Low Oil Price a Chance for Fuel Efficiency
By Kim Hyun-cheol
Staff Reporter
Falling global oil prices have many people sighing with relief, and as the exchange rate is stabilizing, expectations are high that the national economy can get back on track.
But concerns still linger about the long-term of the country's industrial prospects, with some saying Korean firms now have to ``shed blood, sweat and tears over how to use fuel and energy resources more efficiently,'' as well as other technological developments.
Under better circumstances, businesses would need to go through a large-scale overhaul on the basis of energy consumption, Park Sung-bae, a senior researcher at the Samsung Economic Research Institute (SERI), said Wednesday.
``In the last decade, industries were not ready to deal with the issue of how to be energy-sufficient, on the back of low oil prices, while those in advanced countries have already been working on this for many years,'' Park said.
In international markets, crude oil prices have been constantly falling after hitting a record high in early July. Dubai crude, Korea's benchmark, was then over $140, but now hovers around $55, down nearly 60 percent from four months ago.
Analysts expect oil prices will feel more downward pressure. A sluggish U.S. economy is likely to drive a further downturn in global demand, according to a recent report by the Korea Economics Institute (KEI).
Efficiency Matters
The issue of energy efficiency is emerging with growing global interest in the environment and sustainable development, especially in heavy industries such as oil refining and the manufacture of steel, which consume a substantial amount of energy.
As these industries account for a large part of the Korean economy, fostering efficiency will lead to huge cuts in energy-related expenses, SERI said.
Currently the portion of energy-guzzling companies stands at nearly 40 percent of the national economy, meaning a 1-percent rise in energy efficiency would save around $360 million.
Korea's production compared to energy use is well below that of most advanced countries, according to the institute.
As of 2006, its energy efficiency is less than half of Japan in terms of an added value-based energy index, which is the ratio of overall added value of products to the total amount of energy used in their production.
The gap has narrowed compared to 1999, but SERI said that doesn't mean the country's energy consumption system has developed much.
``It is more likely due to changes in the prices and range of Korean products than real development,'' Park said.
In the latest report using a new approach to measure efficiency, the gap was even bigger. SERI this time substituted production amount with added value, which is more commonly used in such studies, to remove factors such as changes in exchange rates.
The overall result showed the difference increase by 5 to 14 percentage points from the late 1990s, with the cement industry worst, displaying a 20-percent shortcoming.
Hopeful Signs
Not all Korean manufacturers are behind their neighbors in terms of energy efficiency. Paper companies here are a good example, surpassing their Japanese counterparts by over 20 percent, and reaching a world-class level.
Many Korean paper companies were less productive than their overseas rivals despite cutting-edge facilities, due to a lack of an energy-saving integrated production process. However, they successfully solved the problem by expanding the use of waste paper.
In addition, huge restructuring due to the weakened currency, and an upswing in pulp prices helped promote efficiency.
Non-steel metal production is another field with a good record, thanks to increased investment in facilities and the constant introduction of new processes.
Compared with Japan, the lower energy efficiency is partly attributable to the fact that a lot of Korean makers own better facilities. However, they have stalled in making additional efforts as energy for industrial use is cheaper here.
The government needs to focus on promoting the development of more energy-related technologies and supporting their commercialization, the KEI report said.
``Korean businesses are benefiting from governmental support, such as in fuel subsidies. Consequently, it will just end up depriving them of solutions in times of higher energy prices,'' SERI's Park said.
``In the long term, prices should be left to market devices and companies should find ways of improving their energy efficiency themselves.''