'Resource nationalism' threatens Korea's energy supply

Workers walk near a vessel carrying coal at a port in Palembang, Indonesia, Jan. 4. Reuters-Yonhap

Korea calls on Indonesia to resume coal exports

By Baek Byung-yeul

The global economy is being affected once again by resource nationalism, which has reared its head since the beginning of the new year with mineral-rich countries closing their doors to exports and asserting control over their raw materials. This comes as a significant threat to Korea, which is heavily dependent on imports of natural resources to meet its energy and production needs.

The energy resource crisis stems from multiple factors, such as supply chain disruptions caused by the U.S.-China trade row, the impact of the COVID-19 pandemic and the growing carbon neutrality trend which has increased the cost of metals and minerals that are essential for producing solar power, wind power, electric vehicles and other renewable energy technologies.

Experts said that countries with abundant resources will increasingly pursue more nationalistic strategies to exercise control over resources in 2022 and those suffering from a lack of raw materials like Korea should come up with measures to secure a stable supply of energy resource materials, such as helping private companies actively seek overseas resource development projects.

On Dec. 31, the Indonesian government announced it was banning coal exports for a month as supplies at its domestic power plants fell to critically low levels, which consequently raised risks of blackouts.

The decision to ban exports of the mineral stemmed mostly from China's increasing dependence on Indonesian coal after the world's second-largest economy stopped buying coal from Australia, amid strained diplomatic relations with the key U.S. ally.

Indonesia accounts for 20 percent of Korea's total coal imports followed by Australia and concerns are growing over a disruption in the country's power generation capacity.

An official from a local power plant company said that the export ban would have a negative impact in the long term resulting in a hike in coal prices.

"In the short term, there is no significant impact as we have enough inventory. But in the long run, coal prices may rise or there may be changes in supply, so we are keeping an eye on the situation," the official said.

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On Friday, the government called on the Indonesian government to resume coal exports as Trade Minister Yeo Han-koo held a virtual meeting with his Indonesian counterpart, Minister of Trade Muhammad Lutfi.

In response, the Indonesian minister said he is well aware of Korea's concerns and added that his country will make efforts to resolve the issue smoothly, according to Korea's trade ministry. The trade ministers of the two countries also agreed on the importance of cooperation in global supply chains and emphasized the need to strengthen solidarity in the supply of raw materials in the future.

There are also fears that Korea could experience another shock like the urea water crisis in late 2021 as Russia has been restricting natural gas supplies to Europe since last year and Mexico recently decided to suspend oil exports from 2023.

Starting last October, Korea underwent a shortage of diesel exhaust fluid (DEF) ― which is also called urea water and is an essential additive for diesel-powered vehicles ― after China tightened its exports of fertilizers, including urea, as fertilizer prices soared. That shortage forced diesel trucks to be grounded, causing the country's logistics networks to grind to a virtual halt.

Korea is totally dependent on imports of urea water and fears mounted that the country could see acute supply chain disruptions from the shortage of DEF. Currently, the government is importing enough supplies from China and Australia to weather the next few months. But concerns have not eased that such a lack of resources could paralyze the country's economy again.

For now, the government said Indonesia's ban on coal exports will have only a minimal impact in the short term.

"Considering the amount of coal inventory already secured and the amount of coal imports from other countries such as Australia, Indonesia's move is expected to have a limited short-term impact on domestic electricity supply and demand," a trade ministry official said.

Trade Minister Yeo Han-koo speaks with his Indonesian counterpart, Minister of Trade Muhammad Lutfi, via an online conference at his office in Seoul, Jan. 7 to discuss the Southeast Asian country's recent coal export ban. Courtesy of Ministry of Trade, Industry and Energy

Experts said that for Korea, which relies heavily on imports for energy supply, promoting overseas resource development is an essential task to ensure the stable supply of energy resources. They added that the development projects, however, should be led by private companies rather that government-led models that are busy seeking only short-term fixes.

"The urea water crisis seems to have ended, but we are seeing that the prices of lithium and cooper as well as food prices are rising," Park Ho-jeong, a professor at the Department of Food and Resources Economics at Korea University, said.

"To be able to maintain energy security, a country should be able to procure energy resources at reasonable prices without interruption. In order to increase energy security, the government should strengthen support so that private companies can pioneer overseas resources development," the professor said.

Stating that the resource nationalism trend, triggered by factors like the U.S.-China trade dispute, will intensify around the world, the professor stressed that the government needs to come up with mid- to long-term measures to secure energy resources. The government plans to amend the energy security act, with changes such as diversifying the supply chain of various energy resources including renewable energy, and increasing inventory levels of these resources.

"Currently, overseas resource development projects are almost halted as several projects led by state-run companies ended in failure. But this should be actively engaged again. Under the strategy of strengthening energy security, companies should be systematically supported to develop overseas resources," Park added.