Northeast Asia Petroleum Forum 2009 Prospect of Korean Natural Gas Market Tokyo, 27 October 2009 Wonhee Han Senior Researcher
Contents Key features of Korean Natural Gas Market Issues on Government Policies Outlook for Natural Gas D/S Prospect of Korean Natural Gas Market 1
Total Primary Energy Supply Natural gas imported from 1986 aiming at diversifying energy source and improving air quality AAGR( 87-07) : TPES 6.6%, Coal 4.8%, Oil 6.5%, Natural Gas 15.0%, Nuclear 6.7% Million TOE 250 200 150 100 50 68 Renewables & Others Hydro Nuclear Natural Gas Oil Coal 127 116 104 93 82 75 137 150 165 181 166 181 193 198 209 215 220 229 233 243 14% 12% 11% 14% 15% 4% 8% 3% 11% 14% 44% 62% 60% 49% 43% 35% 20% 19% 24% 25% 100% 75% 50% 25% 0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Source : KEEI 1987 1992 1997 2002 2007 0% Prospect of Korean Natural Gas Market 2
Natural Gas Consumption Demand for power generation continued to grow while demand for residential use slowed down AAGR( 98-08 03-08) : City Gas 9% 5%, Power Generation 10% 11% Million Ton 30 25 20 Power Generation Transport Industrial Commercial Residential 43% 15 10 2% Year 2008 26 Million Ton (33 Bcm) 30% 5 17% 8% 1987 1990 1993 1996 1999 2002 2005 2008 Source : KOGAS Prospect of Korean Natural Gas Market 3
Natural Gas Demand Pattern On top of insufficient storage capacity, seasonality of gas demand threatens stable gas supply Relatively high monthly TDR requires large investments in further storage capacity expansion Monthly Natural Gas Consumption Monthly TDR* Million Ton 4 Power Generation City Gas 3 2 5 4 3 2 1 2000-06 2000-12 2001-06 2001-12 2002-06 2002-12 2003-06 2003-12 2004-06 2004-12 2005-06 2005-12 2006-06 2006-12 2007-06 2007-12 2008-06 2008-12 2009-06 1 0 1998 1999 City Gas Power Generation Total 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source : KEEI *TDR(Turn Down Ratio) = Max Monthly Consumption Min Monthly Consumption Prospect of Korean Natural Gas Market 4
Natural Gas Supply Korea relies heavily on mid-term and long term LNG imports for its natural gas supply Korea has been diversifying its LNG import sources for the better security of natural gas supply Natural Gas Supply in 2008 LNG Imports by Country 15% 18% 1% 67% MTPA 30 25 20 15 Others Egypt Australia Oman Qatar Brunei Malaysia Indonesia 6% 6% 2% 17% 32% 100% 50% 10 3% 23% Domestic Production 5 Long-term LNG Imports Mid-term LNG Imports Spot LNG Imports 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 11% Year 2008 0% Source : KOGAS Prospect of Korean Natural Gas Market 5
Structure of Natural Gas Market KOGAS Domestic Production Storage 30 City Gas Companies LNG Import Procurement Transmission Wholesale 5 KEPCO s Power GENCOs, 4 IPPs, 3 CESs Direct Importers (Posco, K-power) LNG Import Procurement Storage Own Use Prospect of Korean Natural Gas Market 6
Natural Gas Infrastructure National Pipeline Network Trunk line : 2,739 km Distribution line : 221,947 km As of June 2009 Incheon Pyeongtaek LNG LNG Samcheok LNG LNG Terminals Storage As of Dec. 2008 Send-out Boryong LNG Operator Start-up Capacity Capacity (1,000 m3, #) (billion m3 /yr) Donghae Gas field Incheon KOGAS Oct. 1996 2,680(19) 42.24 Pyeongtaek KOGAS Nov. 1986 1,560(14) 38.81 LNG LNG Tongyeong Kwangyang Tongyeong KOGAS Sep. 2002 1,680(12) 18.66 Kwangyang POSCO Jul. 2005 200(2) 2.30 Prospect of Korean Natural Gas Market 7
National Energy Policy New government established aggressive energy policy targets for low carbon green growth Such policies have a significant implication on future natural gas market if they are realized 1 st National Energy Basic Plan National Energy Mix : BAU vs Target Low Carbon Green Growth Realize low carbon & energy consumption Energy Intensity (TOE/$1,000 of GDP) ( 06) 0.347 ( 30) 0.185 Reduce dependence on fossil fuels Fossil fuel share in TPES(%) ( 06) 81.6 ( 30) 61.0 Foster green energy industries Investment of 111.5 trillion Won Enhance energy self-sufficiency and welfare Oil & gas self-sufficiency* (%) ( 06) 3.2 ( 30) 40.0 * Total equity volume of oil & gas production secured by Korean companies Annual import volume Million TOE 343 6% 300 20% 233 16% 200 Renewables 16% 14% Nuclear 34% 100 Natural Gas 45% Oil 25% Coal 24% 0 BAU 2006 2030 Source : 1 st National Energy Basic Plan, 2008 300 12% 28% 12% 33% 16% Target Prospect of Korean Natural Gas Market 8
Natural Gas Policy Natural gas policy has traditionally focused on ensuring the stable supply for economic growth The long-delayed gas competition legislation is now awaiting the National Assembly s vote Natural Gas Policy 1 st Phase Promotion of Competition Stable & Efficient Gas Supply Stable gas supply Diversify supply sources; ex) Russian PNG Expand further gas infrastructure Enhance gas self-sufficiency Promote city gas supply to remote areas Support low-income class Efficient gas market Phase-in competition; 1 st st Import/Wholesale for Power Generation Create open access system to supply facilities Facilitate direct imports for their own use Rationalize gas tariff system Establish fair competition regulatory system Direct Importers Storage NA Own Use Import/Wholesale Private OA Transmission Power Generation KOGAS KOGAS Storage City Gas Distribution Retail Prospect of Korean Natural Gas Market 9
Natural Gas Demand Forecast Demand forecasts vary due to economic recession, uncertain demand for power generation Demand for power generation is expected to slow down and to account for 24% in total by 2020 Comparison of Natural Gas Demand Natural Gas Demand by Use Million Ton 40 24% 100% 42% 41% 35 30 76% 50% 58% 59% 25 20 2008 2010 2012 2014 2016 2018 2020 Source : KEEI, KOGAS, Wood Mackenzie 9th Natural Gas Long-term D/S Plan 9th Natural Gas Long-term D/S Plan revised 1st National Energy Basic Plan - BAU Wood Mackenzie - Aug 2009 0% 2008 2014 2020 City Gas Power Generation Source : 9 th Natural Gas Long-term D/S Plan, 2008 Prospect of Korean Natural Gas Market 10
Natural Gas Supply Plan Korea is striving to secure LNG as well as PNG in the long run for stable & self-sufficient supply KOGAS is in talks with Gazprom to buy Russian gas in various forms including PNG, LNG, CNG Natural Gas Supply Outlook Russian Gas Supply Million Ton Russia Sakhalin Center Sakhalin Gas Fields 30 20 Komsomolsk Khabarovsk Existing 28 Pipeline Sakhalin II LNG Plant China 48 Pipeline 10 Russian Gas Supply New Players' Supply New Direct Importers' Supply New KOGAS LNG Supply Existing Direct Importers' Supply Exisitng KOGAS Supply Existing Planned 2008-09 2010-12 2013-15 Vladivostok 0 2008 2010 2012 2014 2016 2018 2020 LNG Plant Gas Chemical Plant Korea Prospect of Korean Natural Gas Market 11
Outlook for Natural Gas D/S Balance Korea is expected to face supply shortage during 2012-14 despite the uncertainty of gas demand It seems to be relatively easy to deal with it thanks to the unprecedented global LNG oversupply Million Ton 40 Natural Gas Demand Supply Balance Mid-term Supply Measures Short or Mid-term LNG contracts LNG Spot & Diversion Stockpiling 30 20 MTPA 350 300 250 200 World LNG D/S Balance Middle East Supply Capacity Atlantic Supply Capacity Asia-Pacific Supply Capacity World LNG Import Demand 10 0 Russian Gas Supply New LNG Supply Exisitng KOGAS Supply Wood Mackenzie - Aug 2009 9th Natural Gas Long-term D/S Plan 9th Natural Gas Long-term D/S Plan revised 2008 2010 2012 2014 2016 2018 2020 150 100 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source : Wood Mackenzie, August, 2009 Prospect of Korean Natural Gas Market 12
Summary Natural Gas, the fast-growing energy over the past two decades Contributed to energy security and environmental improvement Mostly imported in the form of LNG from diverse overseas sources New challenges to natural gas market; New aggressive energy policy targets for low carbon green growth Introduction of competition starting with import/wholesale for power generation sector Outlook for natural gas market Uncertain demand caused by economic recession & demand for power generation New strategic effort to secure stable & self-sufficient supply in the long run Gas supply shortage in the mid-term, but could be relatively easily coped with Prospect of Korean Natural Gas Market 13
Thank You!!! Q & A hanwonhe@kogas.re.kr Contact : report@tky.ieej.or.jp Prospect of Korean Natural Gas Market 14