KEEI Korea Energy Demand Outlook

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KEEI

Korea Energy Demand Outlook

ISSN 2093-7199

September 2014

Volume 16, No. 3 QUARTERLY ENERGY OUTLOOK

Korea Energy Economic Institute

132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do Phone: (031)420-2114

Fax: (031)422-4958

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September 2014

KEEI

Korea Energy Demand Outlook

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·Director of research Lee, Seung-moon([email protected])

·Primary energy-Oil Lee, Seung-moon([email protected])

·Electricity Kim, Cheol-hyeon([email protected])

·Town gas/Thermal energy Park, Myeong-deok([email protected])

·Coal/Conversion Lee, Sang-youl([email protected])

·Material/Research support Jang, Seon-hwa([email protected])

·Material/Research support Lim, Deok-O([email protected])

·Statistical support Lee, Bo-hye([email protected]) Phone: +82-31-420-2270, +82-31-420-2234

Fax: +82-31-420-2164

KEEIKorea Energy Demand Outlook

This report quickly identifies recent changes in energy supply and demand and provides energy supply/demand forecast indexes and other information of great interest for formulation of government policy. It is intended to facilitate government efforts to set and adjust overall policy on energy supply and demand.

This report was written and edited by the Energy Demand and Supply Forecast Team under the Center for Energy Information and Statistics of KEEI.

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Summary ……… 4

1. Energy Consumption ……… 7

2. Energy Outlook ……… 12

3. Major characteristics……… 21

4. Policy implications……… 25

<Table 1> Rate of increase of each major energy source……… 6

<Table 2> Primary energy consumption and outlook ……… 19

<Table 3> Final energy consumption and outlook ……… 20

[Figure 1] Economic growth and primary energy consumption ……… 7

[Figure 2] Change in primary energy consumption……… 9

[Figure 3] Change in final energy consumption by sector ……… 11

[Figure 4] Economic growth rate and primary energy increase ……… 13

[Figure 5] Outlook for energy intensity and per-capita consumption ……… 13

[Figure 6] Percentage shares of energy sources ……… 16

[Figure 7] Percentage share of final energy demand of each sector ……… 18

[Figure 8] Outlook on contribution to final energy consumption increase by sector ……… 22

[Figure 9] Oil dependence and forecasts ……… 24

Subject Contents

Table of Contents for Titles

Table of Contents for Tables

Table of Contents for Figures

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Summary

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(Primary energy) Primary energy demand for 2014 is forecast to rise 1.4% to 284.0 million toe.

As was the case in 2013, the rate of increase in primary energy demand will likely be lower than the economic growth rate.

* Economic growth rate of Korea (%): (’12) 2.3% →(’13) 3.1% →(’14) 3.8%

Consumption of energy for raw material use in the industrial sector is forecast to lead a rise in energy consumption as a result of increased industrial production.

(Key energy indicators) Energy efficiency will likely improve, and per-capita energy consumption is expected to rise.

Energy intensity (toe/million won) is expected to somewhat improve from 0.208 in 2012 to 0.203 in 2013 and 0.198 in 2014.

Per-capita energy consumption is forecast to increase from 5.57 toe in 2012 and 5.58 toe in 2013 to 5.63 toe in 2014.

-It is forecast to remain at a higher level than in major OECD countries.

* Per-capita energy consumption in major countries (As of 2013): (OECD average) 4.18, (US) 6.90, (France) 3.84, (Germany) 3.81, (Japan) 3.56

(By energy source) Of all primary energy sources, the volume of nuclear power generation is expected to rise the most rapidly.

Oil (0.5% increase): Oil demand is expected to rise as a result of an increase in demand in the industrial sector spurred by the economic recovery.

* Rate of increase in naphtha demand (%): (’12) 8.3 →(’13) -0.1 →(’14) 3.4

Coal (1.9% increase): Coal demand for power generation will likely drop, but demand for industrial use is forecast to rise, mainly for bituminous coal for steel making.

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LNG (7.6% decrease): Consumption dropped in the first half of the year as the weather was warmer compared to the previous year. Demand for power generation is expected to decrease.

* Rate of increase in natural gas consumption (%): (’12) 8.1 →(’13) 4.7 →(’14) 7.6 Nuclear power (15.7% increase): Nuclear power generation is expected to rise substantially with the resumption of operation of some nuclear power generation facilities that were suspended due to cable issues last year.

Electricity (0.8% increase): Demand for residential/commercial/public use is expected to drop, but a rise in demand for industrial use is forecast to result in an overall slight increase.

(By consumption sector)Final energy demand is expected to rise 1.8% to 214.4 million toe as a result of increased production in energy-intensive industries.

Industry (4.9% increase): Demand for coal (bituminous coal for steel making), naphtha, and others for raw material use will likely lead an increase in overall demand as a result of increased industrial activity.

Transport (0.6% increase): This increase is due to a downward trend and stabilization of oil prices, a rise in cargo volume, an increase in demand for domestic and overseas travel, and a rise in the number of registered vehicles.

Residential/commercial/public (6.6% decrease): Energy demand is forecast to fall due to the relatively warm weather in the first half of the year compared to the previous year.

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(year-on-year, %)

Category 2011 2012 2013p 2014e

Primary energy 4.9 0.7 0.5 1.4

Oil 0.9 3.2 -0.3 0.5

Coal 8.1 -2.1 1.1 1.9

Natural gas 7.6 8.1 4.7 -7.6

Electricity 4.8 2.5 1.8 0.8

Nuclear energy 4.1 -2.8 -7.7 15.7

<Table 1> Rate of increase of each major energy source

Notes: p indicates that the figures are provisional; e indicates that the figures are forecasts

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Primary energy consumption for the first half of 2014 is tentatively tallied at 140.5 million toe, a year-on-year rise of 0.4%.

Primary energy consumption rose slightly as a result of an increase in consumption for raw material use in the industrial sector, triggered by a rise in economic activity in major energy-intensive industries. This is despite reduced LNG consumption (-9.6%) owing to the weather being warmer than during the previous year.

* Domestic economic growth rate (%): (’11) 3.7% →(’12) 2.3% →(’13) 3.0% → (First half of ’14) 3.7%

* Primary energy increase rate (%): (’11) 4.9% →(’12) 0.7¹⁾→(’13) 0.5% →(First half of ’14) 0.4%

Excluding energy for raw material use (non-energy oil, coking coal), primary energy consumption declined 2.6% year-on-year.

- Energy consumption for raw material use rose 8.9% year-on-year. As a result, energy for raw material use accounted for 28.3% of primary energy consumption, indicating growth of 2.2%p.

1) Primary energy increased 2.1% when the same energy conversion factor as that used in 2011 is applied. It went up 0.7% when the new energy conversion factor (introduced on December 30, 2011) is applied.

Energy Consumption

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[Figure 1] Economic growth and primary energy consumption

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Energy consumption by source in the first half of 2014

Oil consumption rose only 0.2% year-on-year. Oil consumption dropped in the transport, residential/commercial/public, and conversion sectors, but consumption for raw material use in the industrial sector went up, mainly for naphtha.

- Naphtha consumption went up 4.0% year-on-year, attributable to an increase in exports of the top six basic oil products and a rise in petrochemical industry activity.

- There was an increase in consumption of LPG to replace naphtha. However, consumption of LPG for town gas calorific value adjustment plummeted 63.5%.

Overall LPG consumption declined 5.1%.

- Oil consumption fell 10.0% in the residential/commercial/public sector owing to the substitution of oil by other energy sources such as town gas, a result of the high oil prices, and unseasonably warm weather.

- Consumption rose 3.7% in the industrial sector as a result of increased naphtha consumption. Excluding consumption for raw material use, it dropped 1.8%.

- In the transport sector, consumption slightly went down 0.3% as a result of a substantially slower increase in diesel consumption in the wake of the MV Sewol incident, a drop in gasoline consumption, and continued decrease in heavy oil and LPG consumption. This is despite a rise in consumption of jet fuel as an outcome of an increase in demand for traveling.

- Naphtha accounted for 48.3% of total oil consumption, indicating a year-on-year rise of 1.8%p.

Consumption of coal went up 1.7% as a result of a sharp increase in consumption for industrial use – mainly bituminous coal for steel making. This is despite a drop in coal consumption for power generation.

- Bituminous coal consumption for steel making rose 19.1% as a result of an expansion of steel production facilities in the second half of 2013. There was also a rise of 12.3%

in consumption for raw material use in the cement industry after implementation of measures to save the cement industry. In contrast, consumption for power generation declined 5.1%. Overall, bituminous coal consumption rose 2.0%.

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- Anthracite consumption fell 2.5%. There was a rise in consumption for industrial use, but this was more than offset by a decrease in consumption for power generation and heating demand as a result of the warm weather.

Consumption of natural gas (LNG) dropped 9.6% year-on-year owing to a decrease in consumption for power generation and natural gas consumption for gas production.

- LNG consumption for power generation fell 8.4%, attributable to the resumption of operation of nuclear power plants.

- LNG consumption for gas production plummeted 10.4% as a result of mild temperatures compared to the previous year.

Consumption of nuclear energy rose 13.5% year-on-year owing to the resumption of operation of some nuclear power plants (Singori Nuclear Power Plant Units 1 and 2 and Sinwolseong Nuclear Power Plant Unit 1).

Electricity consumption rose 0.5% year-on-year. There was a substantial drop in demand for commercial use, an outcome of the mild weather compared to the previous year and increased electric fees, but there was an even greater increase in electricity demand for industrial use.

[Figure 2] Change in primary energy consumption

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- Electricity consumption for industrial use rose 4.0% year-on-year, thus recording a rise of between 4% and 5%, just like the second half of last year.

- Electricity consumption for residential/commercial use went down 3.3% as a result of mild temperatures compared to the previous year and a rise in electric fees.

The percentage of primary energy consumption by source was the highest for oil at 37.0%, followed by coal at 29.5%, LNG at 18.0%, and nuclear power at 11.6%.

Energy consumption by sector in the first half of 2014

Final energy consumption in the first half of the year rose 1.6% year-on-year to stand at 107.7 million toe.

- Energy consumption in the residential/commercial/public sector plummeted by 8.1%

as a result of the warm weather compared to last year. In contrast, energy consumption in the industrial sector rose 5.6% owing to improvements in the economy. Overall, final energy consumption rose.

Energy consumption in the industrial sector went up 5.6% year-on-year, attributable to an increase in consumption of naphtha and bituminous coal for raw material use.

- Consumption for raw material use in the industrial sector went up 8.9%. Consumption of bituminous coal for steel making and naphtha rose 19.1% and 4.0%, respectively.

- Energy consumption for fuel in the industrial sector went up 1.2%.

- The rates of change by source were 4.0% for electricity, -9.5% for town gas, 14.2% for coal, and 3.7% for oil.

Energy consumption in the transport sector in the first half of the year slightly dropped 0.1% year-on-year, attributable to decreased consumption of gasoline (-0.4%), heavy oil (-9.9%), and LPG (-5.4%), despite an increase in consumption of jet fuel (4.4%) and diesel (1.8%).

- Jet fuel consumption rose due to increased demand for travel. In contrast, diesel consumption rose substantially more slowly as a result of the MV Sewol incident.

Consumption in the residential/commercial/public sector went down 8.1% year-on-year owing to the warm weather compared to last year.

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- There was a sharp drop in the consumption of all energy sources used for heating, including town gas (-13.7%), oil (-10.0%), electricity (-3.3%), anthracite (-22.7%), and thermal energy (-14.1%).

[Figure 3] Change in final energy consumption by sector

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2) A change in the base year of national accounts and the implementation of new international standards for

Primary energy demand is forecast to rise 1.4% in 2014 to 284.0 million toe.

Primary energy demand is forecast to rise at a lower rate than the economic growth rate, as in 2013.

* Domestic economic growth rate (%): (’12) 2.3% →(’13) 3.0% →(’14) 3.8%

Consumption for raw material use in the industrial sector for increased industrial production is expected to lead a rise in energy consumption.

The volume of nuclear power generation is expected to rise substantially with the restarting of nuclear power generation facilities that had been stopped in 2013.

Forecasts for key energy indicators

Energy intensity is expected to slightly improve from 0.208 toe/million won in 2012 and 0.203 toe/million won in 2013 to 0.198 toe/million won in 2014²⁾

- Energy intensity is expected to fall as a result of a rise in GDP of the manufacturing and service industries, triggered by economic growth, despite a considerable increase in energy consumption for raw material use in the industrial sector.

Per-capita energy consumption is expected to have risen from 5.57 toe in 2012 to 5.58 toe in 2013 and is forecast to rise to 5.63 toe in 2014.

- It is expected to remain at a high level compared to major OECD countries.

* Per-capita energy consumption in major countries (as of 2013): (OECD average) 4.18, (US) 6.90, (France) 3.84, (Germany) 3.81, (Japan) 3.56

- There was a rise in energy demand to power electric equipment, electronic equipment, air conditioning, heating systems, automobiles, and the like as a result of higher income levels.

- A sharp rise in energy consumption for raw material use in the industrial sector led a continued increase in per-capita energy consumption.

Energy Outlook

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[Figure 4] Economic growth rate and primary energy increase

[Figure 5] Outlook for energy intensity and per-capita consumption

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Forecasts for energy demand by source in 2014

Coal demand is forecast to rise 1.9% year-on-year and reach 132.1 million tons.

- Coal demand for power generation is expected to fall 3.0% year-on-year as a result of a low operation rate of bituminous coal power plants despite the commencement of operation of new facilities in the second half of the year.

- Coal demand in the final consumption sector is forecast to rise 9.8% to 54.4 million tons, attributable to an increase in demand for industrial use as a result of facility expansions.

Oil demand is forecast to increase 0.5% year-on-year owing to a rise in demand in the industrial sector as a result of the economic recovery, despite a continued drop in the residential/commercial/public sector and conversion sector.

- Consumption in the transport sector rose more slowly in the first half of the year as a result of the MV Sewol incident. However, it is expected to slightly rise by 0.4% in response to the downward trend and stabilization of international oil prices and a rise in the number of registered vehicles.

- A rise in demand for naphtha (3.4%), which is used as a raw material in the petrochemical industry, is expected to lead an increase in oil demand in the industrial sector (3.1%).

- Oil demand in the residential/commercial/public sector is forecast to fall 8.8% year-on- year, attributable to the continued substitution of fuel by town gas in response to the persistently high oil prices.

Demand for natural gas is expected to drop 7.6% year-on-year because natural gas consumption for heating substantially dropped as a result of the warm weather in the first half of the year and consumption for power generation also fell, attributable to the resumption of operation of nuclear power plants.

- Natural gas demand for power generation is expected to decline 9.2% as a result of the resumption of operation of nuclear power plants and impact from the Yeongheung Coal Fired Power Plant Unit 5 (870MW), which went into commercial operation in June.

- Natural gas demand for gas production is forecast to fall 5.8% year-on-year owing to a considerable drop in consumption for residential/commercial use due to mild

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temperatures in the first half of the year.

- Town gas demand is forecast to drop 6.7% year-on-year owing to a continued downward trend in demand for residential/commercial use.

Electricity demand is expected to rise only 0.8% owing to slower growth in electricity consumption for domestic industrial use, attributable to the global economic recovery being weaker than expected.

- Electricity demand for industrial use in the second half of the year is expected to rise 3.5%, which is a 0.5%p decline from the first half of the year. It is forecast to indicate a rise of 3.8% for the year.

- The GDP elasticity of electricity consumption for industrial use, which responds sensitively to economic fluctuations, continually dropped from 3.45 in 2009 to 0.60 in 2013. It is expected to continue the downward trend in 2014 as well.

- The rate of increase in electricity consumption for industrial use substantially outstripped the economic growth rate in 2010 and 2011, but the difference is now narrowing.

Nuclear power generation is expected to rise considerably, by 15.7%, with the resumption of operation of Singori Nuclear Power Plant Units 1 and 2 and Sinwolseong Nuclear Power Plant Unit 1, which were suspended in 2013.

The share of energy consumption accounted for by oil and natural gas is expected to decline; the share taken up by coal and nuclear power should rise.

- Oil's share of energy consumption dropped to below 50% in 2002 and has continued to go down. It dropped to 38.1% in 2012 and is estimated at 37.8% for 2013 and forecast at 37.4% for 2014.

- The share accounted for by coal fell to 29.2% between 2012 and 2013 since there was no expansion of coal-fired power generation facilities and demand for industrial use increased more slowly. However, it is forecast to rebound to 29.5% as an outcome of a considerable rise in bituminous coal consumption for raw material use in 2014.

- The share accounted for by natural gas rose to as much as 18.7% in 2013, attributable to a sharp rise in natural gas demand for power generation and town gas production. It is forecast to drop to 17.0% in 2014 due to the unseasonably warm weather.

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- The share accounted for by nuclear power dropped to 10.5% in 2013, attributable to suspension of operation of some nuclear power plants. It should rebound to 11.9% in 2014 with the resumption of operation of nuclear power plants.

Primary energy consumption is forecast to rise 3.1% year-on-year to 292.9 million toe in 2015.

- Coal demand is forecast to go up 4.4% with firm growth in coal consumption for power generation.

- Oil demand is expected to increase 0.5% owing to a continued rise in naphtha demand.

- Natural gas demand is forecast to rise 4.4% as a result of increased demand for town gas use.

- Nuclear power generation is expected to rise at slower rate of 5.9% in 2015, owing to base effects from 2014.

- Electricity demand is forecast to rise 3.1%, attributable to steady growth in electricity demand for industrial use.

[Figure 6] Percentage shares of energy sources

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Outlook for energy demand by sector in 2014

Final energy demand is forecast to rise 1.8% to 214.4 million toe as a result of increased production in energy-intensive industries.

A rise in demand for raw material use, including coal (bituminous coal for steel making) and naphtha, is expected to lead an increase in energy demand in the industrial sector (4.9%). Increased demand for raw material use will be triggered by a rise in industrial activity.

* Forecast for bituminous coal demand for steel making (%): (’12) -0.9 →(’13) 1.8 → (’14) 14.9

* Forecast for naphtha demand (%): (’12) 8.3 →(’13) -0.1 →(’14) 3.4

Energy demand in the transport sector is forecast to increase 0.6% this year, an outcome of the downward trend and stabilization of oil prices, a rise in cargo volume, an increase in domestic demand for travel in Korea and abroad, and an increase in the number of registered vehicles.

- Demand for heavy oil and LPG is forecast to continually fall, and gasoline consumption should indicate little change. In contrast, consumption of diesel fuel and jet fuel is forecast to go up as a result of the downward trend and stabilization of oil prices and an increase in demand for overseas travel.

Energy demand in the residential/commercial/public sector is expected to drop 6.6%, attributable to the unreasonably warm weather in the first half of the year.

Final energy consumption by sector

- The share of energy consumption accounted for by the industrial sector continued to rise. It is forecast to reach around 63.9% in 2014. The increase in the share accounted for by the industrial sector is a result of steady growth of energy-intensive industries including the steel and petrochemical industries and very strong growth of the fabricated metal industry, which consumes a great deal of electricity.

- The transport sector accounted for 21.0% of consumption in 2006, but its share steadily declined afterwards. It is expected to drop to 17.6% in 2014. The drop in the share of consumption of the transport sector is a result of a substantial drop in the rate of increase in petroleum product consumption for transport that compares to the higher

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rate of increase in energy consumption in other sectors. This was a result of the sharp and relentless rise in international oil prices since 2003.

- As a result of strong energy consumption in the industrial sector since 2005, the percentage of consumption accounted for by the residential/commercial/public sector moved steadily downward. It is forecast to fall to 18.5% for 2014. The share of consumption accounted for by the residential/commercial/public sector, where most energy is consumed for heating and air conditioning, tends to vary with temperature changes in the summer and winter.

Outlook for energy demand by sector in 2015

- Consumption of oil and coal for raw material use indicated substantial growth in 2014.

There will likely be slower growth in 2015. Energy demand in the industrial sector is forecast to increase 3.2% year-on-year and lead an overall rise in energy consumption.

- Energy demand in the transport sector is expected to go up 1.0% as a result of increased demand for gasoline, diesel, and jet fuel, attributable to the downward trend and stabilization of oil prices and a rise in demand for overseas travel.

- It is presumed that there will be a 9.9% increase in Heating Degree Day (HDD) from the previous year. As such, energy demand in the residential/commercial/public sector is forecast to go up 3.2%.

[Figure 7] Percentage share of final energy demand of each sector

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Major Characteristics

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Energy demand for heating sharply dropped due to unusually warm weather in the first half of 2014.

HDD in the first half of 2014 remained at 1,501, indicating a substantial decline of 21.6% year-on-year.

According to analysis by the Korea Energy Economics Institute³⁾, electricity consumption for residential and commercial use went down 1.5% and 3.2%, respectively, owing to reduced HDD in the first quarter of 2014. Consumption of town gas and oil for residential/commercial use dropped 4.4% and 8.6%, respectively.

Energy consumption in the residential/commercial/public sector dropped 8.1% in the first half of the year. This was the biggest decline since 2000.

There was a slower increase in diesel consumption in the transport sector owing to the MV Sewol incident.

In the second quarter, there was substantially slower growth in consumption of diesel, which accounts for the highest percentage of energy consumption in the transport sector in Korea among petroleum products.

There was a reduction in group tours, including school trips, after the MV Sewol incident. This led to slower growth in consumption of diesel, which is the most commonly used fuel on roads and coastal passenger ships.

By transport mode⁴⁾, there was a reduction of 0.1% in the road sector. Although it accounts for a small percentage of overall consumption, diesel consumption for shipping, which is used for coastal passenger ships, plummeted 27.9%.

* Rate of increase in diesel consumption in the transport sector (%):

(’13.q1) 3.6 →(’13.q2) 6.3 →(’13.q3) 3.7 →(’13.q4) 6.7 →(’14.q1) 3.4 →(’14.q2) 0.4

3) Korea Energy Economics Institute, Energy Supply and Demand Brief (No.1-1), July 2014 4) Korea Energy Economics Institute, Energy Supply and Demand Brief (No.1-3), September 2014

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Improvements are expected in the rate of contribution of base-load power generation facilities in 2014 as a result of an increase in nuclear power generation.

Resumption of operation of nuclear power plants (Singori Nuclear Power Plant Units 1 and 2 and Sinwolseong Nuclear Power Plant Unit 2), whose operation was suspended in 2013, is expected to lead to a considerable rise in power generation.

The rise in nuclear power generation is expected to bring greater stability to electricity supply and demand.

The percentage of primary energy accounted for by nuclear power is forecast to rise somewhat in 2014.

* Percentage of primary energy accounted for by nuclear power: (’12) 11.4% →(’13) 10.5% →(’14e) 11.9%

An increase in energy consumption in the industrial sector is expected to lead an overall rise in final energy consumption.

The rate of increase in energy consumption in the industrial sector is forecast to rise owing to more active economic activity of energy-intensive industries.

* Rate of increase in energy consumption in the industrial sector (%): (’12) 1.1 →(’13) 1.8 →(’14e) 4.9

[Figure 8] Outlook on contribution to final energy consumption increase by sector

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The contribution of the industrial sector to the rise in final energy demand is forecast at 166.6.

Demand for raw material use, including bituminous coal for steel making and naphtha, is forecast to lead a rise in energy demand in the industrial sector.

- Increased industrial activity seems to be triggering a rise in consumption for raw material use.

* Rate of increase in naphtha consumption (%): (’12) 8.3 →(’13) -0.1 →(’14e) 3.4

* Rate of increase in bituminous coal consumption for steel making (%): (’12) -0.9 → (’13) 1.8 →(’14e) 14.9

Energy intensity (toe/million won), which is an index that indicates national energy efficiency, is expected to somewhat improve to 0.198 in 2014. Per-capita energy consumption will likely rise continually and reach 5.63 toe in 2014.

Energy consumption for raw material use in the industrial sector will rise considerably, but an increase in the GDP of the manufacturing and service industries that results from economic growth is expected to lead to a drop in energy intensity.

Per-capita energy consumption is high compared to major OECD countries.

* Per-capita energy consumption in major countries (As of 2013): (OECD average) 4.18, (US) 6.90, (France) 3.84, (Germany) 3.81, (Japan) 3.56

In addition to a rise in energy demand by final consumers to power electrical equipment, electronic equipment, air conditioning, heating systems, automobiles, and the like as a result of higher income levels, there was also an increase in energy input in industrial production. This caused a steady rise in per-capita energy consumption.

The share of primary energy accounted for by oil is forecast to steadily decline.

The share accounted for by oil in primary energy fell to less than 40% in 2010 and declined to 38.1% in 2012. It is expected to have fallen to 37.8% in 2013 and is forecast at 37.4% in 2014.

- When excluding non-energy oil for industrial use (naphtha, asphalt, etc.), the share of primary energy accounted for by oil used as an energy source is expected to have fallen from 19.5% in 2012 to 19.1% in 2013 and is forecast at 18.3% in 2014.

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- The share accounted for by non-energy oil is forecast to rise 0.5%p year-on-year to 19.1%.

The Korean economy's declining dependence on oil is a result of the persistently high oil prices and the resulting change in the relative prices of energy sources.

- The rise in oil prices has led to less rapid increases in fuel consumption for transport, and disuse of heavy oil-fired power plants has resulted in the ongoing decline in oil consumption for power generation. Oil is being replaced by other energy sources such as town gas and electricity.

- This is because of the huge increases in the price of oil and the relative stability in real electricity charges, resulting in a substantial shift in demand to electricity.

[Figure 9] Oil dependence and forecasts

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Policy Implication

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Measures need to be taken on an on-going basis to stabilize winter and summer electricity supply and demand.

Electricity demand is forecast to rise 0.8% in 2014, but power generation capacity will be expanded by around 10%. As a result, electricity supply and demand conditions should somewhat improve from 2013.

However, there is a possibility of an emergency situation in electricity supply in the event of a delay in the commencement of operation of new nuclear power plants, the occurrence of unusual weather, or unexpected stoppage of power generation facilities.

- Construction of Sinwolseong Nuclear Power Plant Unit 2 (1 million kW) and Singori Nuclear Power Plant Unit 3 (1.4 million kW) was slated for completion in the second half of 2013, but the commencement of operation now seems uncertain even in 2014.

This points to the need to continuously implement electricity demand management policies for stabilization of electricity supply and demand, including reduction of peak electricity use.

LNG supply and demand conditions need to be monitored.

LNG consumption in the first half of 2014 dropped 9.6% due to the warmer weather compared to the previous year and gradual growth of electricity demand.

There is a possibility of a continued drop in LNG demand for power generation owing to increased base-load on power generation facilities despite average yearly temperatures and a continued rise in electricity demand during the forecast period.

- This points to the need to manage inventory as a result of sluggish LNG demand for power generation.

If there is increased energy price fluctuation, there is a need to make policy considerations for energy-intensive industries.

The rise in energy demand in 2014 is forecast to be triggered by increased energy

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consumption for raw material use in the industrial sector, with focus on naphtha and thermal coal for steel making.

There is a higher increase in energy demand in the industrial sector (6.4 million toe) than a rise in final energy demand (3.8 million toe).

The petrochemical and steel industries are key industries of Korea. For this reason, economic growth leads to the strengthening of the energy-intensive industrial structure.

Increased energy price volatility translates into higher uncertainty for energy-intensive industries compared to other industries. It may also have an ill effect on Korea's economic growth.

Industry-level policies that are implemented for energy-intensive industries when there is increased energy price volatility are expected to counter business fluctuations.

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Issued in September 2014

CEO of publisher: Sonn Yang-hoon

Registration: No. 8 on December 7, 1992

Printed by: Bumshinsa (02)503-8737

ⓒKorea Energy Economic Institute 2014 132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do Phone: (031)420-2114, Fax: (031)422-4958

Publisher: Korea Energy Economics Institute

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KEEI

Korea Energy Demand Outlook

ISSN 2093-7199

September 2014

Volume 16, No. 3 QUARTERLY ENERGY OUTLOOK

Korea Energy Economic Institute

132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do Phone: (031)420-2114

Fax: (031)422-4958

E-mail : [email protected] Hompage : http://www.keei.re.kr