1. Dr. Younkyoo Kim The Korean Peninsula and International Relations in Northeast Asia Hanyang University, Seoul Nov. 30, 2012 Dr. Younkyoo Kim The Korean Peninsula and International Relations in Northeast Asia Hanyang University, Seoul Nov. 30, 2012

2. 1.Global LNG Supply and Demand Structure – 8% Increase in LNG Trade (2011): Total Turnover of 241.5 MT –Largest Exporter → Qatar 75.5 MT ( 31% of total supply) Malaysia + Indonesia+ Australia = 27 % of total supply –Largest Importer → Japan + S. Korea ( 48% of total demand) Global Natural Gas Structure

3. 2.LNG Spot Market  LNG is traditionally traded through Long-term deal contracts  Spot Market Share 11.7 % 19.0 % 2006 2004 2010 2011 → 25% (62 MT) Global Natural Gas Structure

4. LNG Pricing Mechanism Global Natural Gas Structure

5. 1. Hub Pricing and Oil Index Pricing Difference  2008-2009: 3% decrease in global natural gas demand  Late 2009 – Early 2010: recovery in gas demand (Cold winter)  From early 2009, a gap between Oil Index Pricing and Hub Pricing appeared. Oil Index Pricing > Hub x 2  Appeared after the end of 2010 ◆ Hub Pricing for 2011: NBP : $9 mmBtu Henry Hub : Continue to drop Oil Index Pricing: Continue to rise “the logic of linking gas prices to those of (mainly) oil products had largely disappeared in the major European gas markets. A transition away from formal contractual oil product price linkage is inevitable and arguably has already begun with a great degree of spot gas pricing indexation in some long term contracts” Jonathan Stern of the Oxford Institute for Energy Studies “the logic of linking gas prices to those of (mainly) oil products had largely disappeared in the major European gas markets. A transition away from formal contractual oil product price linkage is inevitable and arguably has already begun with a great degree of spot gas pricing indexation in some long term contracts” Jonathan Stern of the Oxford Institute for Energy Studies Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

6. Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

7. Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

8. Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

9. Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

10. 2. Decrease in Russian Export to Europe  European importers complain Russian Oil Index Pricing  Larger gap between spot pricing and Russian oil index pricing * $244.44/Mcm (2009. 7) → $452.16/Mcm (2012.7)  Late 2011-’early 12: Focus on renegotiation of gas price between Gazprom and main European importers  European importers increased import from ME, Africa LNG import rather than Russian PNG LNG share 20.4% (‘09) → 23.6% (’11)  Gazprom provides 15% of recent European supply on spot price  *Russian Northeast(NE) Asia gas export 11.8 bcm ('11) → 44.2 bcm ('20) Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

11. Natural Gas Conditions and Implications After the Financial Crisis and Fukushima

12. Russian Energy Strategy 2030 (2009.11) Diversification of exports to Asia: Oil 6% → 25% Natural Gas 0 → 20% –Supplied oil to China through ESPO (0.3 million bpd) Dec, 2010 –Supplied gas to Japan through Sakhalin-II LNG. April, 2009 Delay in Siberia PNG supply to China due to pricing problems. Reliance of Russian oil of 3 NE Asian nations (2011) –Japan: 4% –China: 8% –S. Korea: 6% Reliance of Russian LNG of 3 NE Asian nations (2011) –Japan: 9% (4% '09) –China: 0.5 bcm out of 17 bcm –S. Korea: 9% (4% '09) 1. Increased Export to Asia Russian Energy Strategy towards Northeast Asia

13. Russia, Share of Various Regions in Natural Gas and LNG Exports, %, 2011 China’s liquefied natural gas imports by country, 2010 Russian Energy Strategy towards Northeast Asia

14. 2. ESPO ESPO Import Countries Status (2011) U.S.A.27% (Largest ESPO Importer) Japan19% China18% S. Korea13% Philippines9% Thailand7% Singapore4% Peru1% Indonesia1% India1% Russian Energy Strategy towards Northeast Asia

16.  Gazprom’s Chayanda and Kovykta (Irkutsk) Gas field Oct. 2011- limited research being conducted through experiment production on the possibility of increasing well flow and reserves. Production to launch 2017-2022. Plans to liquefy Vladivostok LNG plant (Production capability of 10 million tons)  Sakhalin-III Project’s South Kirinskoye gas field  2011 second probe boring: Increase in reserve(3P) from 304Bcm to 564Bcm. 3. Kovykta, Chayanda, Sakhalin-III Gas field Russian Energy Strategy towards Northeast Asia

17.  Increase in U.S. shale gas production, uncertainty in European gas demand and price ⇒ Gazprom is trying to increase the LNG Asian market share  Shtokman LNG Project  $40 billion project with yearly LNG production of 7.5 million tons  Vladivostok LNG Project  10 million ton per year LNG project co-initiated with Japan  Chayanda gas field is located 3,000km away in East-Siberia: Need to figure out the logistics  Sakhalin-2 Third LNG Facility Construction  Second LNG facility with yearly production of 4.8 million ton constructed  Advantage: cheap construction cost ($0.5billion~$0.7billion)  But, need to be supplied with gas from Sakhalin-1 or 3 project. 4. Gazprom’s Asia LNG Project Russian Energy Strategy towards Northeast Asia

18.  ESPO price negotiation and increase in supply  Russia’s Rosneft, Transneft signed 20 year contract with Chinese CNPC (2009)  Provides daily supply of 0.3 million barrels to China  Recently Russia-China agreed on ESPO supply price.  Controversy in Russia on Chinese oil export  Pro: Once fair and competitive price is agreed, increase exports to China will benefit Russia.  Con: For diversification of markets, Russia should not increase exports to China 1.China-Russia Energy Cooperation China, Japan, Korea, and the U.S.

19. Negotiation on Gas Price  Russia and China signs a gas deal in 2006  But still cannot sign the final contract due to difference in gas price.  Plans to newly construct Northern line(Altai gas pipeline, 30Bcm/y) and Eastern line(38Bcm/y)  Gazprom is currently selling LNG to China on spot price.  Negotiating to construct the third LNG facility within Sakhalin-2 project and Vladivostok LNG Plant.  6 LNG cargos sold to China in 2010  9 LNG cargos sold in 2011 1.China-Russia Energy Cooperation China, Japan, Korea, and the U.S.

20.  Russia-Japan concluded Vladivostok LNG Plant contract  Japan was the only outcome throughout Vladivostok APEC conference.  Japan-Russia military cooperation realized.  June 24 2012: the Russian Energy Ministry and the Japanese Ministry of Economy, Trade and Industry signed the Memorandum of Understanding 2. Japan-Russia Energy Cooperation 사진출처 : http://en.haberler.com China, Japan, Korea, and the U.S.

21.  Korea needs to establish short-mid term energy security plans where the followings are present: North American shale gas revolution Japan’s Fukushima crisis Delay in China-Russia gas contract Russia’s rapid development of far-east  When China-Russian energy cooperation and Japan-Russian energy cooperation is in friction: fits the Korean interest the most.  Japan-Russian energy cooperation back in harmony.  When China-Russian energy cooperation is in harmony, China becomes the transit nation of Russian energy. This makes Korea to be dependent on China for energy. Source: YP News 3.Korea-Russia Energy Cooperation China, Japan, Korea, and the U.S.

22.  Meeting of Russian President and Korean President on September 8 th was thought to mark as an accelerator to South-North-Russian pipeline initiative.  However, the two Presidents did not give out any significant outcome.  Currently, MOU that states 7.5 million tons will be imported from Russia from 2015 exists only.  The clause that gas price is cheaper means that import through pipeline is 1/3 cheaper logistically compared to LNG. This does not necessarily mean gas import is cheaper accordingly.  Korean Government stance: “Principle of importing gas securely and cheaply” 사진출처 : 연합뉴스 3.Korea-Russia Energy Cooperation China, Japan, Korea, and the U.S.