Economic Implications of Ukraine Crisis and Increase in Russian Gas Imports on Korean Gas Market and its Economy Designing Social Inquiry Ayoung Kang (IT major, I32001)

1. Puzzle How much economic impact “increase in Russian gas imports at lower prices resulted from Ukraine crisis” would have on Korean gas market and its economy especially in the long run.

2. Background ① Rise of shale gas -In the US, natural gas price has dropped sharply. -Poland and Ukraine are strongly pushing the shale gas projects to reduce dependency on Russian gas. -Russia is in growing need of new market to sell on, Asian market.

2. Background ② Ukraine Crisis “The Change of government in Kiev, the Russia’s annexation of Crimea, the diplomatic reaction of Western powers including sanction” -30% of Europe’s natural gas is imported from Russia and half of them are transported via Ukraine. -energy supply security and diversification have been the main issue for the EU.

2. Background ③ Russia-China gas deal -A natural gas deal worth about 400 billion dollars on 21th of May, from 2018 by pipeline from eastern Siberia. -China pay less than Europe! -as Asia pays a higher price for natural gas than Europe does, this deal will have significant impact on other Asian countries, such as Korea and Japan.Asia pays a higher price for natural gas than Europe does -the US: 4-5$, Europe: 9-10$, Northeast Asia: 15-16$ per million Btu (British thermal units)

2. Background

3. Hypothesis Certainly, decrease in natural gas price would have positive impact on Exports. Independent variable: Natural gas price Dependent variable: exports of certain industries which are significantly affected by LNG price such as Petroleum or Chemical products

4. Methodology ① Time series data analysis Exports = β 0 + β 1 ·Natural gas price + β 2 ·Foreign currency + β 3 ·Global GDP Export = Exports of Petroleum and Chemical products Natural gas price = Import price for Korea Foreign Currency = Korean Won/ US Dollar To reflect the demand for Korean products, I will use Global GDP from World Bank.

4. Methodology ② CGE (Computable General Equilibrium) modeling -The simulation represents what the economy would look like if the policy change or shock had occurred. -Dong-Cheon Shin analyzed the effect of a change in natural gas price on Korean economy in 2008 by conducting CGE modeling. (GDP, general price level, each industry’s imports, exports, and production)

CGE modeling