Thursday, January 5, 2012

South Korea natural gas needs lend opportunity for Alaska

Bob Tkacz
Alaska Journal of Commerce

SK Energy has opened 260 “recharging stations” like this one in South Seoul, since LPG and hybrid-powered cars and trucks arrived in Korea in 2009. LPG prices are posted in liter equivalents for convenient comparison to standard fuel costs. In this November 2010 photo LPG at 944 won per liter ($3.07 per US gallon). In November 2011 LPG at 1070 won (.925 cents/$3.49 per gallon) compared to $6.35/gallon for unleaded gasoline and $6.12 for diesel.

SK Energy has opened 260 “recharging stations” like this one in South Seoul, since LPG and hybrid-powered cars and trucks arrived in Korea in 2009. LPG prices are posted in liter equivalents for convenient comparison to standard fuel costs. In this November 2010 photo LPG at 944 won per liter ($3.07 per US gallon). In November 2011 LPG at 1070 won (.925 cents/$3.49 per gallon) compared to $6.35/gallon for unleaded gasoline and $6.12 for diesel.

Photo/Bob Tkacz/For the Journal

An unexpected increase in South Korea’s short-term natural gas demand, and uncertainties in the energy-poor country’s long-term supply outlook could open opportunities there for sales of Alaska’s clean energy.

While South Korea is making substantial investments in oil and gas from Canada, decision-makers in the Asian country lack information on what’s available from Alaska and state officials have made few, if any, attempts to open the market, according to Korean and U.S. officials there.

Officials said Alaska could improve its prospects for LNG sales to South Korea with some basic steps, some of which are already on the state’s agenda, but Alaska so far has made no toward that.

“We know very little so we did not include it in outlook and price projections,” for Alaska energy resources, said Jinwoo Kim, president and CEO of the Korea Energy Economics Institute, a government agency that tracks and projects Korean energy use and sources.

With virtually no domestic resources, energy is not only a necessity, but a national security issue in South Korea. With 48 million residents, it is the world’s tenth largest energy consumer, importing 97 percent of its energy.

“I do see that Korea will continue for a long time in the future to be the world’s second largest importer of natural gas (after Japan) and will stay that way for quite some time to come despite a lot of emphasis being done for renewable energies,” said Mark O’Grady, commercial attaché at the U.S. Embassy in Seoul.

Partly in response to President Lee Myung-bak’s “green growth/low carbon” initiative, as well as to climate change and oil market issues, South Korea has made dramatic changes in its energy supply and electrical power generation mix.

From 1981 to 2010, oil dropped from 58 percent to 40 percent of the country’s energy sourcing. As a fuel for electrical generation, oil has virtually disappeared, from nearly 80 percent in 1981 to less than 5 percent last year. Coal, including some imports from Alaska, fell slightly as a primary energy source to 29 percent from 33 percent over the same period, but remains an important fuel for electrical generation at 42 percent, up from 6 percent three decades ago.

Nuclear rose from nearly 2 percent to 12 percent of overall energy supplies during the same period and leapt from 7 percent of electrical generation to 31 percent last year. KEEI projections indicated it would generate nearly 60 percent of the South Korea’s electricity by 2030, but the Fukoshima Daiichi power plant disaster in Japan changed that.

“The Korean government has had a very aggressive nuclear expansion plan, but some other voices now coming from NGOs and other ordinary people to reconsider the nuclear expansion plan,” said Ki Joong Kim, the senior research fellow in KEEI’s oil and gas policy division. “If our government has to change their position on nuclear plant expansion then we might have more room to import LNG from other sources.”

Alternative energy now provides for 0.8 percent of Korea’s electrical. Projections call for an increase to 11 percent by 2030, but Jinwoo Kim called that a very optimistic expectation, which could further increase the demand for natural gas.

After nuclear power, natural gas has filled the gaps in Korea’s energy. From zero use in 1981 LNG accounted for 15.7 percent of the country’s energy supply and 20.4 percent of its electrical generation last year.

Korea’s natural gas demand was 31.2 million tons in 2010 and KEEI’s pre-Fukoshima projection showed an increase to 34.1 million tons by 2024. That included a short-term spike in gas use for electrical generation from 2014 to 2017 without, as yet, an identified supply.

The gas gap is projected to start closing in 2017, when a pipeline from Russia that would deliver 7 million tons of natural gas per year, but security questions over its route through North Korea continue to dog the project despite top level support from the South and Russia.

The agreement calls for negotiation, beginning in March, of a master project plan in time to start construction in 2013. South Korean critics continue to question the wisdom of handing North Korea a new tool to threaten the South.

The project schedule is still unclear.

“It’s not 100 percent sure yet. We just hope to start the construction work in the middle of 2013,” said Jinwoo Kim.

O’Grady noted that South Korea and Japan recently announced they have opened discussions to create an LNG “buying block.”

“I don’t know how far that will go, but recent media reports show that they just got through with initial discussions to try to figure out a way that they can harness the fact that they are the first and second biggest importers of LNG to work together to drive down the prices,” O’Grady said.

KEEI spokesmen said the world glut of natural gas allows buyers to demand more flexible terms from suppliers. Ki Joong Kim said U.S. gas could be a hedge against the uncertainty of the Russian project and that Gulf of Mexico producers have traditionally been “very flexible.”

He added that Alaska’s linkage of taxes on natural gas to its oil tax regime is a significant discouragement.

“If Alaskan gas wants to compete with Gulf area LNG, it must offer more flexible conditions,” Ki Joong Kim said.

Some Alaska legislative leaders have said decoupling the state’s oil and gas tax regimes should wait until shippers and TransCanada Corp. come to terms on the Alaska Pipeline Project.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/AJOC-January-8-2012/South-Korea-natural-gas-needs-lend-opportunity-for-Alaska/#ixzz1ifKTkyYH