IEEJ: November 2009

Northeast Asia Petroleum Forum 2009

OH. KANG HYUN
Chairman ofKorea Petroleum Associationwww.oil.or.kr
1

Contents

I. Current Status
II. Significance of Korea’s oilindustry
III. Challenges and Goals
IEEJ: November 20092

I. Current Status
Korea’s Key Energy Index

GDP Growth Rate
Primary Energy
Consumption

Unit

2004

2005

2006

2007

2008

%

4.7

4.0

5.0

5.0

2.5

228,622233,400

236,500

239,800

1,000 TOE 220,238(Growth)

%

2.4

3.8

2.1

4.1

1.4

Energy Import

Million $49,600

66,69785,57094,980141,480(Growth)

%32.0

34.5

28.3

11.0

49.0

Dependence on
Foreign Energy

%

96.7

96.8

96.8

96.5

96.4

Petroleum Import

Million $38,27452,322

67,99060,32085,860(Growth)

%

27.1

36.7

29.9

-11.3

42.3

% of Energy Among
Total Import

%

17.2

20.0

22.0

26.6

32.5

IEEJ: November 20093

Energy Consumption

Primary Energy Consumption(Unit : 1,000 TOE)

2004

2005

2006

2007

2008

Petroleum

100,638

101,526

101,500

105,500

100,200

Coal

53,12754,78856,68059,70066,100

Nuclear32,67936,69536,70030,70032,400

LNG

28,35130,35530,400

34,70034,500Hydroelectric

1,465

1,297

1,300

1,100

1,200

Renewable &Etc

3,977

3,961

4,000

4,800

5,400

Total

220,237

228,622230,580

236,500

239,800

IEEJ: November 20094

Energy Consumption

Petroleum Consumption by Type
(Unit : 1,000 BBL)

2004

2005

2006

2007

2008

58,15159,561

59,87462,50062,937

Kerosene 43,090

39,392

31,45026,172

27,659Diesel143,799 142,529

142,433

145,327

134,513

B/C

104,977 100,513

96,89292,80969,996

Naphtha 262,871 273,250

287,003

316,858

311,368

Gasoline

LPG

88,432

91,66893,451

97,143

101,881Etc

51,00954,16754,41754,13652,286

Total

752,328 761,080

765,520794,945

760,641

IEEJ: November 20095

Crude Oil Import(Unit: million Bbl, million $, $/B)

Crude OilImport

2005

2006

Growth2007

GrowthQuantity

843.2

2.1

888.8

Value

42,60442.6 55,846

5.4Growth872.5

2009 2nd Half

2008

△1.8

31.1 60,571

Growth(*)

Growth864.9

8.4 84,995△0.9

2009(E)

424.2

△2.2

Growth850.0△1.1

40.5 21,035 △52.7 51,066 △39.9(*) compared to 1st half of 2008

• Import Amount 865 mil. BBL in 2008 → 850 mil. BBL in 2009(E) 85 bil. $ in 2008 → 51 bil. $ in 2009(E)• Source of Import Middle East 86.3%, Asia 12.5%, Africa 1.1%
 Heavy dependence on the Middle East (Saudi Arabia 30.4%, UAE 18.3%, Kuwait 12.1%)
IEEJ: November 20096

Production/Consumption
Production

Consumption

938.7 MM bbl

760.6 MM bbl

LPG 3.7%

Gasoline
9.9%
Kerosene3.3%

Jet Fuel
11.5%

Diesel2
8.2%

B-C 16.0%

Naphtha 18.5%

Others
8.9%
Source: PEDSIS of KNOC(2008)• Only 80% of production isconsumed locally.
Overproduction (20% of totalproduction) is exported.
• Domestic market iscurrently an oligopolisticmarket. Howevercompetition is on the riseas a result ofoverproduction.

LPG
13.4%
Gasoline
8.3%
Kerosene3.6%
Jet Fuel3.3%

Diesel17.7%
B-C 9.2%

Naphtha 40.9%

Others 3.6%

IEEJ: November 20097

Domestic Petroleum Demand Forecast (2009)
Despite an average growth rate of +1.0% for the last 7 years, due to global recession, demandfor petroleum fell by 4.3% in 2008. It is expected to grow by 0.8% in 2009 (767 million BBL).
(Unit : 100 mil. Bbl)

• Higher demand in the publicand industrial sector as aresult of economic stimulus
policy• Lower demand in residential,commercial, transportation
sector due to weak
consumption• Increasing demand forgasoline, B-C and naptha.

IEEJ: November 20098

World Ranking

Korea’s emergence as a global giant in petroleum
in only half a century

5 in the world(2,823 Thou. b/d)
Refining Capacity: 6 in the world(2,905 Thou. b/d)
Consumption: 7 in the world(2,371 Thou. b/d)
Import:ththth

IEEJ: November 20099

II. Significance of Korea’s Oil Industry

No. offirms related to oil

No. of persons employedby oil & relatedindustries

Source : www.kosis.kr, “Research report of Mining and Manufacturing industry”, 2007

Value added generated
by oil & relatedindustries

IEEJ: November 200910

Remarkable Growth

In 1964,
1964 domestic refining industry
started with a capacity of 35 Thou.
B/D.
Korea’s Refining Capacity (1,000 b/d)

In 2009, Korea ranked world 6th in refiningcapacity.
⇒ 83-foldincrease over the past 45 years
83
Refining Capacity by Company (1,000 b/d)

Total : 2,905 Thou. b/d
11Source: Data for refining capacity by company is from first half of 2009

An Export-Oriented Industry• Petroleum products ranked second among Korea’s top export items in 2008
• Oil industry has transformed into an export-oriented industry (Export ratio: 60%)
60%
• Increasing contribution to Korea’s GDP (1991 : 4.8% → 2008 : 11.5%)
11.5%• Improving Korea’s trade balance : Offset 45% of crude oil import costKorea’s Top Export Items (100 mill.$)

Petroleum
Products
12Source : Korea National Oil Corporation, Ministry of Knowledge and Economy (2008))

Petroleum Products Export(Unit: million Bbl, million $, $/B)

20052006

2007

2008

2009 1st half

ExportGrowthGrowthGrowth2009(E)

Growth(*)

GrowthQuantity

262.6

11.5

289.1

10.1

292.1

1333.8

14.3

161.2

Value

15,36251.1

20,601

34.1

23,44613.8

36,967

57.7

9,432

9.5

Growth324.4△2.2△47.8 21,945 △40.6(*) compared to 1st half of2008

Export Value of Petroleum Products (100 mil. $)IEEJ: November 200913

Expanding Investment
Upgrading Ratio of Major Countries(%)• Korea’s upgrading ratio standing at
30.5%• Continuing to invest in upgrading
projects in par with global leaders• Committed to invest 11 tril. KRW by
2011

BusinessSectors

Details

AmountRefining

Upgrading Facilities

150 billion won

Renewable Energy

Secondary Cell

80 billion won

Refining

UpgradingFacilities

300 billion won

Renewable Energy

Fuel Cell

120 billion won

S-OIL

PetrochemicalFacilities

140 billion won

HyundaiOilbank

Refining

UpgradingFacilities

210 billion wonPetrochemical

BTXFacilities

150 billion wonCompany
SKEnergy
GS Caltex

14Source : Oil & Gas Journal databook (2008.1)

Notable Improvements in Quality/Environment
Sulfur in Petroleum Products
Drastic sulfur reduction in fuel oil
Unit: PPMCompliance with US’s gasoline
Ultra-low sulfur level

and Europe’s diesel standards- below 10ppm(sulfur free)Japan is the only country to meetboth US and EU’s standards
in Asia

Sulfurous Acid Gas Density and Oil Consumption in Major Korean Cities
Unit: %, thousand TOE

While oil consumption has doubled, gasdensity has dropped by 90% during thesame period (‘90~’05).

IEEJ: November 200915

III. Challenges and Goals

Cutthroat Competition• Global refining capacity is expected to increase by 24% by2015• Asia accounts for 83% of the expansion plan

Environmental Regulations• Post-Kyoto agreement negotiations are underway• Stronger emphasis on CO2 reduction• Higher standards on fuel quality

Profitability Decline• Diminishing demand• Higher demand for new/renewable energy• Shrinking refining margins
IEEJ: November 200916

Petroleum Business Structure in the Future
Petroleum Business•To enhance profitability and competitiveness, local refineries, currently
relying on downstream-centered business, are strongly required toenlarge their E&P business.

•Asset value of oil & gas fields have dropped due to the current economic
downturn. Hence, a good opportunity to invest in E&P.
IEEJ: November 200917

Tougher Environmental Regulations

Environmental Regulations
 External Post-Kyoto protocol negotiations underway (by Dec., 2009)- Emission reduction targets: 25~40% reduction from 90 foradvanced countries, 15~30% reduction from BAU for developingcountries) Internal
 Green growth policies
 Air pollutant limitation system for Seoul and metropolitan area (‘07~’12) Stricter standards on auto fuel quality (‘09~)
 Tougher regulations on air pollutant emission (‘10~)
IEEJ: November 200918

Challenges of domestic oil industry

Tougher environmental
regulations

Upgrading facilities- 2 mil. B/D capacity by2011)

Increasing global
competition

Develop renewables andsubstitutes

Develop upstream
business- Fuel batteries, hydrogen,solar, 2nd gen. bio fuel, etc)

- self-development ratio to18.1% by 2012

Transformation into an ‘integrated energy’company– a more diversified business structure
IEEJ: November 200919Strengthening Regional Cooperation in NE Asia
Greater Potential
World economic power shifting into NE Asia
China, Japan and Korea’s share of global GDP: 17%
China, Japan and Korea’s share of global oil consumption: 20%
Low presence in the international market
 Asian premium in the Middle East crude oil market
 Low-profile in energy-related financing
Areas for enhanced cooperation
 Increased petroleum product trade, crude oil and LNG cargo swaps
 Joint use of stockpiling facilities for crude oil and LNG
 Joint efforts in energy-efficient technology and renewables development
 Green-growth strategy and policies e.g. environmental measures
IEEJ: November 200920

IEEJ: November 2009

Thank You

Korea Petroleum
Associationwww.oil.or.kr
Contact : report@tky.ieej.or.jp