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Source: www.asiaecon.org |

SOUTH KOREA'S ENERGY SEARCH


South Korea is unfortunate in that it possesses virtually no natural resources. Despite this fact, South Korea is a highly developed, trillion dollar country that has the 13th largest economy in the world and 4th largest in Asia. Moreover, South Korea has no energy resources to meet its impressive demand. South Korea has the 25th largest population in the world, but is the 5th largest importer of oil. The large and ever increasing demand forces South Korea to be constantly in the search for new energy sources.


South Korea is unfortunate in that it possesses virtually no natural resources. Despite this fact, South Korea is a highly developed, trillion dollar country that has the 13th largest economy in the world and 4th largest in Asia. Moreover, South Korea has no energy resources to meet its impressive demand. South Korea has the 25th largest population in the world, but is the 5th largest importer of oil. The large and ever increasing demand forces South Korea to be constantly in the search for new energy sources.

South Korea’s rise to power was not unlike West Germany and Japan. After rapid industrialization since the 1960s, South Korea became one of the world’s top exporters. South Korea found its competitive advantage through labor intensive manufactured exports, which eventually grew into high-tech manufactured exports. Today, South Korea boasts some of the largest technology firms in the world, such as Samsung and LG. Recently, South Korea has become a powerful force in the automotive industry. Hyundai Kia Automotive Group is now the second largest car company in Asia and one of the top five in the world.

Perhaps more impressive than South Korea’s historic rise over the past 50 years, is the ability to create such a large economy with almost no natural resources. South Korea is a densely packed country of over 28 million. Seoul is the second largest city in the world,  with a metropolitan population of 23 million. Moreover, South Korea’s manufacturing market is extremely energy intensive. And of its immense energy demand, approximately 97 percent of its energy requirements are imported. Oil, which supplies over 50 percent of demand, does not exist in South Korea. The same is true for natural gas, which produces 12 percent of demand. Coal is found in South Korea, but it accounts for only 3 percent of total coal used.

However, South Korea is attempting to mitigate its dependence on imported fossil fuels by building its nuclear power program. As of 2004, nuclear power produced 15 percent of the total energy demand. Today, there are 20 nuclear reactors producing around 38 percent of electricity demand. South Korea has one of the most advanced nuclear power facilities in the world, and it is growing the program dramatically in order to compensate for its lack of other energy sources. South Korea is also investing in renewable energy sources, specifically hydroelectric, but as of 2006 total renewable energy accounted for less than 1 percent of demand.

But until South Korea can increase its nuclear power production to its planned goals of 56 percent of electricity demand by 2020, it needs to continue searching for fossil fuels. Approximately 75 percent of South Korea’s oil imports come from Persian Gulf countries. Of these countries, South Arabia is the largest supplier, accounting for 29 percent of gross oil imports. But as China and Japan increase their energy stakes around the world, South Korea needs to locate additional resources in order to stay competitive.

South Korea took a large step toward boosting their oil resources Tuesday, as it signed a $3.55 billion deal to develop oil fields in Iraq. The non-binding agreement to develop an oil field in the southern city of Basra was signed by both Presidents today in Seoul. The deal is technically only a memorandum of understanding for social capital improvements in Basra, but it will give South Korea the rights to explore the region, which accounts for about 80 percent of oil production in Iraq. The landmark deal will also mark the first time South Korea has entered the Middle East to explore oil.

The deal should be a win-win for both sides, as Iraq needs capital to improve the nation after years of war and economic sanctions. As it has the third largest oil reserves in the world, Iraq plans to use its rich assets as the cornerstone for economic revival. Iraq’s reserves are estimated at 115 billion barrels of crude and currently can produce up to 2.5 million barrels a day from its 24 fields. The country is looking to expand by seeking foreign investment in infrastructure to develop about 20 new oil and gas reserves. The World Bank has estimated that reconstruction of Iraq will cost $150 billion over eight years. Part of the language in the deal is that Korea will be active in the reconstruction of Iraq.

As long as talks progress, it is likely the final deal will be signed this year around June. The deal should help South Korea reach its energy demands for the near future, at least until renewable energy and nuclear power can shoulder more of the load. And the infusion of capital and ongoing partnership with South Korea will be vital to Iraq’s reconstruction efforts.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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