By Troy Stangarone
Every three years, the World Energy Congress brings together business and government leaders in the energy sector to discuss the challenges an economically vibrant and growing global economy faces as it works to meet increasing energy demands. This year’s conference in Daegu recently wrapped up and focused on the theme of “Securing Tomorrow’s Energy Today”.
For Korea, a nation with few natural domestic energy reserves of its own, the prospect of securing tomorrow’s energy today is important as it moves towards greening its economy and spuring innovation. The Lee Myung-bak Administration made the idea of “Green Growth” an important part of its policy agenda, and Daegu was selected to host the 22nd World Energy Congress at the beginning of its drive to make Korea more of a global player.
As part of the push for green growth, 80 percent of the Korean government’s stimulus package during the 2008 Global Financial Crisis was dedicated to green growth and a subsequent $85 billion was committed in 2009 to the development of clean energy technology. Some of the most visible outcomes from Korea’s commitment to green growth have been the establishment of the Global Green Growth Institute in Seoul as an international organization, Korea’s selection to by the United Nations to host the Green Climate Fund, and this year’s World Energy Congress.
The vision of Korea’s economic and energy future might look something like the following commentary from the Donga Ilbo:
A man goes to work in a hydrogen fuel cell electric vehicle in the morning. He turned on an air conditioner at home with electricity that he stored in energy storage systems (ESS) last night. His company has no worries about electricity bills because it has its own photovoltaic power generator. He does not even remember the power crises which repeatedly happened in summer and winter. All buildings can check the real-time demand of electricity so that power generators can control the production and supply of power real-time. The surplus electricity is exported to other countries.
However, getting there will be the challenge. While Korea is one of the world’s great economic success stories, its economic development has been built upon a foundation of imported energy. According to the World Energy Council (WEC), Korea has dropped ten spots to 64 on its Energy Sustainability Index. One reason is Korea’s heavy dependence on imported energy from unstable regions, with almost 90 percent of its oil coming from inside the Strait of Hormuz. In the WEC’s index, Korea only ranks 103 when it comes to energy security.
In the past, one way that Korea addressed this issue is through the development of nuclear power. However, in the aftermath of the Fukashima disaster in Japan there has been a greater reticence to expand nuclear power generation worldwide, with some countries such as Germany completely phasing it out. While Korea is not planning on shuttering its nuclear power plants, the second draft of the government’s new long-term energy plan calls for maintaining the current level of nuclear power generation, the first time that the national energy plan has not called for an increase in 35 years.
While the green and renewable energy sources may one day be the solution to Korea’s energy needs, in the more immediate future one solution could be the importation of shale gas from North America. The importation of U.S. shale gas would have a series of benefits for Korea, including a more geopolitically stable supplier than the Middle East and a lower carbon emission than coal and oil.
The biggest advantage, however, could be price. Because gas has traditionally been traded regionally, prices vary across regions with no set worldwide price. This means that Korea, one of the world’s largest importers of liquefied natural gas (LNG), pays a much higher rate than domestic consumers in the United States.
As the United States gears up to become a major exporter of LNG, Korea could benefit significantly from U.S. LNG exports in two ways. First, as a U.S. FTA partner, Korea does not need the same approvals for the purchase of U.S. shale gas as other non-FTA partners. The need to develop export facilities, of which Korea is taking part, and transportation costs will drive the price for Korea beyond that typically seen in the United States, $3-4 per million British thermal units. Yet, Korea could still save significantly from the $15-16 per million British thermal units it currently pays. Second, if U.S. LNG becomes widely traded, it could help drive down and unify worldwide prices, while also giving Korea additional negotiating leverage with other potential suppliers such as Russia.
Over the last four decades, Korea’s energy consumption has grown along with its economic development. More recently, efforts at improving efficiency and nuclear power generation have helped to reduce Korea’s foreign dependence, but much as the broader shift taking place in Korea’s economy we may be seeing the beginning of a shift in the composition of Korea’s energy consumption.
Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are his alone.
Photo from UNKIEPAUL/Paul Johnston’s photostream on flickr Creative Commons.