The Future of Korean Energy Development
Learning from the successes and failures of foreign energy projects
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As a country with very scarce natural energy resources, Korea depends heavily on foreign oil fields and mines to facilitate domestic energy production. With the recent success of investments in the marine oil fields in Vietnam, the national discussion on the current state of foreign energy projects and a prospective direction for policy improvements has emerged.
The reason that the investment in the oil field in Vietnam has been in the spotlight is due to the patience that was required for its success. Having purchased the rights to investigate and draw oil from the area in 1992, a notable victory considering that the competitors were global oil conglomerates, it took a lot long for the mines to actually start generating surpluses. The 1997 financial crisis had taken an especially heavy toll, as the lack of foreign currency led to the disposal of a considerable number of foreign mines. However, some that were retained with great patience are now incredibly profitable.
The nature of foreign energy projects requires extreme patience and discretion. Aside from the vast amount of capital necessary for investigations and infrastructure, it takes about 7 to 15 years to see the generation of profit. Furthermore, the odds are against the discovery of oil or gas lines in the first place, leading to an approximately 15 percent chance of successful investment.
An example case of failure in foreign energy investment is the purchase of shares in the copper mines of Santo Domingo, Chile. With nearly 500 billion Korean won worth of investments made, the project seems to be doomed without having extracted a single kilo of copper. Among numerous reasons for this devastating failure, the predominant reason concluded by experts is the shortfall of government policies and supervision.
According to experts, the domestic method of assessing performance is errored, as it does not distinguish resources that can or cannot be delivered to the domestic market. Furthermore, the structure of foreign projects leaves the blame of failure on public corporations. There was also a lack of a supervising entities to overlook the projects.
Aside from policy errors, there is also a lack of proficient analysis of projects. According to Jung Woo-jin, the former head of the Resource Development Strategy Division of The Korea Energy Economics Institute, there is a dire need to distinguish the causes of foreign project failures from policy failures, corruption, and oil price fluctuations.
With the new government claiming to be reforming the energy sector, much discretion is called for in the design and implementation of policies regarding foreign energy projects. Furthermore, aside from the success of resource extractions, the government must also set new standards for the future of energy consumption. With recent research findings that have linked the national level of fine dust to thermal power plants, it is clear that our current method of energy production and consumption is not sustainable. The government is therefore burdened with the task of conducting a great deal of discussion and implementing improvements to ensure the sustainable development of our nation.
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