korea energy demand outlook (volume 17, no.3) · 2020-04-04 · keei korea energy demand outlook 4...

2 KOREA ENERGY ECONOMICS INSTITUTE

KEEI Korea Energy Demand Outlook

- Director of research Kim, Cheol-hyeon ([email protected])

- Primary energy/Electricity/Conversion Kim, Cheol-hyeon ([email protected])

- Oil Lee, Seung-moon ([email protected])

- Coal/Town gas/Thermal energy Lee, Sang-youl ([email protected])

- Material/Research support Nam, Bo-ra ([email protected])

- Statistical support Lee, Bo-hye ([email protected]) ＊ If you have any further inquiries, please contact via email ([email protected]) or

phone (+82-52-714-2102).

Energy Demand Outlook by Korea Energy Economics Institute (KEEI) takes a closer look at

the global energy market and the supply and demand trends of domestic energy, along

with the outlook for short-term energy demand.

This report features the recent changes in the supply and demand of energy in an effort

to contribute to the establishment and adjustment of a series of energy policies by the

government with the provision of major tables and policy implications.

This report is written by the Energy Demand and Supply Division of the Center for Energy

Information and Statistics in cooperation with the Energy Statistics Research Division of

KEEI and other related research divisions.

Contents

Energy Demand Outlook, Fall Issue, 2015 3

Subject Contents

Summary................................................................................................................................................ 4

Table of Contents for Titles

1. Trends of Energy Consumption......................................................................................................... 7

2. Energy Demand Outlook ................................................................................................................. 10

3. Major Features and Significance ..................................................................................................... 14

Table of Contents for Tables

<Table 1> Comparison of Changes in Major Assumptions.................................................................. 15

Table of Contents for Figure

Figure 1. Trends of Recent Economy and Total Energy Consumption .................................................. 7

Figure 2. Trends of Increase Rate in Total Energy Consumption .......................................................... 9

Figure 3. Trends of Increase Rate in Final Energy Consumption by Sector ......................................... 10

Figure 4. Trends and Outlook of Economic Growth and Total Energy ................................................ 10

Figure 5. Energy Intensity and Per Capita Energy Consumption after 2005 ....................................... 11

Figure 6. Total Energy by Source of Energy in 2014 and 2016 (Percentage) ...................................... 13

Figure 7. Increase in Demand and Increase Rate of Source of Energy and Final Energy by Sector in 2015 and 2016.. 14

Figure 8. Growth Rate of Final Energy and Contributions to Growth by Sector ................................. 15



Summary

Trends of Energy Consumption

□ Total energy consumption in the first half of 2015 recorded 141.5 million Ton of Oil Equivalent (TOE) – an increase of about 0.8 percent on a year-on-year basis.

o Although the consumption of oil increased because of plummeting oil prices, the growth rate of total energy was dampened by depressed production activities due to the economic slowdown.

□ By energy source, the consumption of coals and oil increased, whereas that of natural gas declined dramatically.

o Oil (increased 2.5 percent): due to plunging oil prices, oil consumption by the transportation sector increased remarkably and consumption of naphtha increased with the rising margins of naphtha-ethylene.

o Coals (increased 2.5 percent): consumption of coals for industrial uses declined due to deteriorated production activities particularly in the iron and steel industry, but consumption of coals for generation increased considerably with new generation facilities.

o Natural gas (decreased 5.8 percent): due to increase in the number of base load power plants, consumption of natural gas for generation reduced drastically. Also, consumption of city gas declined with the weakened price competitiveness.

o Nuclear power (increased 0.7 percent): consumption slightly increased with the resumption of operations of some nuclear power plants.

o Electricity (increased 1.8 percent): consumption of electricity for residential and commercial uses has recovered due to the base effect and colder winter conditions compared to last year. On the contrary, consumption of electricity for industrial uses stayed stagnant due to slowdown in the overall industrial activities.

□ Final energy consumption, even if it has declined in the industry sector, increased 0.7 percent at 107.9 million TOE on a year-on-year basis, thanks to an increase in consumption in transportation and buildings.

o Industry (decreased 1.1 percent): both feedstock and fuel energy decreased due to a slump in the overall industry.

o Transportation (increased 6.1 percent): consumption increased in all petroleum products due to falling oil prices.

o Buildings (increased 1.8 percent): consumption of electricity increased as the base effect and consumption of oil went up resulting from falling oil prices.

Summary


Energy Demand Outlook

□ Total energy demand is expected to be 285.3 million TOE (an increase of 1.3 percent) and 293.9 million TOE (an increase of 3.0 percent) in 2015 and 2016, respectively.

o In 2016, the recovery of domestic economy is expected to put the total energy demand on a par with economic growth.

※ Domestic economic growth (percentage): 2.3 percent (2012) à 2.9 percent (2013) à 3.3 percent (2014) à 2.6 percent (end of 2015) à 3.0 percent (end of 2016)

□ By energy source, demand for oil, coals, and nuclear power generation increased, while natural gas will continue to decline.

o Oil (2.4 percent in 2015, 2.0 percent in 2016): naphtha and transport fuels are expected to lead the growing demand.

o Coals (3.2 percent, 10.1 percent): consumption of coals for industrial uses is expected to slow down, while consumption of coals for generation is projected to rise remarkably.

o Natural gas (-5.0 percent, -12.3 percent): declining demand for city gas will slow down, while consumption of power generation will worsen further.

o Nuclear power (2.6 percent, 8.4 percent): resumption of operations of some nuclear power plants and the introduction of new nuclear power plants are expected to propel the consumption.

o Electricity (2.0 percent, 2.5 percent): electricity for residential and commercial uses will lead the consumption in 2015, while industrial electricity usage is expected to be the main driver in 2016.

□ Consumption of final energy is expected to grow 0.8 percent and 1.6 percent in 2015 and 2016, respectively.

o Industry (-0.7 percent, 1.6 percent): due to the slowdown in industrial activities particularly in the iron and steel industry, consumption will decrease in 2015 compared to last year, but it will grow in 2016 as the economy recovers.

o Transportation (5.3 percent, 2.3 percent): even amid the outbreak of Middle East Respiratory Syndrome (MERS) in 2015, a drop in oil prices was attributable to a significant increase in consumption, but the rise may slow down as the effect of falling oil prices is expected to diminish in 2016.

o Buildings (1.6 percent, 1.0 percent): consumption got back on track thanks to increasing demand for air-conditioning and heating and the base effect in 2015, but the upward trend is forecasted to slow down as the base effect deteriorates in 2016.



Major Features and Significance

□ In 2016, demand for energy in the industry sector will convert from a downward to an upward trend, and consumption of coals and nuclear power generation is expected to increase by a large margin.

o In 2015, due to a drop in oil prices, consumption by the transportation sector will drive the increase in the consumption of final energy, but in 2016, as a result of economic recovery, the industry sector is anticipated to lead the increase in consumption.

o Consumption of coals and nuclear power generation will increase 10.1 percent and 8.4 percent, respectively, through the expansion of base load power plants in 2016, serving as driving forces for the increasing demand.

□ In 2016, the decoupling between energy consumption and economic growth will be relaxed.

o In 2016, with the increasing consumption of energy in the industry sector thanks to economic recovery in addition to a sharp increase in the demand for coals for generation with the establishment of large-scale bituminous coal-fired generation facilities, it is expected that energy consumption will grow similarly to economic growth.

□ With declining reliability over clean diesel engine, penetration of diesel cars has slowed down. Thus, consumption by transportation of gasoline is anticipated to increase faster than that of diesel in 2016.

o The fallout from the global Volkswagen emission scandal is serving as a hindrance to the expansion of diesel cars (e.g. weakened fuel efficiency when tabling diesel engine and strengthened regulations).

□ Flexible policies, in response to sudden changes in the supply and demand of natural gas, are needed.

o Due to the expansion of base load power plants and a gradual increase in electricity consumption, natural gas demand for power generation will drop significantly.

o A plunge in oil prices is attributable to the weakened price competitiveness of city gas, turning around the continued replacement of gas into oil in the industry sector.

o Although demand for natural gas has dropped remarkably, most of the natural gas are on long-term contracts, raising the possibility that the burden of costs will increase in the future.

o Considering the changes in recent supply and demand of gas, it is necessary to come up with reasonable, rational policies related to natural gas.

1. Trends of Energy Consumption



□ Total energy consumption, in comparison to the same period in the first half of 2015, was 141.5 million TOE with a slight increase of 0.8 percent.

o Although oil consumption increased thanks to plunging oil prices, total energy consumption showed a marginal increase due to sluggish economy.

- Index of mining and manufacturing industrial products declined three months in a row on a year-on-year basis, but the growth rate of gross domestic product has decreased consistently since the first quarter of 2014.

- Index of mining and manufacturing industrial products has remained stagnant since the second quarter of 2012 on a year-on-year basis; thus, total energy consumption continues to maintain a level lower than that of economic growth.

- Due to the slowdown in industrial production activities, weakened impact from the expansion of facilities in the iron, steel, and petrochemical sectors from 2010 to 2011, modification of the conversion standard of energy volume (2012), a drastic drop in the consumption of nuclear power generation prompted by the suspension of operations of some nuclear power plants (2013), and a sharp decline in both cooling and heating degree days (2014) are indicated as major factors behind a decline in the growth of total energy consumption.

Figure 1. Trends of Recent Economy and Total Energy Consumption

* Comparison in gap on a year-on-year basis (Index)



o When feedstock energy – non-energy oil and bituminous coals for iron-making – is excluded, total energy consumption increases 1.3 percent on a year-on-year basis, showing the fastest growth rate since 2012.

- Non-energy oil, including naphtha, increased 1.3 percent on a year-on-year basis, but consumption of bituminous coals for iron-making plunged 3.8 percent, dropping feedstock energy to 0.6 percent.

- Feedstock energy accounted for 27.9 percent in the first half of 2015, dropping 0.4 percentage point on a year-on-year basis (28.3 percent).

- Due to plunging oil prices, consumption of oil for transportation increased considerably by 5.9 percent.

□ Consumption of oil, coals, and nuclear power generation increased, but natural gas (LNG) consumption continues to decline.

o In terms of oil consumption, low oil prices are attributable to a significant increase in the consumption of products for transportation (5.9 percent), and thanks to increasing margins of naphtha and ethylene and the expansion of ethylene-related facilities, consumption of naphtha increased 2.5 percent on a year-on-year basis.

o Consumption of coals for industrial uses declined due to a slump in the iron and steel industry (2.7 percent), but it increased 2.5 percent on a year-on-year basis with an increase in the consumption of coals for generation (6.1 percent) with the establishment of new generation facilities.

o Consumption of natural gas decreased dramatically (9.3 percent) due to the expansion of base load power plants. Also, consumption of city gas decreased (3.8 percent) due to weakening price competitiveness resulting from plunging oil prices, dropping 5.8 percent on a year-on-year basis.

o Regarding nuclear power generation, the Shin-Gori Reactor No. 2, Hanbit Reactor No. 3, and Wolsung Reactor No. 1 resumed operations in April and June,1 but due to the base effect led by a high increase rate (14.3 percent) on a year-on-year basis, it ended up increasing marginally by 0.7 percent.

o In terms of total energy consumption by energy source, oil (37.7 percent) took first place, followed by coals (29.9 percent), natural gas (16.8 percent), and nuclear power generation (11.7 percent), in the first half of 2015.

1 Shingori Reactor No.2 suspended its operations in February 2014 for a regular examination, but resumed its operations in

April 2015. Hanbik Reactor No. 3 resumed its operations in June 2015 after a regular examination in October 2014. The operation of Wolsung Reactor No. 1 came to a halt in November 2012 due to the termination of operation permit, but resumed operating after the extension of its 10-year operation permit.



Figure 2. Trends of Increase Rate in Total Energy Consumption

□ Final energy consumption, albeit a decline in the industrial sector, increased 0.7 percent on a year-on-year basis with growing consumption in transportation and buildings.

o Energy consumption in industry decreased 1.1 percent on a year-on-year basis with declining consumption of feedstock and fuel energy.

- With the decreasing consumption of bituminous coals for iron-making, consumption of feedstock energy, albeit growing consumption of naphtha, decreased 0.6 percent. Consumption of energy for fuel uses declined 1.9 percent because of a slump in electricity consumption and diminishing consumption of bituminous coals in the cement industry.

- Due to economic recession and a fall in oil prices, consumption of city gas plummeted nearly 13.6 percent.

o Energy consumption in transportation increased 6.1 percent on a year-on-year basis as a result of plunging oil prices.

- Even with the outbreak of MERS, low oil prices contributed to a drastic increase in the consumption of diesel and gasoline by 7.5 percent and 4.3 percent, respectively. On the contrary, consumption of LPG decreased approximately 2.1 percent.

- Jet fuel and crude oil, used for flight and shipping, showed an increase of 10.3 percent and 16.8 percent, respectively.

o Energy consumption in buildings increased 1.8 percent on a year-on-year basis with the recovery of electricity consumption and a sharp rise in oil consumption.

- Consumption of city gas declined 2.9 percent on a year-on-year basis, but consumption of electricity and oil increased by 2.9 percent and 11.0 percent, respectively.

- In terms of electricity, energy consumption of buildings increased 2.9 percent compared to the previous year due to an increase in heating degree days, whereas consumption of industrial uses slowed down especially in the iron, steel, and petrochemical industry (0.9 percent), increasing 1.8 percent on a year-on-year basis.



Figure 3. Trends of Increase Rate in Final Energy Consumption by Sector

* Buildings indicate the consumption of energy for residential, commercial, and public uses.

2. Energy Demand Outlook

□ Total energy demand is expected to be 285.3 million TOE (an increase of 1.3 percent) and 293.9 million TOE (an increase of 3.0 percent) in 2015 and 2016, respectively.

o Even if oil prices were low in 2015, the demand for total energy is expected to increase by a small margin due to prolonged economic recession.

o However, in 2016, with low energy prices and the recovery of local economy particularly in the domestic market, total energy consumption is expected to rise to equal the level of economic growth.

- Due to growing demand for electricity and the drastic expansion of coal-related facilities, the increase in total energy demand has outpaced that of final energy demand.

Figure 4. Trends and Outlook of Economic Growth and Total Energy



□ The increase in energy intensity will slow down in 2016, whereas per capita energy consumption will continue to be on the rise.

o Energy intensity (TOE/ KRW one million) will increase 1.3 percent in 2015, but economic growth and total energy consumption will show a similar trend in 2016, maintaining an equivalent level as the previous year.

- Energy intensity has aggravated in the wake of global financial meltdown, but has shown a sign of abating since 2012, but its pace of improvement is anticipated to stay stagnant in 2016.

o Per capita energy consumption will reach 5.6 TOE and 5.8 TOE in 2015 and 2016, respectively, showing an upward trend from 2007 on a continuous basis.

Figure 5. Energy Intensity and Per Capita Energy Consumption after 2005

□ Coals and nuclear power will play a major role in increasing the energy consumption, but the demand for natural gas is expected to decline significantly.

o Consumption of coals, even amid declining consumption of industrial uses, is projected to increase 3.2 percent and 10.1 percent in 2015 and 2016, respectively.

- By the end of 2016, a total of nine reactors, including the Dangjin Reactors No. 9 and 10, Bukpyeong Reactors No. 1 and 2, and Samcheok Reactors No.1 and 2 will resume their operations with 7.7 GW-scale new bituminous coal-fired generation facilities, expecting to increase the consumption of total coals in the double digits.

o Generation of nuclear power plants, with the resumption of operations of some nuclear power plants and the introduction of new nuclear power plants, will increase 2.6 percent and 8.4 percent in 2015 and 2016, respectively.



- In 2015, with the resumption of operations of the Shingori Reactor No. 2, Hanbit Reactor No. 3, and Wolsung No. 1, and the establishment of the Shinwolsung Reactor No. 2, a size of 1 GW,2 the amount of nuclear power generated will increase.

- The Shingori Reactors No. 3 and 4, a size of 2.8 GW, if their operations are resumed as scheduled,3 the generation of nuclear power will considerably increase in 2016.

o In the case of demand for natural gas, due to declining demand for power generation, it is expected to decrease to 5 percent and 12.3 percent in 2015 and 2016, respectively.

- Thanks to the expansion of coals and nuclear power facilities in 2015 and 2016, the usage rate of LNG combined cycle power, which recorded around 60 percent in 2013, is expected to fall dramatically in 2015 (below 40 percent) and 2016 (below 30 percent).

- In the case of demand for city gas, with a slight recovery of industrial and heating uses – from a decrease of 6.8 percent in 2015 to a decrease of 1.3 percent in 2016 – the drastic drop is forecasted to be abated; however, it seems incapable of alleviating the decline in demand for natural gas.

- Oil, serving as a major factor in the growing demand for naphtha and transport fuels, is expected to increase 2.4 percent and 2.0 percent in 2015 and 2016, respectively.

- In 2016, low oil prices will continue, but with the mitigation of plunge in oil prices, the increase rate of naphtha consumption will drop from 3.7 percent in 2015 to 2.1 percent in 2016. Also, consumption of transport fuels is anticipated to slow down from 5.2 percent in 2015 to 2.2 percent in 2016.

o Therefore, for consumption by energy source in 2016, coals and nuclear power will increase, while natural gas will be on the decline.

- Compared to 2014, the proportion of coals and nuclear power is anticipated to increase 3.2 percentage points as a result of their rapid growth, whereas that of natural gas will decline 3.4 percentage points.

- The proportion of oil has consistently decreased to 37.3 percent in 2014, but due to drastic drop in oil prices, it is expected to increase 0.4 percentage point in 2015. However, in 2016, due to a relative increase in the proportion of coals and nuclear power, that of oil will decline.

2 Established in July 2015. 3 The construction of the Shingori Reactor No. 3 (March 2016) and Shingori Reactor No. 4 (May 2016) is scheduled (Korea

Electric Power Corporation, KEPCO).



Figure 6. Total Energy by Source of Energy in 2014 and 2016 (Percentage)

□ Final energy consumption is expected to be 214.6 million TOE (an increase of 0.8 percent) and 218.1 million TOE (an increase of 1.6 percent) in 2015 and 2016, respectively.

o Demand for energy in the industry sector will decline 0.7 percent in 2015 compared to last year because of the slowdown in the iron and steel industry in particular. However, economic recovery may serve as an impetus to transition to an upward trend (1.6 percent) in 2016.

- Fuel energy consumption in 2015, albeit an increase in the consumption of naphtha, will plunge to 3.9 percent with a decline in the consumption of bituminous coals for iron-making. However, in 2016, it is projected to increase 1.7 percent as the consumption of bituminous coals for iron-making shows a gradual change.

- Consumption of energy for heating will decrease to 1.2 percent in 2015, but it is expected to increase 1.6 percent thanks to the recovery of electricity consumption in 2016.

Transportation, due to a sudden decline in oil prices, will increase 5.3 percent in 2015, but if the plunging oil prices become less impactful in 2016, the increase rate will slow down 2.3 percent.

- Even amid the outbreak of Middle East Respiratory Syndrome (MERS), with a dramatic drop in oil prices, starting from the second half of 2014, energy consumption in transportation will increase considerably in 2015.

- The fall in oil prices will still continue in 2016, but consumption is expected to slow down with lessening consequences as time passes by.

o Energy consumption in buildings, thanks to the growing demand for air-conditioning and heating coupled with the base effect, will recover slightly in 2015 (1.6 percent), but the upward trend will slow down with the weakening of base effect (1.0 percent) in 2016.

- Electricity, which accounts for the largest proportion of energy consumption in buildings, will increase nearly 3.0 percent in 2015 due to the effect of temperature, but the growing trend will slow down with a slight increase of 2.0 percent in 2016.

- A decline in the consumption of city gas in buildings will be eased, but low oil prices will replace the consumption of city gas to oil, keeping the consumption of city gas at a low level.



o For electricity, the consumption in building will increase 2.0 percent in 2015 and the demand by the industrial sector is projected to increase 2.5 percent in 2016 as its contributions to growth recover.

- However, in 2015, the base effect of low electricity consumption in 2014, temporary reduction of electricity charges for housing in summer, and increase in the cooling and heating degree days will increase the electricity consumption especially in buildings.

- In 2016, the demand by the industrial sector will increase as the economy rebounds, but its increase may pale in comparison to economic growth.

Figure 7. Increase in Demand and Increase Rate of Source of Energy and Final Energy by Sector in 2015 and 2016

3. Major Features and Significance

□ Total energy consumption in 2015 will be adjusted lower than the previous forecast (Summer Issue, 2015) by 1.2 percentage points.

o The downward adjustment of economic growth and the weakening energy consumption are reflected in the overall results.

- Economic growth declined for five consecutive quarters, leading to the fall of yearly growth rate in 2015 about 0.4 percentage point compared to the previous forecast.

- Due to weakened production activities, energy consumption by the industry sector in the first half of 2015 declined 1.1 percent on a year-on-year basis.

- Consumption during heating degree days decreased compared to the previous forecast with the addition of performance between June and August, whereas consumption during cooling degree days increased.



- An annual average rate of crude oil prices (based on Dubai crude oil) declined UDS 4.8 per barrel compared to the previous forecast.

Table 1. Comparison of Changes in Major Assumptions

2015

Gap

2015/Summer 2015/Fall Economic growth (percentage)

3.0 2.6 0.4 ▼

Crude oil prices (USD/bbl) 60.2 55.4 4.8 ▼ Heating degree days 2 588 2 573 15.0▼ Cooling degree days 798 832 33.6▲

□ In 2016, demand for energy in the industry sector will convert to an upward trend, and consumption of coals and nuclear power is expected to increase by a large margin.

o In 2015, due to plummeting oil prices, consumption by the transportation sector is forecasted to drive the increase in final energy consumption, but in 2016, economic recovery will be attributable to the rising consumption led by the industry sector.

- The final energy contribution in transportation, due to a sharp decline in oil prices, will increase considerably in 2015, but it is likely to decrease by 0.4 percentage point if oil prices continue to decline in 2016.

Figure 8. Growth Rate of Final Energy and Contributions to Growth by Sector

- The industry sector, which continued to contribute to the growing energy consumption, except for the period of global financial crisis, decreased 0.4 percentage point in 2015, but is expected to bounce back in 2016 as the economy gets back on track.

- The final energy contribution of buildings, which showed a negative growth due to mild weather conditions in the previous year, is expected to turn positive from 2015.



o Consumption of coals and nuclear power, with the expansion of base load power plants, will increase 10.1 percent, 8.4 percent, respectively in 2016 compared to last year, serving as driving forces behind the increase in total energy consumption.

- The amount of bituminous coal-fired generation facilities is expected to increase from 25.9 GW in the first half of 2015 to 33.6 GW at the end of 2016, increasing roughly 29.6 percent.

- The amount generated from nuclear power generation facilities, if the Shingori Reactors No. 3 and 4 are built as scheduled, is expected to increase from 20.7 GW in the first half of 2015 to 24.5 GW at the end of 2016, rising about 18.3 percent.

- Accordingly, the proportion of base load power plants involving coals and nuclear power will expand from 50 percent in the first half of 2015 to 54 percent in 2016.

□ In 2016, the decoupling between energy consumption and economic growth will be relaxed.

o The decoupling between energy consumption and economic growth, which has exacerbated since 2012, will be somewhat relaxed in 2016, enabling energy consumption to grow similarly to economic growth.

- The government’s sanctions on the use of energy, expansion in the number of high energy efficiency devices, measures to address climate change, and modification of the conversion standard of energy volume have triggered the decoupling phenomenon since 2012.

- In other words, economic growth, between 2012 and 2014, increased from 2.3 percent to 3.3 percent, whereas energy consumption decreased from 0.7 percent to 0.5 percent.

- However, economic growth will increase 3.0 percent in 2016 compared to the previous year and energy consumption (3.0 percent) will show a similar trend.

o In 2016, the coupling phenomenon between energy consumption and economic growth will take place with the growing consumption of energy in the industry sector driven by economic recovery and a sharp increase in the demand for coals for generation with the establishment of large-scale, bituminous coal-fired generation facilities.

□ With the weakening reliability on clean diesel engine, the penetration of diesel cars has slowed down. Thus, consumption by transportation of gasoline is anticipated to increase faster than that of diesel in 2016. For the past three years, the number of registered diesel cars has increased nearly three-fold compared to that of gasoline cars, facilitating the consumption of diesel for transportation to outpace that of gasoline.

- From 2011 to 2014, the number of diesel cars increased an average of 5.8 percent annually, but that of gasoline cars increased only 2.0 percent.

o The fallout from the global Volkswagen emission scandal is serving as a hindrance to the expansion of diesel cars (e.g. weakened fuel efficiency when tabling diesel engine and strengthened regulations). Therefore, consumption by transportation of gasoline is expected to outpace that of diesel in 2016.



□ Flexible policies, in response to sudden changes in the supply and demand of natural gas, are needed.

o Due to the expansion of base load power plants and a gradual increase in electricity consumption, natural gas demand for power generation has dropped considerably.

- With a sharp rise in the volume of bituminous coals and nuclear power generation facilities, consumption of natural gas is expected to decrease by a large margin.

- Natural gas demand for power generation increased 10.6 percent in 2013 compared to last year, but will continue to decline 6.0 percent and 27.1 percent in 2015 and 2016, respectively.

o Due to plunging oil prices, the price competitiveness of city gas has weakened, turning around the continued replacement of gas into oil in the industry sector.

- With a full-fledged fall in oil prices since 2014, consumption of fuels for industrial uses has transitioned from city gas to oil.

- Accordingly, the proportion of city gas for industrial uses has continuously decreased after reaching the peak of about 56.6 percent in 2013. It is expected to record 52.0 percent and 50.7 percent in 2015 and 2016, respectively.

o Although demand for natural gas has dropped dramatically, most of the natural gas are on long-term contracts, raising the possibility that the burden of costs will increase in the future.

o Considering the characteristics of the Take or Pay (TOP) long-term contracts4 in which a certain amount should be adopted compulsorily every year, inefficiency may arise when the demand for LNG drops to a great extent.

o Considering the changes in recent supply and demand of gas, it is necessary to come up with reasonable, rational policies related to natural gas.

- As a purchaser-oriented market is set to emerge with the increasing number of gas sources worldwide,5 it is essential to set up a gas adoption strategy that takes full advantage of better negotiation skills. Not only that, it is necessary to formulate a policy regarding the non-differential and equitable use of gas pipe facilities by fostering direct adoption by private agencies.

- In an effort to address uncertainties in the demand for gas for generation, it is all the more important to eliminate the Destination Clause,6 a clause relevant to long-term contracts which is deemed unreasonable, and adopt highly flexible LNG polices.

4 Take or Pay (TOP) is a rule structuring negotiations between companies and their suppliers. With this kind of contract, the

company either takes the product from the supplier or pays the supplier a penalty. 5 South Korea is set to import the shale gas produced in the U.S. as part of the Sabine Pass LNG Export Project from 2017. 6 It is a territorial sales restriction clause of gas contracts, including liquefied natural gas (LNG). According to this clause,

importing countries are banned from selling it to other countries even if the supply of LNG exceeds.

KEEI Korea Energy Demand Outlook (Volume 17 No. 3)

Printed in Fall 2015

Issued in Fall 2015

CEO of publisher: Park Joo-heon

Publisher: Korea Energy Economics Institute

405-11, Jongga-ro, Jung-gu, Ulsan, Korea, 44543

Phone: (052)714-2270, Fax: (052)714-2025

Registration: No. 8 on December 7, 1992

Printed by: Bumshinsa (052)245-8737

ⓒ Korea Energy Economic Institute 2015

korea energy demand outlook (volume 17, no.3) · 2020-04-04 · keei korea energy demand outlook 4...

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