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South Korea currently relies on imported liquefied natural gas (LNG) for most of its natural gas, though it began producing a small quantity of natural gas from one offshore field in November 2003. Imports of LNG began in 1986, after the founding of the state-owned monopoly LNG importer Korea Gas Company (Kogas). South Korea currently gets most of its LNG from Qatar, Indonesia, Malaysia, and Oman, with a smaller volume coming from Brunei and occasional spot cargoes from elsewhere. The supplies from Qatar, which is now the largest exporter of LNG to South Korea, began in August 1999 under a contract with Qatar's new Ras Laffan LNG (RasGas) venture. The first shipment of Omani LNG was loaded in April 2000. In 2002, natural gas comprised around 11 percent of South Korea's primary energy consumption. South Korea is the second largest importer of LNG worldwide, importing 896 billion cubic feet (Bcf) of LNG in 2003. Imports of LNG grew by nearly 10 percent in 2003, continuting a pattern of rapid growth dating from the recovery from the Asian financial crisis of 1997-98. South Korean natural gas demand is split almost evenly between the electricity sector and the residential heating sector, with a smaller amount consumed in petrochemical plants.
Despite the temporary downturn, Kogas is planning to push ahead with projects for the expansion of LNG receiving terminals. South Korea is increasing capacity at its existing terminals (Pyongtaek and Inchon). Also, Mitsubishi Corporation of Japan and Pohang Iron and Steel Corporation signed a letter of intent in October 1998 to build an LNG receiving terminal in South Korea at Kwangyang. Construction of the facility started in June 2002, and current plans call for it to be completed by mid-2005.
The South Korean government announced in 1999 that it intends to privatize Kogas. An initial public offering of 33 percent of Kogas equity was carried out in December 1999. Privatization plans initially stalled, however, due to questions about the structure of the companies which would result if Kogas were split for privatization, and opposition from labor unions representing Kogas employees. Legislation necessary to put the process in motion has not yet been passed by the South Korean legislature. While the South Korean government still backs eventual privatization of Kogas, the process is essentially stalled.
In addition to LNG imports, South Korea began producing a small amount of domestic natural gas in November 2003. KNOC's $320 million Donghae-1 development project is developing a natural gas deposit offshore from Ulchin in southeastern South Korea estimated to contain 240 Bcf of reserves. Donghae-1 is a relatively minor development, however, and will satisfy only about 2 percent of South Korea's natural gas demand.
Meanwhile, South Korea also is exploring the possibility of a natural gas pipeline from the Kovykta natural gas deposit in the Irkutsk region of Eastern Siberia. The pipeline would supply China as well as South Korea. The project as currently envisioned would supply about 1 Bcf/d to South Korea, and a larger volume to China. Officials from the two Koreas met in September 2001 to discuss the project, and Kogas completed a desk study of its feasibility. However, it now appears that the route will include a subsea section between China and South Korea, bypassing North Korea. No final decision or binding contract has been concluded for the project, which remains under negotiation.
Coal supplies about 21 percent of South Korea's total energy requirements. Most of this coal is imported, since the only indigenous coal resources consist of low-quality anthracite used in home heating and small boilers. Bituminous coal supplies (steam coal for power plants and industrial boilers and metallurgical coal for steelmaking) come mainly from Australia and China, with the United States also among the suppliers. State power company KEPCO has invested in several Australian coal mines. Increased demand for coal in China in 2004 led to a drop in Chinese exports, which raised prices sharply for Pacific Basin coal importers, including South Korea.