Northeast Asia Petroleum Forum 2009

IEEJ: November 2009

Prospect of Korean
Natural Gas Market

Tokyo, 27 October 2009

Wonhee HanSenior Researcher

Contents

IEEJ: November 2009

Key features of Korean Natural Gas MarketIssues on Government Policies

Outlook for Natural Gas D/S

Prospect of Korean Natural Gas Market

1Total Primary Energy Supply

IEEJ: November 2009

NaturalNatural gas
gas imported
imported fromfrom 1986
1986 aiming
aiming atat diversifying
diversifying energy
energy source
source andand improving
improving air
air quality
qualityAAGR(’87-’07)
AAGR(’87-’07) :: TPESTPES 6.6%,6.6%, Coal
Coal 4.8%,4.8%, Oil
Oil 6.5%,6.5%, Natural
Natural Gas
Gas 15.0%,15.0%, Nuclear
Nuclear 6.7%
6.7%

Million TOE
243

250

Renewables & Others
Hydro

209

Nuclear

200

193
165

Oil
150

220

100%
14%

198

12%

11%

4%

8%

3%

181

181

Natural Gas

215

229

233

14%
11%

15%

14%

166

75%

150

Coal

137

44%

127

62%

116

60%

104

49%

43%

50%

93

100
68

82

75

25%
50

35%
20%

19%

24%

25%

0%

01987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

1987 1992 1997 2002 2007

Source : KEEI

Prospect of Korean Natural Gas Market2Natural Gas Consumption

IEEJ: November 2009

DemandDemand forfor power
power generation
generation continued
continued toto growgrow while
while demand
demand forfor residential
residential use
use slowed
slowed down
down
AAGR(’98-’08→’03-’08)
AAGR(’98-’08→’03-’08) :: City
City Gas
Gas 9%→5%,9%→5%, PowerPower Generation
Generation 10%→11%10%→11%

Million Ton
302520Power Generation
Transport
Industrial
Commercial
Residential

43%

Year 2008152%

26 Million Ton(33 Bcm)

1030%

17%

58%

19871990

199319961999

2002

2005

2008

Source : KOGASProspect of Korean Natural Gas Market3

Natural Gas Demand Pattern

IEEJ: November 2009

OnOn top
top ofof insufficientinsufficient storage
storage capacity,capacity, seasonality
seasonality ofof gas
gas demand
demand threatens
threatens stablestable gas
gas supply
supplyRelatively
Relatively highhigh monthly
monthly TDR
TDR requires
requires large
large investments
investments inin further
further storage
storage capacity
capacity expansion
expansionMonthly Natural Gas Consumption

Monthly TDR*Million Ton4
Power GenerationCity Gas354322

Source : KEEI2008

2007

2006

2005

2004

2003

2002

2001

02000

City Gas
Power GenerationTotal
1998

2009-06

2008-12

2008-06

2007-12

2007-06

2006-12

2006-06

2005-12

2005-06

2004-12

2004-06

2003-12

2003-06

2002-12

2002-06

2001-12

2001-06

2000-12

2000-06

11999

1*TDR(Turn Down Ratio)= Max Monthly Consumption ÷ Min Monthly Consumption

Prospect of Korean Natural Gas Market

4Natural Gas Supply

IEEJ: November 2009

Korea
Korea relies
relies heavily
heavily onon mid-term
mid-term andand long
long term
term LNG
LNG imports
imports forfor its
its naturalnatural gas
gas supply
supplyKoreaKorea has
has been
been diversifying
diversifying its
its LNG
LNG importimport sources
sources forfor thethe better
better security
security ofof natural
natural gas
gas supply
supplyNatural Gas Supply in 2008

LNG Imports by Country
MTPA

1%

30

2518%
2015%
67%

156%

OthersEgypt
Australia
Oman
Qatar
BruneiMalaysia
Indonesia

100%

6%
2%
17%

32%

50%

3%

1023%

Domestic Production

5Long-term LNG Imports
Mid-term LNG Imports
Spot LNG Imports

11%0%1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Year 2008

Source : KOGAS

Prospect of Korean Natural Gas Market

5Structure of Natural Gas Market

IEEJ: November 2009

KOGAS
3030 City
City Gas
Gas
Companies
Companies

Domestic
Domestic
Production
Production

Storage
Storage
Wholesale
Wholesale

Procurement
Procurement

55 KEPCO’s
KEPCO’s
Power
Power GENCOs,
GENCOs,
44 IPPs,
IPPs,
33 CESs
CESs

Transmission
Transmission
LNG
LNG Import
ImportDirect Importers (Posco, K-power)
LNG
LNG Import
ImportProcurement
Procurement

Storage
Storage

Own
Own UseUse

Prospect of Korean Natural Gas Market6Natural Gas Infrastructure

IEEJ: November 2009

National Pipeline Network
As of June 2009Trunk line : 2,739 ㎞
Distribution line : 221,947 ㎞

Samcheok

Incheon

LNG Terminals

LNG

LNG

As of Dec. 2008

Pyeongtaek

LNG

Operator

LNG

Start-up

Storage

Send-out

Capacity

Capacity(1,000 ㎥, #) (billion ㎥/yr)

Boryong
DonghaeGas field
LNG

Tongyeong

LNG

Kwangyang

Incheon

KOGAS

Oct. 1996

2,680(19)42.24

Pyeongtaek

KOGAS

Nov. 1986

1,560(14)38.81

Tongyeong

KOGAS

Sep. 2002

1,680(12)18.66

Kwangyang

POSCO

Jul. 2005

200(2)

2.30

Prospect of Korean Natural Gas Market7

National Energy Policy

IEEJ: November 2009

NewNew government
government establishedestablished aggressive
aggressive energy
energy policy
policy targets
targets forfor “low“low carbon
carbon green
green growth”
growth”
Such
Such policies
policies have
have aa significant
significant implication
implication on
on future
future natural
natural gas
gas market
market ifif they
they areare realized
realized

1st National Energy Basic Plan

National Energy Mix : BAU vs Target
Million TOE
343

Low
Low Carbon
Carbon Green
Green Growth
Growth6%300Realize
Realize low
low carbon
carbon && energy
energy consumption
consumption Energy
Energy Intensity
Intensity (TOE/$1,000(TOE/$1,000 ofof GDP)
GDP)
(’06)
(’06) 0.347
0.347 →→ (’30)(’30) 0.185
0.185

200

16%

28%

Renewables

14%

100Foster
Foster green
green energy
energy industries
industries

Natural Gas

12%
34%

45%

33%

Oil


 Investment
Investment ofof 111.5
111.5 trillion
trillion Won
Won* Total equity volume of oil & gas production secured by Korean companies
÷ Annual import volume

12%

16%

Nuclear Fossil
Fossil fuelfuel share
share inin TPES(%)
TPES(%)(’06)
81.6→(’30)
61.0(’06) 81.6 → (’30) 61.0
 Oil
Oil && gas
gas self-sufficiency*
self-sufficiency* (%)
(%)
(’06)
(’06) 3.2
3.2 →→ (’30)(’30) 40.0
40.0

20%

233

ReduceReduce dependence
dependence onon fossil
fossil fuels
fuels

EnhanceEnhance energy
energy self-sufficiency
self-sufficiency andand welfare
welfare

300

Coal

24%

25%
16%

0BAU
2006

Target2030

Source : 1st National Energy Basic Plan, 2008

Prospect of Korean Natural Gas Market8Natural Gas Policy

IEEJ: November 2009

NaturalNatural gas
gas policy
policy has
has traditionallytraditionally focused
focused onon ensuring
ensuring thethe stablestable supply
supply forfor economic
economic growth
growthTheThe long-delayed
long-delayed gas
gas competitioncompetition legislation
legislation isis now
now awaiting
awaiting thethe National
National Assembly’s
Assembly’s votevote

1st Phase Promotion of Competition

Natural Gas Policy

Import/Wholesale

StableStable && Efficient
Efficient Gas
Gas Supply
SupplyDirectDirect
Importers
Importers

PrivatePrivate

KOGAS
KOGAS

StableStable gas
gas supply
supply


Diversify
Diversify supply
supply sources;sources; ex)ex) Russian
Russian PNG
PNG
ExpandExpand further
further gas
gas infrastructure
infrastructure
EnhanceEnhance gas
gas self-sufficiency
self-sufficiency
PromotePromote city
city gas
gas supply
supply toto remoteremote areas
areas
SupportSupport low-income
low-income classclassNANAOA
OA

KOGAS
Transmission
Transmission

Storage
Storage

Efficient
Efficient gas
gas market
market Phase-in
Phase-in competition;competition; 11stst Import/Wholesale
Import/Wholesale forforPower
Generation
Power Generation
Create Create open
open access
access systemsystem toto supply
supply facilities
facilities
 Facilitate
Facilitate direct
direct imports
imports forfor their
their own
own useuse
Rationalize gas
gas tariff
tariff systemsystem Rationalize Establish
Establish fair
fair competitioncompetition regulatory
regulatory systemsystemStorage
Storage

City GasOwn
Own UseUse

PowerPower
Generation
Generation

Distribution
Distribution
RetailRetailProspect of Korean Natural Gas Market9Natural Gas Demand Forecast

IEEJ: November 2009

DemandDemand forecasts
forecasts varyvary due
due toto economiceconomic recession,recession, uncertain
uncertain demand
demand forfor power
power generation
generation
DemandDemand forfor power
power generation
generation isis expected
expected toto slow
slow down
down andand toto accountaccount forfor 24%
24% inin total
total byby 2020
2020

Natural Gas Demand by Use

Comparison of Natural Gas Demand

100%Million Ton
40

24%
42%

41%

3550%

30

76%
58%

25

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 20092020082010

2012

Source : KEEI, KOGAS, Wood Mackenzie

2014

2016

2018

59%0%
2008

2020

City Gas

2014

2020

Power Generation

Source : 9th Natural Gas Long-term D/S Plan, 2008

Prospect of Korean Natural Gas Market10

Natural Gas Supply PlanIEEJ: November 2009

Korea
Korea isis striving
striving toto secure
secure LNG
LNG asas wellwell asas PNGPNG inin thethe long
long runrun forfor stablestable && self-sufficient
self-sufficient supply
supplyKOGASKOGAS isis inin talks
talks withwith Gazprom
Gazprom toto buy
buy RussianRussian gas
gas inin various
various forms
forms including
including PNG,PNG, LNG,
LNG, CNG
CNG

Russian Gas Supply

Natural Gas Supply Outlook
Million Ton

Sakhalin CenterRussia

30

Sakhalin Gas Fields
Existing
28”
Pipeline

Komsomolsk
Khabarovsk

Sakhalin II
LNG Plant

20
China

10

Russian Gas Supply
New Players' Supply
New Direct Importers' Supply
New KOGAS LNG Supply

Vladivostok

Existing
Planned2008-092010-12

Existing Direct Importers' Supply
Exisitng KOGAS Supply

0200848”
Pipeline

2013-15
LNG Plant

201020122014

20162018

2020

Gas ChemicalPlant

KoreaProspect of Korean Natural Gas Market11

Outlook for Natural Gas D/S Balance

IEEJ: November 2009

Korea
Korea isis expected
expected toto face
face supply
supply shortage
shortage during
during 2012-14
2012-14 despite
despite thethe uncertainty
uncertainty ofof gas
gas demand
demandItIt seems
seems toto be
be relatively
relatively easy
easy toto deal
deal withwith itit thanks
thanks toto thethe unprecedented
unprecedented global
global LNG
LNG oversupply
oversupply
Mid-term Supply Measures

Natural Gas Demand Supply Balance

ShortShort oror Mid-termMid-term LNG
LNG contracts
contracts
LNG
Spot&Diversion
LNG Spot & Diversion
Stockpiling
Stockpiling

Million Ton
40

World LNG D/S Balance

MTPA
350

30Middle East Supply Capacity
Atlantic Supply Capacity

300

Asia-Pacific Supply Capacity
World LNG Import Demand

250

20200

Russian Gas Supply

150

New LNG Supply

10Exisitng KOGAS Supply
100

Wood Mackenzie - Aug 2009
9th Natural Gas Long-term D/S Plan

50

9th Natural Gas Long-term D/S Plan revised

2015

2014

2013

201220112010200920082020

20072018

2006

2016

20052014

20042012

20032010

20022008

2001

0Source : Wood Mackenzie, August, 2009

Prospect of Korean Natural Gas Market

12SummaryIEEJ: November 2009

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 Market13

IEEJ: November 2009

Thank You!!!
Q&Ahanwonhe@kogas.re.kr

Contact : report@tky.ieej.or.jp
Prospect of Korean Natural Gas Market14