South Korea will seek to import more shale gas-based LNG from North America to meet rising power demand amid tighter environmental regulations, the deputy energy minister told Platts Friday.
"Natural gas as a source of power generation needs to be increased to reduce consumption of coal [that is] blamed for greenhouse gas emissions. But at stake is its costs, [which are] much higher than coal-based electricity production," said Kim Jun-Dong, deputy minister of energy and resources policy at the Ministry of Trade, Industry and Energy.
"In this sense, South Korea needs shale gas [produced from LNG] from North America as much as possible," Kim told Platts on the sidelines of a press briefing over a ministerial meeting on clean energy to be held next week in Seoul.
"Import costs from the US are likely to be lower than those of LNG from the Middle East. The US shale gas boom is expected to bring down South Korea's LNG import costs," he said, noting that South Korea is paying higher prices for LNG from the Middle East under the "Asian premium."
South Korea, the world's second-biggest LNG importer, mostly buys LNG through long-term contracts with Middle Eastern, Southeast Asian and Australian producers at prices linked to oil. Long-term contracts usually keep buyers from moving their cargoes to other destinations, effectively eliminating the option of spot market trading.
State-owned Korea Gas Corp. plans to import 3.5 million mt/year of LNG over 20 years starting in 2017 from the Sabine Pass shale gas project.
The country's second-biggest LPG importer E1 Corp. has a contract with US gas company Enterprise Products Partners to buy 180,000 mt/year of LPG produced from US shale gas starting from May or June 2014. Its bigger rival SK Gas is also looking to buy shale gas-based LPG from North America to help lower import costs.
"South Korea's state-run energy firms have been investing in the US shale gas development," Kim said, without elaborating. "But it takes times to bear fruit because shale gas projects there are still in the exploration stage," he said.
South Korea's natural gas demand is forecast to grow by an average 1.7% annually to 35.3 million mt of oil equivalent in 2035, from 23.7 million mtoe in 2011, while its oil demand is expected to fall by an average 0.11% each year over the same period, to 99.3 million mtoe in 2035, according to MOTIE.
The country's electricity consumption meanwhile, is forecast to nearly double to 70.2 million mtoe in 2035, from 39.1 million mtoe in 2011.
LNG meets about 25% of South Korea's total electricity consumption, while coal and nuclear reactors account for 40% and 30% respectively. Oil accounts for 3%. The remaining 2% comes from hydraulic and renewable sources such as solar, wind power and fuel cell power plants.
"South Korea is trying to increase the portion of renewable sources in power generation, but it is not easy because it requires massive investments and long time," Kim said, noting natural gas and nuclear power are realistic options as clean energy sources.
"The best option for us is to run more gas-fired power plants with LNG import costs going down," he said. The South Korean government will lower consumption taxes on LNG and raise the tax on coal used for power generation from July 1, 2014.
In another effort to boost clean energy consumption, South Korea is building in carbon capture and sequestration systems at coal-fired power plants, Kim said.
"We cannot abandon coal as a source of power generation for the next several decades. So, the government has been investing to operate coal-fired power plants in a cleaner way that produces less emissions," he said.
Kim also told Platts that South Korea's overseas oil and gas projects will be joined by more domestic private firms, a departure from a decades-long scheme led by state-owned Korea National Oil Corp. and Kogas, which are struggling to reduce huge debts.
"KNOC as a state firm will be focused on exploration projects that entail higher risks," he said, adding that private firms will be involved in lower-risk projects entailing production blocks as part of the government's incentives to attract private firms' participation.
"KNOC will refrain from costly M&A deals, and push for more upstream exploration projects. KNOC needs to become bigger to compete with global majors," Kim said.
South Korea will host a ministerial meeting on clean energy next week. Energy ministers and senior energy officials from 24 nations, including Saudi oil minister Ali Al-Naimi and US energy secretary Ernest Moniz, will join the Clean Energy Ministerial to be held in Seoul from May 12-13 to discuss how to reduce fossil oil consumption and promote renewable resources development.
