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Tokyo, 27 October 2009
Wonhee HanSenior Researcher
Prospect of Korean Natural Gas Market
Northeast Asia Petroleum Forum 2009 IEEJ: November 2009
Prospect of Korean Natural Gas Market 1
Contents
Key features of Korean Natural Gas Market
Issues on Government Policies
Outlook for Natural Gas D/S
IEEJ: November 2009
Prospect of Korean Natural Gas Market 2
Total Primary Energy Supply
Natural gas imported from 1986 aiming at diversifying energy source and improving air quality
AAGR(’87-’07) : TPES 6.6%, Coal 4.8%, Oil 6.5%, Natural Gas 15.0%, Nuclear 6.7%
Natural gas imported from 1986 aiming at diversifying energy source and improving air quality
AAGR(’87-’07) : TPES 6.6%, Coal 4.8%, Oil 6.5%, Natural Gas 15.0%, Nuclear 6.7%
Source : KEEI
6875
8293
104116
127137
150165
181166
181193 198
209215 220
229 233243
0
50
100
150
200
250
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Million TOE
Renewables & OthersHydroNuclearNatural GasOilCoal
35%
20% 19% 24% 25%
44%62% 60% 49% 43%
3%4% 8%
11% 14%
14%12% 11% 14% 15%
0%
25%
50%
75%
100%
1987 1992 1997 2002 2007
IEEJ: November 2009
Prospect of Korean Natural Gas Market 3
Natural Gas Consumption
Demand for power generation continued to grow while demand for residential use slowed down
AAGR(’98-’08→’03-’08) : City Gas 9%→5%, Power Generation 10%→11%
Demand for power generation continued to grow while demand for residential use slowed down
AAGR(’98-’08→’03-’08) : City Gas 9%→5%, Power Generation 10%→11%
Source : KOGAS
5
10
15
20
25
30
1987 1990 1993 1996 1999 2002 2005 2008
Million Ton
Power GenerationTransportIndustrialCommercialResidential
30%
8%
17%
2%
43%
Year 200826 Million Ton
(33 Bcm)
IEEJ: November 2009
Prospect of Korean Natural Gas Market 4
Natural Gas Demand Pattern
On top of insufficient storage capacity, seasonality of gas demand threatens stable gas supply
Relatively high monthly TDR requires large investments in further storage capacity expansion
On top of insufficient storage capacity, seasonality of gas demand threatens stable gas supply
Relatively high monthly TDR requires large investments in further storage capacity expansion
Source : KEEI
0
1
2
3
4
5
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
City GasPower GenerationTotal
1
2
3
4
2000
-06
2000
-12
2001
-06
2001
-12
2002
-06
2002
-12
2003
-06
2003
-12
2004
-06
2004
-12
2005
-06
2005
-12
2006
-06
2006
-12
2007
-06
2007
-12
2008
-06
2008
-12
2009
-06
Million Ton
Power GenerationCity Gas
Monthly Natural Gas Consumption Monthly TDR*
*TDR(Turn Down Ratio) = Max Monthly Consumption ÷ Min Monthly Consumption
IEEJ: November 2009
Prospect of Korean Natural Gas Market 5
Natural Gas Supply
Korea relies heavily on mid-term and long term LNG imports for its natural gas supply
Korea has been diversifying its LNG import sources for the better security of natural gas supply
Korea relies heavily on mid-term and long term LNG imports for its natural gas supply
Korea has been diversifying its LNG import sources for the better security of natural gas supply
5
10
15
20
25
30
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
MTPA
OthersEgyptAustraliaOmanQatarBruneiMalaysiaIndonesia
11%
23%
3%
32%
17%
2%6%
6%
0%
50%
100%
Year 2008
Source : KOGAS
67%15%
18%
1%
Domestic ProductionLong-term LNG ImportsMid-term LNG ImportsSpot LNG Imports
Natural Gas Supply in 2008 LNG Imports by Country
IEEJ: November 2009
Prospect of Korean Natural Gas Market 6
KOGAS
Direct Importers (Posco, K-power)
Structure of Natural Gas Market
5 KEPCO’sPower GENCOs,
4 IPPs, 3 CESs
5 KEPCO’sPower GENCOs,
4 IPPs, 3 CESs
DomesticProductionDomestic
Production
ProcurementProcurementStorageStorage
TransmissionTransmission
WholesaleWholesale
ProcurementProcurement StorageStorage Own UseOwn Use
LNG ImportLNG Import
LNG ImportLNG Import
30 City Gas Companies
30 City Gas Companies
IEEJ: November 2009
Prospect of Korean Natural Gas Market 7
LNG Terminals
Operator Start-upStorageCapacity
(1,000 ㎥, #)
Send-outCapacity
(billion ㎥/yr)
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
National Pipeline NetworkNational Pipeline Network
Incheon
Pyeongtaek
Tongyeong
LNG
LNG
LNG
LNG
LNG
LNG
Kwangyang
Boryong
Samcheok
DonghaeGas field
Natural Gas Infrastructure
Trunk line : 2,739 ㎞Distribution line : 221,947 ㎞
As of June 2009
As of Dec. 2008
IEEJ: November 2009
Prospect of Korean Natural Gas Market 8
Realize low carbon & energy consumption
Energy Intensity (TOE/$1,000 of GDP) (’06) 0.347 → (’30) 0.185
Reduce dependence on fossil fuels
Fossil fuel share in TPES(%)(’06) 81.6 → (’30) 61.0
Foster green energy industries
Investment of 111.5 trillion Won
Enhance energy self-sufficiency and welfare
Oil & gas self-sufficiency* (%) (’06) 3.2 → (’30) 40.0
Realize low carbon & energy consumption
Energy Intensity (TOE/$1,000 of GDP) (’06) 0.347 → (’30) 0.185
Reduce dependence on fossil fuels
Fossil fuel share in TPES(%)(’06) 81.6 → (’30) 61.0
Foster green energy industries
Investment of 111.5 trillion Won
Enhance energy self-sufficiency and welfare
Oil & gas self-sufficiency* (%) (’06) 3.2 → (’30) 40.0
Low Carbon Green GrowthLow Carbon Green Growth
New government established aggressive energy policy targets for “low carbon green growth”
Such policies have a significant implication on future natural gas market if they are realized
New government established aggressive energy policy targets for “low carbon green growth”
Such policies have a significant implication on future natural gas market if they are realized
National Energy Policy
* Total equity volume of oil & gas production secured by Korean companies ÷ Annual import volume
1st
National Energy Basic Plan National Energy Mix : BAU vs
Target
16%25%
24%
33%
34%
45%
12%
16%
14%
28%
20%
16%
12%
6%
233
343
300
0
100
200
300
BAU Target
2006 2030
Million TOE
Renewables
Nuclear
Natural Gas
Oil
Coal
Source : 1st National Energy Basic Plan, 2008
IEEJ: November 2009
Prospect of Korean Natural Gas Market 9
Stable gas supply
Diversify supply sources; ex) Russian PNG
Expand further gas infrastructure
Enhance gas self-sufficiency
Promote city gas supply to remote areas
Support low-income class
Efficient gas market
Phase-in competition; 1st Import/Wholesale for Power Generation
Create open access system to supply facilities
Facilitate direct imports for their own use
Rationalize gas tariff system
Establish fair competition regulatory system
Stable gas supply
Diversify supply sources; ex) Russian PNG
Expand further gas infrastructure
Enhance gas self-sufficiency
Promote city gas supply to remote areas
Support low-income class
Efficient gas market
Phase-in competition; 1st Import/Wholesale for Power Generation
Create open access system to supply facilities
Facilitate direct imports for their own use
Rationalize gas tariff system
Establish fair competition regulatory system
Stable & Efficient Gas SupplyStable & Efficient Gas Supply
Natural gas policy has traditionally focused on ensuring the stable supply for economic growth
The long-delayed gas competition legislation is now awaiting the National
Assembly’s vote
Natural gas policy has traditionally focused on ensuring the stable supply for economic growth
The long-delayed gas competition legislation is now awaiting the National
Assembly’s vote
Natural Gas Policy
Natural Gas Policy 1st
Phase Promotion of Competition
DirectImporters
DirectImporters PrivatePrivate KOGASKOGAS
Import/Wholesale
Own UseOwn Use
Power Generation
Power Generation
City Gas
DistributionDistribution
RetailRetail
OAOANANA
TransmissionTransmission
KOGAS
StorageStorage
StorageStorage
IEEJ: November 2009
Prospect of Korean Natural Gas Market 10
Natural Gas Demand Forecast
Demand forecasts vary due to economic recession, uncertain demand for power generation
Demand for power generation is expected to slow down and to account for 24% in total by 2020
Demand forecasts vary due to economic recession, uncertain demand for power generation
Demand for power generation is expected to slow down and to account for 24% in total by 2020
Source : KEEI, KOGAS, Wood Mackenzie
Comparison of Natural Gas Demand Natural Gas Demand by Use
58% 59%
76%
42% 41%
24%
0%
50%
100%
2008 2014 2020
City Gas Power Generation
Source : 9th Natural Gas Long-term D/S Plan, 2008
20
25
30
35
40
2008 2010 2012 2014 2016 2018 2020
Million Ton
9th Natural Gas Long-term D/S Plan9th Natural Gas Long-term D/S Plan revised1st National Energy Basic Plan - BAUWood Mackenzie - Aug 2009
IEEJ: November 2009
Prospect of Korean Natural Gas Market 11
Natural Gas Supply Plan
Korea is striving to secure LNG as well as PNG in the long run for stable & self-sufficient supply
KOGAS is in talks with Gazprom
to buy Russian gas in various forms including PNG, LNG, CNG
Korea is striving to secure LNG as well as PNG in the long run for stable & self-sufficient supply
KOGAS is in talks with Gazprom
to buy Russian gas in various forms including PNG, LNG, CNG
Natural Gas Supply Outlook
0
10
20
30
2008 2010 2012 2014 2016 2018 2020
Million Ton
Russian Gas SupplyNew Players' SupplyNew Direct Importers' SupplyNew KOGAS LNG SupplyExisting Direct Importers' SupplyExisitng KOGAS Supply
LNG PlantGas Chemical Plant
Planned
Existing
2008-092010-122013-15
Vladivostok
Khabarovsk
Komsomolsk
Russia
China
Korea
48”Pipeline
Existing28”Pipeline
Sakhalin IILNG Plant
Sakhalin Gas Fields
Sakhalin Center
Russian Gas Supply
IEEJ: November 2009
Prospect of Korean Natural Gas Market 12
Outlook for Natural Gas D/S Balance
Korea is expected to face supply shortage during 2012-14 despite the uncertainty of gas demand
It seems to be relatively easy to deal with it thanks to the unprecedented global LNG oversupply
Korea is expected to face supply shortage during 2012-14 despite the uncertainty of gas demand
It seems to be relatively easy to deal with it thanks to the unprecedented global LNG oversupply
Natural Gas Demand Supply Balance Mid-term Supply Measures
50
100
150
200
250
300
350
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
MTPA
Middle East Supply CapacityAtlantic Supply CapacityAsia-Pacific Supply CapacityWorld LNG Import Demand
Source : Wood Mackenzie, August, 2009
World LNG D/S Balance
Short or Mid-term LNG contractsLNG Spot & DiversionStockpiling
Short or Mid-term LNG contractsLNG Spot & DiversionStockpiling
0
10
20
30
40
2008 2010 2012 2014 2016 2018 2020
Million Ton
Russian Gas SupplyNew LNG SupplyExisitng KOGAS SupplyWood Mackenzie - Aug 20099th Natural Gas Long-term D/S Plan9th Natural Gas Long-term D/S Plan revised
IEEJ: November 2009
Prospect of Korean Natural Gas Market 13
Summary
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
IEEJ: November 2009
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