1. 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
Energy/GDP elasticity
’85 - ’90 : 1.16
’91 - ’00 : 1.32
Growth ( )
Steel:  25 MMT
Cement: 21  51 MMT
Cars:  12.0 mill
(1985=100)

6. Energy Situation of Korea
Energy consumption by source(2000)
Petroleum Coal Nuclear LNG Hydro
53.8% % % % %
1990

7. Energy Situation of Korea
Heavy overseas energy dependency
Overseas energy dependency
’85
76.2%
’99
97.2%
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%

8. Long-term Demand Forecast
Energy demand by fuel
Oil dependency lessens, but oil will remain the most important fuel
Unit: Million TOE
LNG’s demand is projected to grow by 5.3% per year, which is the highest
Coal and nuclear is projected grow steadily along with electricity demand growth
Source: KEEI, May 2001

9. Long-term Demand Forecast
Energy demand by sector
Unit: %

10. Long-term Demand Forecast
Energy and GHG indicators
Source: KEEI, May 2001

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. Primary objectives and measures for future
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
PHASE III
PHASE IV
PHASE II
Current
Monopoly
Competition in Generation
Wholesale
Competition
Retail
Competition
A group of Gencos compete in the Generation Pool
Full competition in distribution sectors unbundled from KEPCO
(Bid-buying competition)
Transmission system serves as a common carrier
Distribution network will be opened
Regional supply franchise will be eliminated
KEPCO manages transmission and distribution sectors
1998
2000
2003
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 ( )
phase II : Privatization and introducing competition in import/wholesales
phase III : Retail competition

17. Energy challenges facing the Asia - in Korea’s perspective
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
Ensure stable energy supply
Strengthen bargaining power
Reduce the energy cost
Energy exporters
Secure stable energy demand
Increase of foreign investment in 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. Possible areas of cooperation
From Closed to Open
Possible areas of cooperation
Power Interconnections
Natural gas pipeline networks
Joint oil stockpiling

20. Restructuring Industry International Cooperation
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
Gas industry
District Heating
Power interconnections
NG pipeline networks
Joint oil stockpiling

21. Thank you
Hyun-Joon Chang Tel: ~2