Energy Companies Go Abroad for Resources
By Ryu Jin
Staff Reporter
More and more South Korean enterprises are making forays into energy and resources development and other energy-related businesses with their improved competitiveness and accumulated know-how, as they see increasing opportunities abroad rather than at home.
Not only state-run firms but also private companies _ from large conglomerates and general trading companies to mid-sized firms _ have been trying to find new growth engines in their global businesses.
Leading the hunt are the state-owned firms the Korea National Oil Corporation (KNOC) and the Korea Resources Corporation (KORES), which have led various energy exploration and production activities along with private enterprises.
KNOC, in particular, has been doing its utmost to be reborn as one of the world's top 50 petroleum enterprises by 2015 based on its tangible achievements in Asia and the rest of the world in recent years.
Set up in 1979 for the country's drive toward energy self-sufficiency, KNOC pulled South Korea up in the ranks, making it the world's 95th oil-producing country, with its successful development of the Donghae-1 gas field in the East Sea in 2004.
In a country relying heavily on imports for the majority of its petroleum supplies, KNOC's main responsibilities are exploration and production (E&P), and stockpiling.
KNOC is committed to ensuring the satisfaction of its customers by increasing its global competitiveness and assuring stable energy supplies. It is also tasked with exploring and developing new energy sources to alleviate the country's dependence on Middle Eastern supplies, and has come up with a strategy for increasing supply volume that focuses on six core geographical regions.
``Our mandate is to buttress the Korean economy by ensuring that the nation has abundant energy sources for the future,'' KNOC President and CEO Hwang Doo-yul said. ``We do this by carrying out overseas petroleum E&P projects, exploring the domestic continental shelf and accumulating a petroleum stockpile.''
Its performances abroad, especially participation in large-scale activities in Vietnamese oilfields, have served as a catalyst for the company to sell its name ``KNOC'' to the world's petroleum industries.
While having interests in 32 blocks in 15 different countries, the company has been active in securing oil reserves in anticipation of future energy crises, operating storage facilities with a capacity of 116 million barrels.
In order to stabilize the country's petroleum supplies, KNOC is currently participating in a number of overseas oilfield development projects that will contribute to the government's objective of attaining a domestic crude oil production self-supply ratio of 18 percent by the year 2013. Its ultimate goal is to become a world-class petroleum development company producing 300,000 barrels of petroleum on a daily basis by 2013.
With KNOC playing a leading role, the South Korean government plans to build a Singapore-style international oil market in the country's southern port cities of Yeosu and Ulsan in the coming years, which would serve as a large-scale ``oil hub'' in Northeast Asia from the early 2010s.
According to the Ministry of Commerce, Industry and Energy (MOCIE) in May, the government and the petroleum companies including KNOC have decided to start the first-phase construction in Yeosu, South Jeolla Province, for the oil hub project as early as next year.
Ministry officials said that the government plans to have local and foreign oil firms form a joint venture so that it can build a 4.6 million-barrel storage facility. Commercial deals would be available from late 2009. If the project proves to be successful, the government would push for the second-stage construction in the metropolitan city of Ulsan with a storage capacity of about 23 million barrels.
Comprising of both production and distribution bases, the so-called ``oil hub'' will be equipped with an oil repository where petroleum-related spot goods and futures are traded internationally. Europe's Amsterdam-Rotterdam-Antwerp (ARA) market and the Singapore market are famous oil hubs.
More Players in the Field
While the state-run oil company is spearheading energy development projects abroad, general trading companies such as Daewoo International Corp. and Hyundai Corp. as well as leading oil firms such as SK Energy, GS Caltex, S-Oil and Hyundai Oilbank are also stepping up their global businesses.
Noteworthy moves in recent years are shown by the growing number of mid-size firms, which have been following the suit of some large conglomerates that have been involved in overseas exploration and production activities.
In the face of regulations at home on the one hand and in pursuit of new business opportunities on the other, more and more medium-sized companies _ even construction firms _ are turning to exploration for oil, gas, coal and other resources.
Daesung Group, which had been focused on gas and boilers, has recently expanded its businesses abroad. Last year, it decided to invest in the Zhambyl oilfield in Kazakhstan by taking a 2.7-percent stake _ it also took a 13-percent stake in Yemen's Block 70 and Block 16, respectively.
Samhwan Corp., a prestigious contractor founded in 1946, has also been an active player in the Middle East, Southeast Asia and all the other major construction markets around the globe.
More recently, Samhwan has turned its eyes to energy and resources businesses. It now holds a 6.5-percet stake in Vietnam's Block 11-2 and also has a 1.6-percent stake in Yemen's Mariv LNG project, which will soon produce liquefied natural gas (LNG).
Samtan Co., one of the energy-specializing companies that focused on coal mining for about 45 years, also has paid attention to resources development after it disposed of its briquette factory in Imun-dong, Seoul, in 2002.
Last year, Samtan took part in a $700 million consortium to build power plants in Indonesia. It plans to provide coal produced in the Pasir mine, which the company has operated there since 1993, for the newly built power stations.
Construction firms are not an exception. Keangnam Enterprises Ltd. said earlier this year that it has received an order for a $180 million Combined Heat and Power Plant (CHP) at the Ambatovy nickel mine in Madagascar, Africa, along with Daewoo International Corp. and Hyundai Engineering.
Keangnam Enterprises set up a resources development division in the company in June 2005 and has engaged in various exploration activities, including looking for oil in Kamchatka, Russia and gold in Zapadno, Uzbekistan, among others. It also has a 7.5-percent stake in a KNOC-led consortium developing a gas field in South Karpovsky, Kazakhstan.
Woolim Construction Co. also took a 1-percent stake in Kazakhstan's Shakramabas and Bozoba oilfields, where a respective 200 million barrels and 160 million barrels of oil have been confirmed.
``Kazakhstan is just the beginning,'' Im Hong-soon, a director of the company, said. ``We are also consulting with KNOC and KORES to form a consortium in Madagascar and Papua New Guinea.''
One of the reasons why mid-sized firms look into energy and resources development is the rising prices of raw materials such as crude oil. Despite some risks, industry sources say, direct investment will not only lower unit prices but also bring about additional interest stemming from development.
``We are having fewer and fewer jobs at home as housing and infrastructure are reaching their limitations,'' a Keangnam official said. ``So, more and more construction firms are joining in overseas resources development as part of efforts to diversify.''
New Markets
While people's interest in alternative energy grows amid high oil prices, South Korea's large enterprises are setting their eyes on biodiesel for future business opportunities.
As the government is poised to help spur the spread of biodiesel at home in stages, the local market is expected to experience a significant change as early as next year.
According to the MOCIE, SK Chemicals and Aekyung Petrochemical have recently registered with the government for the production of biodiesel, bringing the number of domestic producers to 16.
Biodiesel refers to a diesel-equivalent, processed fuel derived from biological sources such as vegetable oils, which can be used in unmodified diesel-engine vehicles. It is thus distinguished from the straight vegetable oils (SVO) or waste vegetable oils (WVO) used as fuels in some diesel vehicles.
South Korean energy resources developing companies have paid attention to bio fuels since they can be used in vehicles if they are mixed with fossil fuels such as gasoline.
SK Chemicals has pushed the biodiesel business since 2005, when it separated from then-SK Petrochemical. But its efforts have been frustrated as the quality of its product fell short of government standards.
Experts said, while the country's energy development companies have so far been doing well in their overseas businesses exploring fossil resources such as oil, gas and coal, they should also focus on new alternative energy sources in the coming decades.