Korea Braces for Worst
Oil Price Hike Scenario

Considering mandatory energy conservation as emergency measure

The government has implemented long-term measures to stabilize petroleum supplies on top of energy conservation polices so that recent crude oil price hikes do not have a great impact on the national economy, said Lee Won-gul, vice minister for energy at the Ministry of Commerce, Industry and Energy (MOCIE).
Vice Minister Lee said, "The government is considering introducing mandatory energy conservation measures like the reduction of lighting hours if energy supplies are disrupted together with crude oil price hikes."He cited experts"forecast that international oil prices will stay at higher levels for the time being. The following are excerpts from an interview Vice Minister Lee had with NewsWorld.
Question: Will you tell our readers the current status of crude price hikes and prospects for the future?
Answer: Crude oil prices appeared to remain a relatively stable on the international markets after reaching a record high on May 3, but again surged with Dubai oil soaring close to as high as $72 per barrel on July 14. Dubai crude, which set a record high of $71.96 on July 14, fetched $71.70 per barrel on July 17 while the U.S. benchmark West Texas Intermediate (WTI) was traded as high as $75.39 per barrel on the same day.
Several factors combined to send crude oil prices spiraling to higher levels.
First, such geopolitical uncertainties have mounted since the beginning of July, including Iran's nuclear issue being addressed by the United Nations Security Council, armed clashes between Israel and Lebanon and disruption of Nigerian oil supplies, caused by pipeline explosions. Foreign ministers of the five permanent members of the U.N. Security Council ? U.S. Britain, France, Russia and China - plus Germany decided to refer the Iranian nuclear issue to the council at a meeting in Paris held on July 12.
Secondly, crude oil prices have been pushed by such seasonal factors as the U.S. gasoline consumption peak and the arrival of hurricanes.
In addition, such psychological phenomena as future prospects on crude oil price hikes have sent international oil rising.
International oil prices are expected to gyrate with higher-than-usual margins, depending on the developments of the Iranian nuclear issue, armed clashes between Israel and Lebanon and U.S. gasoline demand and interest rate movements. Government and civilian experts predicted in their joint meeting held on July 14 that international oil prices will stay at higher levels for the time being.
Q: Will you elaborate on the government's mid- and long-term steps to cope with crude oil price hikes?
A: Korea, with an energy-guzzling industrial structure, wholly depends on crude oil imports, whose price hikes have adverse effects on the national economy. Such crude oil price hikes lead to a rise in petroleum products and petrochemical products, having a negative impact on the real economy.
Statistics released by Korea Energy Economics Institute showed that a 30 percent surge to $65 per barrel in international crude oil prices over 2005 would drop 0.51 percentage points in domestic growth product (GDP), but increase consumer prices 0.32 percentage points, while a 50 percent clip to $75 per barrel would plunge 0.99 percentage points, but raise general prices 0.60 percentage points.
In this regard, the government has carried out long-term measures designed to stabilize petroleum supplies on top of energy conservation policies so that crude oil price hikes do not adversely affect the national economy.
First, in a bid to beef up crisis management capability by securing crude oil, the government has turned to such policies like the expansion of petroleum stockpiling facilities, purchases of stockpiled petroleum and stepped-up efforts to expand international joint stockpiles. The nation plans to raise its stockpile capacity from 116 million barrels in 2005 to 123.5 million barrels in 2006. Korea participated in an international joint project to stockpile 20 million barrels with Algiers and Norway, and it plans to implement a project to stockpile an additional 25 million barrels with Kuwait and United Arab Emirates during this year.
Efforts to develop and disseminate such new and renewable energy sources as hydrogen, fuel cell, solar cells (photovoltaics), wind power, and bio-diesel have been redoubled. Diesel with a content of less than 5 percent bio-fuel is to be commercialized in July. The government plans to raise the distribution ratio of new and renewable energy sources from 2.2 percent in 2005 to 2.5 percent in 2006 and 5.0 percent in 2011.
Korea is putting more energy into expanding cooperation in the energy field with energy resource-rich countries like Russia and Algiers, while aggressively participating in projects to explore energy resources to secure them by creating a petroleum development fund worth 200 billion won.
Finally, the government is considering introducing mandatory energy conservation measures as a reduction of lighting hours and a system of banning car from the road on given days if energy supplies are disrupted together with crude oil price hikes.
Q: Will you specify the ministry's mid- and long-term plans to raise petroleum self-sufficiency rate and efforts to explore energy resources abroad?
A: Korea aims to raise its own crude oil and gas development rate from 4.1 percent at the end of 2005 to 18 percent in 2013. Currently, Korean companies are engaged in 71 projects for petroleum and gas fields in 26 countries. In particular, the nation has secured rights to prospect petroleum reserves reaching 5.8 billion barrels - more than the aggregated amounts it has secured for the previous two decades - thanks to President Roh Moo-hyun's summit diplomacy efforts to obtain energy resources since 2004, More petroleum production or expansion will be launched in 2008 or later out of the mining blocks the nation has secured.
The government has implemented its separate summit diplomacy strategies depending on each region and each energy source in a bid to increase the energy self-sufficiency rate.
Special energy accounts of the government budget and part of transportation-related tax revenues and overseas resources development loans from the Export-Import Bank of Korea will be augmented to provide financial support for companies'efforts to explore energy resource abroad. An overseas petroleum development fund will be raised from the second half of the year to capitalize on rich cash flows from the local financial market.
Under a short-term perspective, the government is seriously considering acquiring mining fields where rigging petroleum has been already begun. A task force from the MOCIE, the Ministry of Finance and Economy and the Ministry of Planning and Budget as well as corporations prospecting petroleum will be formed up to study such things as mining blocks with prospecting potential and raising necessary funds.
The government is working on a long-term strategy to foster Korea National Oil Corp. as a regional major specializing in natural resources development.
Q: Could you provide the details of the government's mid- and long-term plans to develop new and renewable energy resources?
A: The basic plan for new and renewal energy development, drawn up in December 2003, calls for raising the percentage of new and renewable energy resources to 5 percent of the total primary energy supply by 2011.The government is strengthening institutional foundation in such areas as budget, organization and related laws while providing support for technology development and technology dissemination. To this end, it has set aside 409.5 billion won in the budget of the new and renewable energy sector for this year. The budget amounts represent a year-on-year rise: the government channeled 119.3 billion won in 2003, 196.4 billion won in 2004 and 324.2 billion won in 2005.
The government has beefed up strategic R&D activities focusing on areas with a high feasibility of commercialization and industrialization. It has designed three core sectors with industrial spillover effects - hydrogen/fuel cells, solar cells (photovoltaics) and wind power. The government has financed large-sized tasks for the development of futuristic core technologies each business corps of the three core sectors perform. The government also provides financial support on projects for commercialization of technologies in seven areas, including solar heat, based on the outcome of a survey on corporate demand.
It offers subsidies and other financial support policies for the construction of 100,000 solar roofs.
The government also supports infrastructure buildup for commercializing new and renewable energy technologies, including common use of parts and souped-up certification on top of human resources development.
Q: Will you tell our readers about electricity supply plans?
A: Electricity consumption is forecast to peak at 58.08 million kW during the current summer season, a 6.3 percent increase over the same period of last year due to the recovery of domestic demand.
In a bid to meet the rising electricity demand, Korea has already secured a total electricity capacity of 64.58 million kW with the timely completion of a new power plant capable of supplying 3.76 million kW while strengthening demand control like demand spread by 5.38 million kW. As a result, electricity is unlikely to be in short supply during the current summer season with a power reserve rate of 11.2 percent. In the event of such contingencies as unusual high temperatures and breakdown of generators, 4.61 million kW will be set aside for emergency use.
Q: Will you explain the government's plans to construct nuclear power plants?
A: Currently, 20 nuclear units are in operation in four nuclear power complexes in Kori, Yongkwang, Wolsong and Ulchin since 1978 when Kori Nuclear Power Unit One was put into operation for the first time in Korea. Korea ranked sixth in terms of the number of nuclear power plants in operation. Nuclear power plants now account for 28.5 percent of the nation's total power capacity, but is responsible for generating 40.4 percent of its total power production. Eight more nuclear power units will be constructed by 2017.
Nuclear power emerges as a more plausibly alternative energy source than ever due to less energy production costs and no greenhouse gas emissions like carbon dioxide.
The recent crude oil price hikes, the entry into force of the Kyoto Protocol on climate change and an unstable supply of bituminous coal and liquefied natural gas have reminded the world of the significance of nuclear power. Nuclear power is contributing to supplying energy at a cheaper price for Korea, which depends on foreign countries for energy imports. Consumer prices have surged 192.8 percent since 1982, whereas electricity charges have risen a mere 3 percent thanks to nuclear power generation.
The government plans to maintain an optimum proportion of nuclear power generation to meet a rise in electricity demand and secure a stable supply of energy while ensuring the safety of nuclear power and raising public acceptance of atomic energy.
Q: Will you explain how to build a low- and intermediate-grade radioactive waste treatment facility in Gyeongju and a plan to construct a high-grade radioactive waste treatment site?
A: A committee for the selection of nuclear waste treatment method announced on June 28 that the planned nuclear waste treatment facility will adopt an underground disposal method in which an 80-meter deep cave is dug.
Six members of the committee -the representatives from the local administrative body, local community, NGOs and exports- agreed on the selection of the underground disposal method, based on their diverse examinations.
The committee said the underground treatment method turned out to cause less environmental damages and less management costs after completion, whereas a near-surface disposal method carries such advantages as easier construction and waste treatment, but has drawbacks as it causes more environmental damage.
Nuclear fuel waste has been kept at a temporary storage facility at each nuclear power complex. The temporary storage facility of the Wolsong Nuclear Power Complex will be the first one to be filled with nuclear fuel waste to full capacity in 2016.
An issue of constructing a nuclear fuel waste treatment facility will be determined, based on public consensus following discussions into the direction of national policies and technology developments in Korea and abroad, as agreed during a Nuclear Power Committee's meeting held in December 2004. nw

Lee Won-gul, vice minister for energy at the Ministry of Commerce, Industry and Energy (MOCIE)