developing such a large oil and gas prospect may never come to fruition, according to some analysts.

Choi Kyung-sik, a professor of earth and environmental science at Seoul National University, told The Hankyoreh, a Seoul-based weekly magazine, that there’s no guarantee of success.

“The waters in the East Sea are deep, so we’re talking about the potential for costs to rise to astronomical levels. The [South Korean] president then personally announced the project, resulting in an even bigger optical illusion,” he said. “The development of natural resources is a long process. It takes years of experience and trial and error before projects are successful.”

“This project looks like it’s going to cost trillions of won,” he added. “Even if we fail, there still must be something in it for the people of Korea. It’s not just a matter of whether or not the state sponsors it.”