Potential Oil Discovery in South Korea Spurs Hope
Author: Aaron (Song Hyoseung), Research Executive
Editor: Tavisha Jain, Research Director
On June 3, 2024, President Yoon announced that Pohang, a province in South Korea, has the potential to become a significant oil and gas reserve. This initiative is supported by Victor Abreu, the CEO of ACT GEO, a Texas-based geoscience consulting firm. Following Yoon’s announcement, oil-related stocks in the Korean market, such as KoreaGasCorp and Heungu Oil, hit the daily limit of 30% due to rising expectations that Korea could become an oil-producing country.
However, multiple analysts have expressed concerns about this project. Dr. Kim Tae Hyung, a former analyst from Chevron, questioned Victor Abreu’s expertise in this specific project (GMCC, 2024). Although Abreu's impressive portfolio predominantly covers the South Atlantic regions, including Brazil and Guyana, he lacks research or hands-on experience with the geological structures of the deep sea in the East Sea. This gap in experience raises questions about the adaptability and potential success of the Pohang project under his guidance.
Further exploration and drilling are scheduled to start in Q4 2024, with commercial development possibly beginning as early as 2035. The overall market value of the potential reserves is estimated at around $1.4 trillion, which is five times the market cap of Samsung Electronics (Business Korea, 2024). Based on existing data, the estimated success rate of the project is around 20%. If successful, the estimated reserves range from 3.5 billion to 14 billion barrels, potentially elevating South Korea to the status of an oil-producing country.
From 2021 to Q1 2024, during the post-pandemic recovery period, Korea showed strong economic recovery and adjustments to new economic conditions. For instance, in Q1 2024, the real gross domestic product (RGDP) increased at an annual rate of 1.4%, with a positive trade balance of $4.07 billion in April 2024, marking a 13.3% increase from April 2023 (KDI, 2024). Despite a visible economic recovery, Korea continues to rely heavily on importing "mineral fuels, oils, and related products." Thus, the Pohang drilling project, if successful, could provide a crucial pivot for the Korean economy by reducing its reliance on imported energy. Moreover, achieving the status of an oil-producing country would enhance Korea's diplomatic position, offering new advantages in international relations.
When it comes to exports, Korea has shown a high reliance on the US and China, navigating complex diplomatic relations between these two major powers. With regional tensions involving Japan, China, and North Korea, South Korea’s diplomatic strategy would benefit significantly from the successful execution of the Pohang project. Achieving energy independence could shift Korea's diplomatic strategy, boosting economic indices like trade balance and GDP growth.
Despite numerous uncertainties surrounding the Pohang drilling project, its success could have profound implications for South Korea's long-term economic growth. Success in this endeavor would bolster the nation's trade balance and industrial capabilities, driving significant economic advancement. However, whether this initiative is merely a political maneuver to enhance approval ratings or a legitimate step towards securing South Korea's status as an oil-producing country remains to be determined after the project's commencement.
Further Readings
Korea Oil Security Policy - International Energy Agency. https://www.iea.org/articles/korea-oil-security-policy
2024 oil and gas industry outlook - Deloitte Insight. https://www2.deloitte.com/us/en/insights/industry/oil-and-gas/oil-and-gas-industry-outlook.html
References
Cho, H. (2024, June 11). A Korean expert who worked at Chevron claims, Abreu is not a world-class expert. GMCC. https://www.goodmorningcc.com/news/articleView.html?idxno=311158
Herh, M. (2024, June 6). Vitor Abreu from Act-Geo to provide clarity on East Sea gas field at press conference. Businesskorea. https://www.businesskorea.co.kr/news/articleView.html?idxno=218592
Korea Development Institute. (2024, June 11). Kdi Monthly Economic Trends 2024. 6 - KDI - korea development institute - research - periodicals - monthly economic trends. KDI Monthly Economic Trends. https://www.kdi.re.kr/eng/research/monTrends
Park, J., & Kim, J. (2024, June 3). South Korea’s Yoon says vast amount of oil, gas reserve possible off East Coast | reuters. REUTERS. https://www.reuters.com/world/asia-pacific/skoreas-yoon-says-vast-amount-oil-gas-reserve-possible-off-east-coast-2024-06-03/
Vahn, G., & Lee, C. (2024, June 4). South Korea unlikely to change major crude importer status despite potential oil discovery. S&P Global Commodity Insights. https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/060424-south-korea-unlikely-to-change-major-crude-importer-status-despite-potential-oil-discovery