South Korean oil and gas shares experienced a significant surge on Monday following President Yoon Suk Yeol’s approval of a plan to develop a major offshore fossil fuel discovery off the country’s southeastern coast. This announcement marks a pivotal moment for South Korea, a nation heavily reliant on fossil fuel imports, as it seeks to bolster its energy security amidst global market disruptions.
The state-run Korea Gas Corp. saw its shares skyrocket by 30%, marking the most substantial increase on record. Posco International Corp. also witnessed a remarkable 19% surge in its share prices following President Yoon’s televised speech regarding the discovery. SK Gas Ltd. settled nearly 7% higher by the end of the day, after initially jumping by as much as 29% earlier. Additionally, SK Innovation Co., a major oil refiner, saw its shares rise by more than 6%.
The impetus behind this dramatic rise in share prices can be attributed to the growing need for South Korea to enhance its energy security. The invasion of Ukraine by Russia has caused significant upheaval in global energy markets, resulting in record-high gas prices and widespread shortages. For a nation like South Korea, which imports a substantial portion of its energy needs, the development of domestic resources presents a critical opportunity to reduce dependence on foreign suppliers and stabilize energy prices domestically.
Geophysical exploration has indicated a “high possibility” that the discovery off the coast of Pohang could contain up to 14 billion barrels of oil and gas. President Yoon highlighted that this estimated volume could satisfy more than four years of South Korea’s oil consumption and as much as 29 years of the country’s gas demand. Despite this optimistic projection, it is important to note that these reserves are still modest in comparison to those of major oil-exporting nations like the United States or Saudi Arabia.
The South Korean energy ministry has provided further details on the potential reserves, estimating that they could hold up to 1.29 billion tons of natural gas and approximately 4.22 billion barrels of oil. While these figures are substantial, the actual level of reserves will not be confirmed until drilling is carried out. Houston-based exploration and production consultant Act-Geo has been contracted to begin drilling operations at the end of this year, with results expected by the first half of 2025.
This discovery represents a significant step forward for South Korea’s energy strategy, but the road to production is lengthy and fraught with challenges. Typically, it takes between seven to ten years from the commencement of drilling to the onset of production. Once production begins, the resource is expected to have a lifespan of about 30 years, according to the energy ministry.
In addition to enhancing energy security, the development of these domestic resources could have broader economic implications for South Korea. The increased domestic production of oil and gas could lead to reduced energy costs for consumers and businesses, potentially spurring economic growth. Furthermore, the development of the offshore oil and gas fields is likely to create numerous jobs, both directly in the energy sector and indirectly in related industries.
However, the pursuit of fossil fuel development is not without its critics. Environmental groups have raised concerns about the potential ecological impact of offshore drilling and the continued reliance on fossil fuels in the face of global climate change. South Korea has committed to achieving carbon neutrality by 2050, and the development of new fossil fuel resources could complicate these efforts.
President Yoon has acknowledged these concerns and emphasized the importance of balancing energy security with environmental sustainability. The government has pledged to implement stringent environmental safeguards and to invest in renewable energy sources alongside the development of fossil fuels. This dual approach aims to ensure that South Korea can meet its immediate energy needs while transitioning to a more sustainable energy future.
In conclusion, the recent offshore fossil fuel discovery marks a significant milestone for South Korea’s energy sector. The surge in oil and gas shares reflects the optimism surrounding this development, as the nation looks to enhance its energy security and reduce its reliance on foreign imports. However, the path to production is long, and the challenge of balancing economic growth with environmental sustainability remains a critical consideration.
