New Horizons for Korean
Energy Industry
- Shifting paradigms and Challenges ahead August 2001
Hyun-Joon Chang
Korea Energy Economics Institute
2
Contents

Introduction

Energy Situation of Korea

Long-term Demand Forecast

Energy Policy of Korea

Korea Energy Industry in Transition

From Closed to Open Network

Concluding Remarks
3
Introduction
Korean energy industry is at a turning point

Paradigm
Government directed central planning system
 Decentralized market-oriented system

Governance structure
State owned public utilities
 Private owned utilities

Industrial organization
Vertically integrated and monopolistic structure
 Disintegrated and competitive structure
4
Introduction
What caused the change?

Liberalization

Deregulation

Globalization

Technical Advance

Conservation of Environment

Concerns for Energy Security
5
Energy Situation of Korea
Energy consumption has surpassed economic growth
400
Energy/GDP elasticity
350
Energy consumption
300

’85 - ’90 : 1.16

’91 - ’00 : 1.32
GDP
250
Growth (1985 - 2000)
Steel:
200
9  25 MMT
Cement: 21  51 MMT
Cars:
150
100
85
86
87
88
89
90
91
92
93
94
(1985=100)
95
96
97
98
99
00
1.1  12.0 mill
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Energy Situation of Korea
Energy consumption by source(2000)
Nuclear
14.3%
Hydro
0.7%
Coal
22.5%
LNG
9.9%
Petroleum
52.5%
1990
Petroleum
53.8%
Coal
Nuclear
LNG
Hydro
26.1%
14.2%
3.2%
1.7%
7
Energy Situation of Korea
Heavy overseas energy dependency

Overseas energy dependency
’85
’99

Import amount of energy
’85 US$ 7,290 million
’99 US$ 22,589 million

Middle East dependency
Crude Oil(’99) 72.3%
Natural Gas(’05) 52.6%
76.2%
97.2%
8
Long-term Demand Forecast
Energy demand by fuel
Unit: Million TOE
Oil dependency lessens, but
oil will remain the most
2000
2010
2020
40,906
56,015
65,604
Petroleum 105,107 137,582
156,534
Coal
important fuel
LNG’s demand is projected
to grow by 5.3% per year,
LNG
18,883
34,232
49,843
Hydro
1,100
1,142
1,318
Nuclear
27,112
42,910
56,362
which is the highest
Coal and nuclear is
projected grow steadily
Total
195,095 275,064
334,173
Source: KEEI, May 2001
along with electricity
demand growth
9
Long-term Demand Forecast
Energy demand by sector
Unit: %
60%
50%
2000
40%
2010
2020
30%
20%
10%
0%
Industry
Transport
Residential
Commercial
10
Long-term Demand Forecast
Energy and GHG indicators
Source: KEEI, May 2001
Unit
1999
2005
2010
2015
2020
CO2 Emission
MTC
111.3
146.4
170.6
188.8
205.3
Per capita CO2
TC
2.38
2.98
3.37
3.64
3.92
CO2/GDP
TC/won
0.25
0.24
0.21
0.19
0.17
CO2/Energy
TC/TOE
0.61
0.62
0.62
0.62
0.61
11
Energy Policy of Korea
Past energy policy: Historical perspective

Supply oriented energy policy
– Promote competitiveness of industry
– Constrain inflation

Intervention by the government
– Central planning rather than market mechanism
– Regulate price and support monopolistic structure
Has been successful in terms of economic growth, stable
energy supply, low energy price, and so on
12
Energy Policy of Korea
Shadows of the success

Energy Intensity increased
– 0.35 TOE/million Won in 1990  0.40 in 2000

Environmental Backwardness
– CO2 emission: 65 MTC in 1990  121 MTC in 2000
– Siting problems, in particular, for nuclear power plants

Weak Market Mechanisms
– Reform of energy pricing and privatization of large
state-owned enterprises to improve market efficiency
13
Energy Policy of Korea
Primary objectives and measures for future

Objectives
– Strengthen market mechanism
– Establish environmentally friendly energy systems
– Maintain stable energy supply

Measures
– Remove price controls
– Reform tax system for fair competition and less pollution
– Privatize public utilities
– Encourage energy efficiency technologies and new &
renewable energy developments
– Seek to cooperate with Northeast Asian countries
14
Energy Industry in transition
Restructuring of electricity industry

Objectives
– Raising the general efficiency of the electricity
industry by promoting the competition
– Effective financing of generation facilities
– Increasing consumer benefits

Principles
– Privatization and introduction of competition into
generation (with nuclear excluded)
– Unbundling and privatization of generation, transmission
and distribution
– Gradual reform for market to absorb the impact
15
Energy Industry in transition
Restructuring schedule
PHASE I
Current
Monopoly


1998 2000
PHASE II
PHASE III
Competition
in Generation
Wholesale
Retail
Competition
Competition
A group of Gencos
compete in the
Generation Pool
KEPCO manages
transmission and
distribution
sectors
Full competition in
distribution sectors
unbundled from KEPCO
(Bid-buying competition)
 Transmission system
serves as a common carrier

2003
PHASE IV


Distribution network
will be opened
Regional supply
franchise will be
eliminated
2009
16
Energy Industry in transition
Restructuring of gas industry

Principles
– Introduce competition by unbundling of imports/sales
activities from terminal/transmission network operation
 Separate import/sales part of current monopoly utility
“KOGAS” into several private companies
– Institute an open access regime for receiving terminals and
transmission network
– Introduce competition in retail sector through competition in
facility investment

Schedule(Revised schedule will be announced soon)
– phase I : Preparation (2000-2002)
– phase II : Privatization and introducing competition in
import/wholesales
– phase III : Retail competition
17
From Closed to Open
Energy challenges facing the Asia
- in Korea’s perspective
Two paths are ahead: Conflict path vs. Cooperative path
Cooperative future ensures mutual benefits
Energy importers
Energy exporters

Ensure stable energy supply

Secure stable energy demand

Strengthen bargaining power

Increase of foreign investment in

Reduce the energy cost
an upstream sector
18
From Closed to Open
Chances for a new era

North-South Korea talks resume
– From cold war to cooperative games
– Major obstacle for a complete
connection of Asian energy network was removed

East Asia shares common features
– Heavy reliance on the Middle East
 Korea 76%(2000), China 62%(1998), Japan 82%(1999)
– Rapid growth of East Asia’s oil demand
 50% demand increase is expected during the next decade
19
From Closed to Open
Possible areas of cooperation



Power
Interconnections
Natural gas pipeline
networks
Joint oil stockpiling
Pipeline
Pipelineroute
route(Korea
(Korea) )
Pipeline
PipelineRoute
Route(China)
(China)
Pipeline
Route
(Japan)
Pipeline Route (Japan)
LNG
LNGTanker
TankerRoute
Route(Korea)
(Korea)
LNG
LNGTanker
TankerRoute
Route(Japan)
(Japan)
LNG
LNGTanker
TankerRoute
Route
Crude
Tanker
Crude TankerRoute
Route
Crude
Tanker
Route
Crude Tanker Route
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Concluding Remarks
Not only growth, but also environment
Urgent task of Korea
“Establish efficient and environment-friendly energy industry”
Restructuring Industry
International Cooperation

Power industry

Power interconnections

Gas industry

NG pipeline networks

District Heating

Joint oil stockpiling
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Thank you
Hyun-Joon Chang
Email: [email protected]
Tel: 031-421-0681~2