Energy Cooperation and Energy Energy Cooperation and Energy Security: Korean PerspectiveSecurity: Korean Perspective
Professor Ki-Ryun Choi,Professor Ki-Ryun Choi,
Ajou University, KoreaAjou University, Korea
prepared forprepared for 44thth MONDER Colloquium: MONDER Colloquium:
Martigny, January 9, 2006Martigny, January 9, 2006
2
ContentsContents
Energy Situations of KoreaEnergy Situations of Korea
Energy Security: A New AngleEnergy Security: A New Angle
Energy Security Measures of KoreaEnergy Security Measures of Korea
Significance of NEA Energy CooperationSignificance of NEA Energy Cooperation
NEA Energy Situations and CooperationNEA Energy Situations and Cooperation
North-South Korea Energy CooperationNorth-South Korea Energy Cooperation
3
Energy & Economic Growth of KoreaEnergy & Economic Growth of Korea
8.1%
10.0%
6.1%
4.7%
-6.9%
9.5%8.5%
3.8%
7.0%
3.1%
4.6%5.1%
1.1%
7.5%
9.3%
-8.1%
2.9%
5.2%
3.1% 2.4%
6.4%
9.3%
0.63
1.06
1.24
1.99
1.18
0.98
0.75 0.75 0.74
0.99
0.52
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
80~85 85~90 90~00 97 98 99 00 01 02 03 04
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
GDP Energy Consumption Energy/GDP Elasticity
4
Energy Consumption Trend by SourceEnergy Consumption Trend by Source
60.454.5 53.6 52 50.7 49.1 47.7 45.7
8.2
8.3 9.3 9.8 10.5 11.1 11.2 12.9
10.713.5 14.2 14.1 14.1 14.3 15.1 14.8
1.11.3 1.3 1.6 1.9 1.9 2.1 2.4
18.2 20.4 19.7 20.6 21.2 21.6 21.6 21.7
1.4 1.8 1.8 1.8 1.7 2 2.3 2.5
0%
20%
40%
60%
80%
100%
1997 1998 1999 2000 2001 2002 2003 2004
OthersBituminous CoalAnthracite CoalNuclearLNGPetroleum
5
Residential & Commercial
Energy Demand Projection by SectorEnergy Demand Projection by Sector
0%
10%
20%
30%
40%
50%
60%
Industry Transport Public & Others
2000
2010
202056.0
52.950.8
20.623.0
24.6
21.6
22.622.0
1.7 2.1 2.1
6
Energy Demand Projection by SourceEnergy Demand Projection by Source
42.961.5 62.6
100.3
123.7139.6
32.1
48.0
52.0
18.9
1.2
1.2
1.427.2
39.5
0
50
100
150
200
250
300
350
2000 2010 2020Year
Nuclear
Hydro
LNG
Petroleum
Coal
192.9
263.6
(Unit: Million TOE)
311.8
Oil dependency lessens Oil dependency lessens (52% in 2000 (52% in 2000 44.8% in 2020), but oil 44.8% in 2020), but oil will remain the most will remain the most important fuelimportant fuel
LNG demand is LNG demand is projected to grow by projected to grow by 5.4% between 5.4% between 2000~20102000~2010
Coal and nuclear are to Coal and nuclear are to grow steadily along grow steadily along with the electricity with the electricity demand growthdemand growth
7
Energy and GHG Emission Energy and GHG Emission
Energy-related COEnergy-related CO22 Emission Emission
Year 2000 2001 2002
CO2 Emission(MTC)
(Sectoral Approach)427.66 441.73 451.55
Per capita CO2(TC)
9.1 9.33 9.48
CO2/GDP(kg CO2 per 1995
US$)0.69 0.69 0.66
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SecuritySecurity Aspect of Korea Energy SupplyAspect of Korea Energy Supply
Energy demand: 220 million TOEEnergy demand: 220 million TOE Energy import : US$ 49.6 billionEnergy import : US$ 49.6 billion Korea ranks in the worldKorea ranks in the world
• No. 10 in energy demandNo. 10 in energy demand• No. 4 in oil importsNo. 4 in oil imports• No. 2 in coal and LNG importsNo. 2 in coal and LNG imports
High Import DependencyHigh Import Dependency• 1990 : 87.9% 1990 : 87.9% → 2004: 96.7% 2004: 96.7% (unit : %)
1980 1990 2000 2001 2002 2003 2004
Overseas Dependencyof Energy Supply
73.5 87.9 97.2 97.3 97.1 96.9 96.7
(Excluding Nuclear) 71.6 73.7 83.1 83.2 82.9 81.8 81.8Share of Oil in TPES 61.1 52 50.6 49.1 47.6 45.7Share of the Middle
East Oil Supply98.8 73.7 76.9 77 73.3 79.5 78.1
Share of EnergyImports to Total
Import Expenditure29.5 15.6 23.4 23.9 21.2 21.4 22.1
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Traditional Focus - Quantity RiskTraditional Focus - Quantity Risk• Political or Strategic Energy Supply DisruptionPolitical or Strategic Energy Supply Disruption
Price Risk + Quantity RiskPrice Risk + Quantity Risk• Short-term Supply Shortage Short-term Supply Shortage Price Shocks Price Shocks
Environmental Risk + Price Risk + Quantity RiskEnvironmental Risk + Price Risk + Quantity Risk• Economic Vulnerability to Environmental SanctionsEconomic Vulnerability to Environmental Sanctions
““Energy Security” - Stable, Cost-Effective and Energy Security” - Stable, Cost-Effective and Sustainable Supply of EnergySustainable Supply of Energy
• Set up an efficient and environment-friendly energy Set up an efficient and environment-friendly energy supply system + emergency preparedness + International supply system + emergency preparedness + International cooperationcooperation
Energy SecurityEnergy Security
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Energy Security: A New AngleEnergy Security: A New Angle
3 3 Dimensions of Energy SecurityDimensions of Energy Security• Energy Supply Security
– Traditional Concern of Securing Stable Energy Supply: import Traditional Concern of Securing Stable Energy Supply: import source and fuel diversification, contract flexibility, reliable source and fuel diversification, contract flexibility, reliable delivery routes & system, domestic infrastructure integrity, delivery routes & system, domestic infrastructure integrity, storage, participation in resource development, ...storage, participation in resource development, ...
• Energy Economic Security– Broader Perspective of Fortifying Economic Security from Broader Perspective of Fortifying Economic Security from
Energy Instability: reduce vulnerability to price volatility, Energy Instability: reduce vulnerability to price volatility, enhance energy efficiency, market liberalization, minimize enhance energy efficiency, market liberalization, minimize impacts from environmental issues, ...impacts from environmental issues, ...
• Energy for Security– Geopolitical Aspect of Energy: energy as a catalyst for Geopolitical Aspect of Energy: energy as a catalyst for
international economic cooperation, easing international tensionsinternational economic cooperation, easing international tensions
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Energy Security Measures of KoreaEnergy Security Measures of Korea Solidify the Basis of Energy Supply StabilitySolidify the Basis of Energy Supply Stability
• Oil StockpilingOil Stockpiling– Government stockpiling started in 1980 & private sector in 1992
• Enhance Natural Gas Supply StabilityEnhance Natural Gas Supply Stability– Long-term import contracts & expand supply infrastructure
• Enhance Electricity Supply StabilityEnhance Electricity Supply Stability– Construct power generation facility & prepare measures for electricity supply stability following the electric power industry restructuring
• Minimize Exposure to External Shocks Minimize Exposure to External Shocks – Fuel and import source diversification
• Encourage Energy Resource DevelopmentEncourage Energy Resource Development– Develop East Sea gas field and encourage participation in foreign resource development
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Streamline Energy Economic Foundation Streamline Energy Economic Foundation - “- “EfficientizationEfficientization” of the Energy Sector” of the Energy Sector
• Establish Environment-friendly Energy StructureEstablish Environment-friendly Energy Structure– Promote Energy Efficiency and Savings– Spread New and Renewable Energy– Expand Environment-friendly Energy Supply & Technology
• Liberalization of Energy IndustriesLiberalization 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 PricesEliminate Distortions in Energy Prices– Energy Price Reform being Implemented
Energy Security Measures of KoreaEnergy Security Measures of Korea
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Geopolitical Potentials of EnergyGeopolitical Potentials of Energy• Seed for Broader International Economic CooperationSeed for Broader International Economic Cooperation
– Northeast Asian Regional Energy Cooperation: easier to implement because of coinciding practical interests
• Reduce Political Tensions and Promote HarmonyReduce Political Tensions and Promote Harmony– Inter-Korean Dialogue of Energy and Economic Cooperation
– Development of European Coal and Steel Community after WWII to today’s European Union
• Consolidated Approach to International Energy TradeConsolidated Approach to International Energy Trade– East-West Asia Dialogue: Recognition of Economic
Interdependency– Strengthen Bargaining Power through Unified Voices
Energy Security Measures of KoreaEnergy Security Measures of Korea
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NEA( North-East Asian Region)NEA( North-East Asian Region) Energy Energy Cooperation: It’s ImplicationCooperation: It’s Implication
Korean PerspectivesKorean Perspectives• Strengthen Energy Supply SecurityStrengthen Energy Supply Security
– Import source & fuel diversificationImport source & fuel diversification– From isolated to continent-integrated energy systemFrom isolated to continent-integrated energy system
• Address Energy-Environment IssueAddress Energy-Environment Issue– Wider access to environment-friendly energyWider access to environment-friendly energy– Alleviate siting problemsAlleviate siting problems
• Cost-Effective Energy SupplyCost-Effective Energy Supply– Transport cost reduction due to adjacencyTransport cost reduction due to adjacency– Avoided costs on infrastructure investmentAvoided costs on infrastructure investment
• Catalyst for North-South Korea CooperationCatalyst for North-South Korea Cooperation
15
NEA Energy Security Threatening FactorsNEA Energy Security Threatening Factors
Rapid Growth of Energy DemandRapid Growth of Energy Demand• EIA forecast of annual growth rate for 1999~2020: EIA forecast of annual growth rate for 1999~2020: China 4.7%, South Korea 2.8%, World Average 2.2%China 4.7%, South Korea 2.8%, World Average 2.2%
Growing Dependency on OilGrowing Dependency on Oil • Oil becoming the leading primary energy in NE Asia Oil becoming the leading primary energy in NE Asia • Japan (2Japan (2ndnd largest consumer), China (3 largest consumer), China (3rdrd), South Korea (6), South Korea (6thth))
Increasing Import from Outside the RegionIncreasing Import from Outside the Region• 76% of NE Asia oil imports from the Middle East in 1999: 76% of NE Asia oil imports from the Middle East in 1999:
Japan (86%), S.Korea (72%), China (46% Japan (86%), S.Korea (72%), China (46% 79% in 2020) 79% in 2020) Vulnerability to Environmental IssuesVulnerability to Environmental Issues
• High dependency on coal (64% in China) and oil (S. Korea High dependency on coal (64% in China) and oil (S. Korea 51%, Japan 50%, China 30%)51%, Japan 50%, China 30%)
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Why NEA Energy Cooperation?Why NEA Energy Cooperation?
Economic BenefitsEconomic Benefits• Resource developmentResource development• Improvement in facility useImprovement in facility use• Spillover Effects: market liberalization, etc.Spillover Effects: market liberalization, etc.
Environmental BenefitsEnvironmental Benefits• Utilization of abundant environment-friendly energyUtilization of abundant environment-friendly energy
Emergency PreparednessEmergency Preparedness• Less vulnerable to factors outside the region Less vulnerable to factors outside the region • Enable emergency swap of energy supplyEnable emergency swap of energy supply
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Overview of Northeast AsiaOverview of Northeast Asia
A Diverse Mixture of Countries withA Diverse Mixture of Countries with• Different stages of economic developmentDifferent stages of economic development• Disparate political and social situationsDisparate political and social situations• Divergence in energy reservesDivergence in energy reserves
Comparison of the Northeast Asian Countries(2001)
Proven Recoverable Reserve (Mton)
Population (million)
1999 GDP per capita
(US$)
Land Area (1,000 km2)
Population Density (persons /km2) Coal Oil
Natural Gas
S. Korea 47.6 8,654 99.5 478 82 6
N. Korea 23.41 355 120.5 192 600
Japan 126.7 23,100 377.8 336 785 7 32
China 1,271.9 784 9,326.4 133 95,900 5,272 1,171
Mongolia 2.6 374 1,556.5 1.4 10,000
Russia 146.9 4,000 16,995.8 9 146,560 6,654 47,700
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Primary Energy Production/Consumption in NEA (2000)Primary Energy Production/Consumption in NEA (2000)
(Unit:Mtoe) Coal Oil NaturalGas Nuclear Hydro Total Self
Sufficiency
Production 2.2 - - 28.1 0.5 30.8S. Korea
Consumption 42.9 101.8 18.9 28.1 0.5 192.316.0 %
Production 2.1 0.7 2.2 82.5 7.9 95.4Japan
Consumption 98.9 253.5 68.6 82.5 7.9 511.318.7%
Production 498.0 162.3 25.0 4.3 19.0 708.6China
Consumption 480.1 226.9 22.3 4.3 19.0 752.694.2%
Production 502.3 163.0 27.2 114.9 27.4 834.83-countrytotal (3a) Consumption 621.9 582.2 109.8 114.9 27.4 1456.2
57.3%
Production 13.8 - - - 0.9* 14.7N. Korea
Consumption N/A N/A N/A N/A N/A N/A-
Production 3.3 - - - - 3.3Mongolia
Consumption N/A N/A N/A N/A N/A N/A-
Production 115.8 323.3 490.5 33.7 14.2 977.5Russia
Consumption 110.4 123.5 339.5 33.7 14.2 621.3-
Production 635.2 486.3 517.7 148.6 42.5 1,830.3NE AsiaTotal (a) Consumption 732.3 705.7 449.3 148.6 41.6 2,077.6
88.1%
Production 2,137.4 3,589.6 2,180.6 668.6 230.4 8,806.6World Total(b) Consumption 2,186.0 3,503.6 2,164.0 668.6 230.4 8,752.4
-
Production 23.5% 4.5% 1.2% 17.1% 11.8% 9.4%3-countryShare (3a /b) Consumption 28.4% 16.6% 5.0% 17.1% 11.8% 16.6%
Production 29.7% 13.5% 23.7% 22.2% 18.4% 20.8%NE AsiaShare (a/b) Consumption 33.5% 20.1% 20.8% 22.2% 18.1% 23.7%
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Long-term Outlooks of NEALong-term Outlooks of NEA
(Unit: Quadrillion Btu)
1999 2005 2010 2015 2020Average annual percentage
change (1999-2020)
S.Korea 7.3 9.2 10.3 11.8 13.2 2.8Japan 21.7 22.8 23.5 25.1 26.0 0.9China 32.0 43.2 55.3 69.1 84.1 4.7World 381.8 439.3 489.7 547.4 607.1 2.2
(Unit: Million TC)
1999 2005 2010 2015 2020Average annual percentage
change(1999-2020)
S. Korea 107 128 144 159 175 2.4Japan 307 324 330 342 353 0.7China 669 889 1,131 1,398 1,683 4.5World 6,091 7,015 7,835 8,773 9,762 2.3
Total Energy Consumption Forecast (EIA)Total Energy Consumption Forecast (EIA)
Carbon Dioxide Emission Forecast (EIA)Carbon Dioxide Emission Forecast (EIA)
20
Energy Cooperation SchemesEnergy Cooperation Schemes
Natural GasNatural Gas• Development & Trans-NEA Development & Trans-NEA
Pipeline Construction: Pipeline Construction: Irkutsk, Sakhalin, Yakustk...Irkutsk, Sakhalin, Yakustk...
ElectricityElectricity• Power Grid Interconnection & Power Grid Interconnection &
Power SwapPower Swap
OilOil• Joint Utilization of Storage Joint Utilization of Storage
Facility, Joint Transportation, Facility, Joint Transportation, & Joint Efforts to Correct the & Joint Efforts to Correct the “Asian Premium”“Asian Premium”
21
Prospective PNG ProjectsProspective PNG Projects
Okka
Pyunyang
Wonsan
Seoul
UlanbaartorKomsomolsk
Khavarovsk
Vladivostok
Yakutsk
Irkutsk
Beijing
Halbin
Changchun
Shenyang
Ulan-Ude
Chita
Balgovshchensk
Tynda
Krasnoyask
Surgut
Tianjin
SanDong
Shanghai
Urumqi
Tokyo
Nigata
Xi’an
22
Power Grid Interconnection ProspectPower Grid Interconnection Prospect
Tokyo
Shenyang
AmurIruktsk
Beijing
Mongol
China
Russia
Japan
N. Korea
S. Korea
Peace Network
E.Siberia-NEA Line
Hydro Power
Nuclear Power
Sakhalin
23
Political and Institutional ObstaclesPolitical and Institutional Obstacles• Relations among the countries within NEA & Inter-Korean Relations among the countries within NEA & Inter-Korean
tensiontension• Uncertainty in investment and market conditions, esp. in Uncertainty in investment and market conditions, esp. in
transitional economiestransitional economies
Economic ObstaclesEconomic Obstacles• Financing of huge investment costsFinancing of huge investment costs• Competition with other energy projects outside of NEACompetition with other energy projects outside of NEA
Geographical/Technological ObstaclesGeographical/Technological Obstacles• Technological difficulties in the tundra areaTechnological difficulties in the tundra area
Obstacles to NEA Energy CooperationObstacles to NEA Energy Cooperation
24
Implementation RequisitesImplementation Requisites
Dialogue for NEA CooperationDialogue for NEA Cooperation
• Address political & institutional concernsAddress political & institutional concerns– Investment protection treaties, Assurance of fiscal stability (tax, Investment protection treaties, Assurance of fiscal stability (tax,
tariff), Dispute settlement mechanism for resolving trans-tariff), Dispute settlement mechanism for resolving trans-boundary jurisdiction, Harmonization of technical standards, etc.boundary jurisdiction, Harmonization of technical standards, etc.
• Governmental, commercial & research Sector interchangeGovernmental, commercial & research Sector interchange– Senior Officials Meeting, Expert Forum, Business ForumSenior Officials Meeting, Expert Forum, Business Forum
An Institutional Vehicle for Infrastructure FinancingAn Institutional Vehicle for Infrastructure Financing• NEA Development Fund (Bank)NEA Development Fund (Bank)
– Finance infrastructure investment/economic development in NEAFinance infrastructure investment/economic development in NEA
– Mobilize international capital market for NEA infrastructure needsMobilize international capital market for NEA infrastructure needs
– Reduce investment risks with governments as its shareholdersReduce investment risks with governments as its shareholders
25
Stable North Korean Economy Solidifies NEA SecurityStable North Korean Economy Solidifies NEA Security• Resolving energy shortage is a prerequisite for economic boostResolving energy shortage is a prerequisite for economic boost
Mutually Beneficial Energy CooperationMutually Beneficial Energy Cooperation• Utilize comparative advantagesUtilize comparative advantages
– South(capital, technology) vs. North(labor, land)South(capital, technology) vs. North(labor, land)
Implications of North-South Korea Energy CooperationImplications of North-South Korea Energy Cooperation• Open up crossing gate of energy trade and system Open up crossing gate of energy trade and system
interconnectioninterconnection
• Induce foreign investment and stable political circumstancesInduce foreign investment and stable political circumstances
• Foster a market-oriented institutional transition in N. KoreaFoster a market-oriented institutional transition in N. Korea
North-South Korea Energy CooperationNorth-South Korea Energy Cooperation
26
Energy...Energy...
Gam-Sa-Ham-Ni-Da!
could be either the source of conflict, or a cooperative catalyst for could be either the source of conflict, or a cooperative catalyst for strong regional ties and peaceful coexistent prosperity!strong regional ties and peaceful coexistent prosperity!
Thank You Very Much!