This is the first post in a two part series on U.S.-Korea energy cooperation. The second part can be found here.
By Kim Heejip
The global energy market has been going through dynamic changes recently, unseen for many years. The recent price drop of oil and gas in the global market has been extremely rapid. Since November 27th, when the last OPEC meeting was held, the price of oil has dropped nearly 50 percent. These changes are posing new opportunities and threats to the global economy and markets. Equally, they provide a great opportunity to U.S. and Korea to generate mutual benefits through enhanced energy collaboration between the two countries.
There were two major drivers in North Asian energy market in 2014. They were 1) the shale oil and gas revolution in the U.S., resulting in an over-supply of oil and gas, and 2) the Russian efforts to extend their pipeline to the North Asia region increasing their energy exports, which have been reduced significantly in Europe due to their aggressive foreign policy efforts. Russia made an agreement in May with China on piped gas sales and the purchase of 28.5 million ton per year for 30 years starting from 2018.
Korea faces great opportunities in both oil and LNG (Liquefied Natural Gas) to diversify energy sources, decrease the energy import burden, select energy partners and eliminate the long-lived Asian energy premium. With the recent global price drop in oil and gas, global attention is growing on whether the U.S. government will ease their export restrictions and how the price of North American oil/gas will move. In addition, the U.S. and Korea have very strong long-term strategic ties through their firm geopolitical and defense partnership, trading and business partnership, and the recent FTA.
If the U.S. and Korea can work out more energy collaborations, the two countries will be able to achieve significant mutual benefits including increased security ties, enhanced economic benefits, and an improved trade balance. In doing so, the U.S. will be able to secure the access to the 5th largest and a continuously growing energy import market in the world. The U.S. will also be able to enhance domestic businesses and create more jobs, while establishing a strong presence in the growing Asia-Pacific area. Korea will be able to increase its national security by securing a safe energy route and economic benefits through the diversification of its energy import sources and a potentially reduced import cost.
The U.S. and Korea should make efforts to enhance their collaboration in energy. First, the U.S. and Korea should increase the export of U.S. oil and gas to Korea by utilizing the FTA between two countries. Second, Korea should make efforts to participate more in energy development efforts in the United States. Third, the U.S. and Korea should expand their collaboration beyond energy to energy-related manufacturing areas such as steel, shipbuilding, and engineering.
Kim Heejip is a Visiting Professor on Energy Policy with the Graduate School of Public Administration at Seoul National University and is the former managing director for Accenture Korea. The views expressed here are the author’s alone.
Photo from Shell’s photostream on flickr Creative Commons.