There’s much talk about China, the #2 oil consumer, making moves to claim reliable oil supplies in Venezuela, Sudan, and Kazakhstan; and Japan, the #3 consumer, importing oil from Indonesia, Iran, and Russia. But we hear little about the world’s #4 oil consumer, South Korea. Where do they get their oil from?
Like America, China, and Japan, ROK is highly dependent on the Middle East, importing 80% of its crude from the Middle East. KNOC —ROK’s state-owned national oil company—is conducting exploration wherever they can. This dated report from the Department of Energy talks about overseas exploration in countries such as Yemen, Argentina, Peru, Libya, and Vietnam. And as China and the US look to African nations for new oil suppliers, South Korea is off exploring in Central Asia, namely Uzbekistan.
From the Platts Commodity NewsServiceLine :
“Uzbekistani officials agreed to allow South Korea’s small-and medium-sized businesses to join oil field exploitation projects there,” Kim told journalists. The federation plans to form a consortium with state-run Korea National Oil Corp for the foray into Uzbekistan, Kim said. “We plan to conclude a memorandum of understanding with KNOC within this year,” he said.
I don’t expect any of that oil will reach South Korea. Coming from west Central Asia, it couldn’t be in a more inconvenient place, either having to 1.) go into Kazakhstan, then to China via pipeline, and then to Korea, or 2.) through the Caspian Sea to the Black Sea, then on a 20,000 mile journey by supertanker to Korea. Neither of those seem practical, but anything Uzbekistani oil can do to alleviate the price of world supplies. With no domestic supplies, South Korea, like Japan, is highly sensitive to the price of oil.
Get the RSS
Comments to this entry
Saru
March 9, 2005
3:19 am
I don't have time tonight to gather the facts to back this up, but my guess would be that the reason is Japan's use of oil is relatively effecient by world standards. They have also moved away from oil-intensive heavy industry and shifted into less oil-intensive manufactures. I think they also maintain rather high reserves that should cushion any price shocks, at least in the short-term. (Finally, if one wants to be cynical about it, some might say they've been rather good at kissing Middle Eastern asses.) They were burned rather badly as a result of the first oil crisis (which was a main factor in ending the era of high growth), but seemed to learn rather quickly. I unfortunately don't have a link to this (mail me if you want the data set in excel format), but you can check the year on year GDP growth for Japan and see that immediately following the first oil shock, there was a substantial decline (maybe around 7%?), but a much lower decline following the second one in 1979 (maybe 2%?).
No doubt higher oil prices would impact Japan's economy, especially given the weakness in the current recovery evident in the February revisions of 2004 GDP data, but Japan probably deserves some credit, as do most OECD countries for reducing their oil dependency (at least in terms of barrels per dollar of GDP). I guess the point here is to keep in mind that import-dependence doesn't always equate to high overall dependence.
Incidentally, the ROK didn't join OECD until 1996 (and the obligatory removal of controls on the capital account that were implemented to join are often cited as coming about too early and contributing to the crisis the following year.)
Mutantfrog
March 9, 2005
4:44 am
The level of industry in South Korea is very similar to Japan. They both have a few companies doing heavy industry like making automobiles, boats and so on, but more of the production is stuff like cell phones and other electronics. I believe almost 100% of the world's LCD screens are currently manufactured in South Korea.
It's also worth considering that while it may be inefficient for South Korea to import oil from Uzbekistan, it is extremely efficient for say, a sub division of Hyundai or Samsung to manage the business of trading said oil and take a cut of the profits in exchange for providing equipment and engineering resources.
Dave Schuler
March 9, 2005
3:05 pm
Curzon
March 9, 2005
3:26 pm
Major, major point of how the world at large works. We spend more than we should or could, but bankers in Japan and China prop up our overspending on defense.
Saru
March 9, 2005
3:51 pm
ComingAnarchy.com » Blog Archive » Why do foreigners buy US debt?
March 9, 2005
4:25 pm
Registan.net
March 9, 2005
9:02 pm
Mark
January 10, 2006
3:57 pm
My point in this conversation is that I found it very interesting on several points.
First point, I had no idea that the US sends it's DoD agents to protect the rest of the world's oil supply lines. Typically as stated with the asian countries. Is this to offset the prices that consumers' pay for the products that are produced from the oil manufacturers in those countries? I.E. - Computer screens (plastic components) coming from S. Korea?
The secod and last point or rather these are turning into questions, is my understanding of why other countries are buying up US debt so quickly. It would seem that the US has always made the interest payments on that secured debt to it's holders. So when China or Japan or whatever country comes into the US debt market, it is a sure paycheck. The second idea behind hold this certificate of debt (CDs) as I like to call them is if things became so unstable (not saying they are and I am NOT saying to overthrow the gov't) but those CDs could call Uncle Sugar out to change national and foreign policy to favor a new regime. Now that is TOO scary if you ask me.
Obviously, this is my take on things and it is a scary perspective to behold. Comments are welcome to my thinking.
Thank you.