April, 2007 Energy Situation and Prospects of Korea

I.Current Energy Situation of Korea II.Long-term Energy Demand Forecast III. Korea’s Energy Policy Directions IV.Concluding Remarks Contents

I.Current Energy Situation of Korea 1

Korea at a Glance (2005) Land Area: 99,646 km 2 Population:48.3 million GDP: US$ 788 billion US$ 16,306 per capita Energy demand: 229 MMTOE Import dependence: 96.4 % Energy import : US$ 66.7 bill. Korea ranks in the world No. 10 in energy demand, No. 4 in oil imports, No. 2 in coal and LNG imports. 2

ItalyKorea(2.1%)10 FranceUK9 CanadaFrance8 Korea(2.8%)Canada7 IndiaGermany6 India5 RussiaJapan4 Russia3 China 2 USA 1 Oil Consumption Energy Consumption Rank Korea’s Crude Oil Imports in 2005: 843 million barrels Korea and World More Closely... World Crude Oil Import Shares 3

Economic Growth and TPES (I) Index 4

Economic Growth and TPES (II)  For AAGR of Energy Consumption & GDP : 10.3% & 7.7%, respectively Energy Elasticity of Energy Consumption to GDP : 1.51  For 1998 – 2005 AAGR of Energy Consumption & GDP : 4.7% & 5.6%, respectively Energy Elasticity of Energy Consumption to GDP : 0.80  For AAGR of Energy Consumption & GDP : 10.3% & 7.7%, respectively Energy Elasticity of Energy Consumption to GDP : 1.51  For 1998 – 2005 AAGR of Energy Consumption & GDP : 4.7% & 5.6%, respectively Energy Elasticity of Energy Consumption to GDP : (%) GDP Primary Energy Consumption 5

Primary Energy Consumption by Source  Trend in Consumption Shares (1981  1990  2005, %) Oil  : 58.1  53.8  44.3 Coal  : 33.3  26.2  23.9 LNG  : 0  3.2  13.1 Nuclear  : 1.6  14.2  16.0  Trend in Consumption Shares (1981  1990  2005, %) Oil  : 58.1  53.8  44.3 Coal  : 33.3  26.2  23.9 LNG  : 0  3.2  13.1 Nuclear  : 1.6  14.2  mil. toe LNG 13.1% Nuclear 16.0% Hydro 0.6% Coal 23.9% Oil 44.3% Renewables & Others 2.2% (mil. toe) CoalOilLNGHydroNuclearFirewood & Others 6

Final Energy Consumption by Sector  Trend in Consumption Shares (1981  1990  2005, %) Industrial  : 44.9  48.1  55.2 Rsd. & Cmrcl  : 40.7  29.3  22.0 Transport  : 9.6  18.9  20.6 Public & Other  : 4.8  3.7  2.2  Trend in Consumption Shares (1981  1990  2005, %) Industrial  : 44.9  48.1  55.2 Rsd. & Cmrcl  : 40.7  29.3  22.0 Transport  : 9.6  18.9  20.6 Public & Other  : 4.8  3.7  (mil. toe) IndustrialResidential & CommercialTransportPublic & Others mil. toe Residential/ Commercial 22.0% Industrial 55.2% Public & Others 2.2% Transport 20.6% 7

TPES Compared with Population and GDP Indicator Avg. Annual Growth Rate (%) ‘81-‘90‘81-‘05‘90-‘05 Primary Energy Consumption (million toe) Per Capita Energy Consumption (toe) Energy/GDP (toe/million won) CO 2 Emissions (million t-CO 2 ) (‘81-‘03) 5.8 (‘90-‘03) 5.4 CO 2 Emissions Per Capita (t-CO 2 ) (‘81-‘03) 4.8 (‘90-‘03) 4.5 GDP (trillion won) Population (million)

Overseas Energy Dependency mtoe  Energy Import (2005) Import Dependency: 96.4% ME Dependency of Crude Oil: 81.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5%  Energy Import (2005) Import Dependency: 96.4% ME Dependency of Crude Oil: 81.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5% bil.US$ 9

Energy Import in Detail  Breakdown (2005) Petroleum: $50.4 billion (843 million barrels) - Saudi Arabia, UAE, Kuwait, Iran, Qatar, … LNG : $ 8.6 billion (22.0 million ton) - Indonesia, Qatar, Oman, Malaysia, Brunei, … Coal : $ 5.4 billion (73.9 million ton) - Australia, China, Indonesia, Russia, Canada, …  Breakdown (2005) Petroleum: $50.4 billion (843 million barrels) - Saudi Arabia, UAE, Kuwait, Iran, Qatar, … LNG : $ 8.6 billion (22.0 million ton) - Indonesia, Qatar, Oman, Malaysia, Brunei, … Coal : $ 5.4 billion (73.9 million ton) - Australia, China, Indonesia, Russia, Canada, … 10  Major Feature (2005) Import Dependency: 96.4% ME Dependency: Oil 81.8%, Gas 46.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5%  Major Feature (2005) Import Dependency: 96.4% ME Dependency: Oil 81.8%, Gas 46.8% Energy Imports: $ 66.7 billion Energy Import/Total Import: 25.5%

II. Long-term Energy Demand Forecast 11

Projection of Major Energy Indicators Indicator Avg. Annual Growth Rate(%) ‘05-‘10‘10-‘20‘05-‘20 Primary Energy Consumption (million toe) Per Capita Energy Consumption (toe) Energy/GDP (toe/million won)  Energy Consumption Growth for : 2.5%  Energy Intensity Declines to 0.25 in 2020 due to Improvement in Energy Efficiency Shift of Economic Structure toward Less Energy-Intensive Industries  Energy Consumption Growth for : 2.5%  Energy Intensity Declines to 0.25 in 2020 due to Improvement in Energy Efficiency Shift of Economic Structure toward Less Energy-Intensive Industries 12

Projection of TPES and Final Energy  Final Energy Consumption by Sector (%) Industrial  : 55.2  54.4 Residential  : 14.1  12.7 Transport  : 20.6  21.4 Commercial  : 7.9  11.4  Final Energy Consumption by Sector (%) Industrial  : 55.2  54.4 Residential  : 14.1  12.7 Transport  : 20.6  21.4 Commercial  : 7.9  11.4  TPES by Source (%) Oil & Coal decrease while LNG & Nuclear increase Oil remains as the dominant fuel until 2020 & beyond  TPES by Source (%) Oil & Coal decrease while LNG & Nuclear increase Oil remains as the dominant fuel until 2020 & beyond 13

III. Korea’s Energy Policy Directions 14

Past Energy Policy Paradigm and its Effects  Supply-oriented energy policy Energy policy was mainly aimed at supplying energy in a stable manner and at low prices for industrial competitiveness and containing inflation  Intervention of the government Depended on central planning rather than market functioning  Supply-oriented energy policy Energy policy was mainly aimed at supplying energy in a stable manner and at low prices for industrial competitiveness and containing inflation  Intervention of the government Depended on central planning rather than market functioning  Achievement Well-established domestic supply network for oil, gas, electricity, and district heating  Unfavorable results Energy-Intensive Economic Structure Environmental Problem  Achievement Well-established domestic supply network for oil, gas, electricity, and district heating  Unfavorable results Energy-Intensive Economic Structure Environmental Problem 15

Changing Environment and Policy Paradigm Shift Energy-Efficient Society High Oil Price Sustainable Energy System Environmental Regulation Oil Market Instability UNFCCC ChallengesPolicy Directions Changing Conditions Overseas Energy Development Energy Security Threats Resource Competition Open Policy Framework Conflicts between Stakeholders Policy Decision Process International Oil Market Environmental Concerns Energy Supply Security Non-Gov'tal Organizations 16

Harmonization of Economy, Environment and Energy Harmonization of Economy, Environment and Energy Less Energy Consuming Society Energy Efficiency Improvement Less Energy Consuming Society Energy Efficiency Improvement Energy Supply Security Overseas Energy Resources Development Energy Supply Security Overseas Energy Resources Development Sustainable Energy System New and Renewable Energy Sustainable Energy System New and Renewable Energy Three Main Energy Policy Directions 17

Targets of Main Energy Policies Overseas Development Renewables Energy Intensity Share in TPES (%) Share in Import (%) Efficiency Oil Gas

 Energy Basic Law enacted in Feb. 9, 2006 National Energy Committee is created & presided by the President of Korea - Deal with energy as national agenda - Accommodate public opinions about controversial issues - Gain momentum to implement integrated energy policies 19

Concluding Remarks  Ultimate goal of Korean energy policy is to sustain economic development in harmony with environmental preservation - In pursuit of this goal, Korea’s energy policy are shifted toward “sustainable energy path” - Long term energy policies are weighted more than short term measures 19