Value context and insight. lkm@koreatimes.co.kr
Prospect of gas, oil drilling could reshape energy supply in East Asia: experts
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By Lee Kyung-min
Oil and gas stocks surge, experts call for caution
Korea could emerge as a leader in energy security in East Asia, fueled by the prospect of government-commissioned drilling for a combined 14 billion barrels of crude oil and natural gas in the East Sea, experts said Tuesday.
Uncertainty persists over the extractable amount for commercial use, compounded further by the substantial cost of 100 billion won per drilling ($72.5 million).
Nevertheless, the availability of natural resource reserves is expected to boost Korea's exports and domestic energy consumption, underpinned by the well-established liquefied natural gas (LNG) infrastructure for transportation purposes.
Also robust will be demands from China and Japan, the world's largest consumers of LNG.
The government announced on Monday that potential energy reserves total of 2,000 trillion won were identified off the coast of Pohang. The industry ministry-verified feasibility suggested a success rate of 20 percent, as endorsed by the global Houston-based oil exploration firm ACT-GEO. Drilling operations are scheduled to commence in the second half of this year and will continue until 2026, with results expected before July next year.
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“It is a definite boon, if it materializes,” said Korea Energy Economics Institute (KEEI) oil policy research team head Jung Jun-hwan.
Previous energy sources identified during the Park Chung-hee administration in the 1970s resulted in short-lived enthusiasm due to questionable commercial viability. However, optimism is now buoyed by decades of advancements in drilling and extraction science technologies.
“The existence of natural resources reserves preserved near the East Sea is nothing new, as evidenced by oil and LNG found at the time. High expectations of commercial viability is understandable, since relevant technologies have made great strides over decades since.”
A local brokerage analyst added to the hype.
DB Financial Investment researcher Han Seung-jae said the reserve exploration investment will generate handsome returns, despite high drilling costs.
“Up to 14 billion barrels of crude oil and natural gas drillable off the cost of Pohang is far greater than 11 billion barrels found in Guyana – the exploration of the century,” he said.
The cost is a source of heated criticism of government resources allocation, eclipsed by the substantial volume of reserve, in his view.
"The success of the drilling will bring tremendous political and economic benefits, reshaping the energy supply in East Asia," he said.
Also fortified will be a synergistic outcome in the broader hydrogen-related businesses, as well as enhanced cost efficiency among petrochemical market players.
Meanwhile, the news of a potential boon propelled a dozen energy-related shares to their intraday upper cuircuit limits on Monday. The double-digit surge continued through the following day.
Leading the rally were state-run gas firms as well as large-cap energy subsidiaries of petrochemical conglomerates.
Meritz Securities researcher Moon Kyeong-won said the government's announcement was based on the figure assessed by the American firm and is in no way a guarantee of reserves extractable.
“The initiation of the project will proceed with the economic viabilityfactor out. Commercial development will come into the picture only in 2035 after years of exploration through 2028. The outcome of the project is not at all a foregone conclusion.”
Meanwhile, ACT-GEO President Vitor Abreu, the conductor of the Pohang energy reserve exploration, is scheduled to visit Korea, Wednesday, according to media outlets in the country.
The expert with three decades of experience in resource exploration, development production and research is a widely recognized figure, as illustrated by his proven record in evaluating, risking and drilling in 22 countries. The firm participated in projects in the Guyana Basin of South America.