New Market Study Published: South Korea Oil & Gas Report Q4 2013

From: Fast Market Research, Inc.
Published: Mon Sep 23 2013

While there are new efforts to stimulate upstream oil and gas activity and improve energy selfsufficiency, there is little to suggest that South Korea can develop significant resources, meaning the country is set to remain a key importer of crude and natural gas in liquefied form. Meanwhile, the government is planning fresh initiatives aimed at reducing oil consumption, while the state gas industry continues to buy into overseas liquefied natural gas schemes to meet growing demand.

The main trends and developments we highlight for the South Korean oil and gas sector are:

* The impact of the US' shale gas boom has been particularly felt by South Korea's petrochemical industry. This is one of the chief reasons for the government's push for greater Korean involvement in global shale gas developments, as it hopes that upstream asset control can allow for greater supply security and lower gas import prices. We highlight gas price movements, especially for Henry Hub, as the main risk of this gamble.
* The economy relied on oil for an estimated 40.0% of its energy needs in 2010, and while this figure is expected to have declined to 37.5% in 2012, the government aims to reduce it further to 33.0% by 2015. Given that the country imports almost all of its oil, volatility in oil prices stands to be a perennial problem for the economy. The government-led energy savings drive introduced in May 2012 had a strong focus on the transport sector, which accounts for 32.7% of all oil used. Plans are being drafted to raise fuel efficiency guidelines to among the best in the world by 2025. Our oil demand growth assumptions are cautious, averaging less than 0.3% per annum through to 2017, before fuel substitution and energy-saving measures slow consumption growth further.
* BMI is forecasting oil consumption of 2.30mn barrels per day (b/d) by 2017, a marginal increase compared with a forecast 2.27mn b/d in 2013. South Korean net oil imports are set to remain at around 2.25-2.28mn b/d over the next five years, costing a forecast US$84.7bn in 2013 and falling to US$80.8bn by 2017. At the time of writing we assumed an OPEC basket oil price for 2013 of US$103.00/bbl, falling to US$97.00/bbl in 2017.
* Gas net import costs of US$28.7bn are forecast for 2017, rising to US$30.9bn by 2022. Combined with oil import expenses, total petroleum costs are put at US$109.4bn in 2017 and US$111.8bn by 2022.

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