An Interview with President & CEO of KOGAS, Mr. Seokhyo Jang

The Republic of Korea is Asia’s most successful “tiger” and has earned a place among the world’s most important nations. The country, rightly called the “Miracle on the Han River”, achieved 10 per cent annual growth rates between 1962 and 1994 and transformed the country into the world’s 14th largest economy. South Korea also punches above its weight, militarily and diplomatically, and is the seventh largest export nation, a regional player with the world’s 10th largest defense budget and founding member of the G20 and APEC, the Asia-Pacific Economic Cooperation forum.

South-Korea1South Korea has succeeded despite dependency on energy and food from others and thrived in a neighborhood that is far from safe. Koreans enjoy high living standards, high educational standards, democratic institutions and access to first-class infrastructure from airports and hospitals to schools and broadband.

I interviewed by email Seokhyo Jang, President and Chief Executive Officer, of KOGAS or the Korea Gas Corporation, the biggest LNG import company in the world. He is one of the country’s most prominent businessmen, with a distinguished career at KOGAS, and addressed questions relating to Korea’s energy sector, its national challenges and the energy sector’s future prospects geopolitically.

Please explain the ownership/symbiosis between KOGAS and the government and how this represents a competitive advantage.

The government currently owns 26.15 per cent of KOGAS’s shares, but when shares held by other state-owned enterprises such as Korea Electric Power Corporation (20.47 per cent) and local governments (7.94 per cent) are added, the actual percentage of public ownership is 54.56 per cent. Accordingly, the majority of projects pursued by KOGAS are based on government policy. Excluding some small direct importers that import gas for their own use, KOGAS dominates the import and wholesale business of natural gas in Korea. Thus, we enjoy a stable profit structure and received an A+ credit rating from Standard & Poor’s. We also enjoy purchasing power as the world’s single largest LNG importer.

“KOGAS dominates the import and wholesale business of natural gas in Korea.”

Korea is a great success story economically, what are the forecasts for its future growth and prosperity and energy needs in general?

Korea’s economy boasted an average annual growth rate in the 6 per cent range from 1990 to 2000, but it has since tapered to a similar rate seen in other advanced countries. According to the government’s National Basic Energy Plan proposal, announced in January 2014, the Korean economy is forecast to grow 2.8 per cent annually from 2011 to 2035. Due to the long-term slowing of the growth rate, total energy demand is expected to post 1 per cent annual growth. However, natural gas consumption is forecast to grow 2 per cent per year, the highest rate among primary fossil fuels. Due to this, the share of natural gas in energy consumption would be 19.4 per cent in 2035 from 16.8 per cent in 2011. Therefore, the role of natural gas among the fuels is expected to be greater in the future.

Economic development and efficient use of (natural) gas are extremely important to the company.

Economic development and efficient use of (natural) gas are extremely important to the company.

What role will the growing abundance of natural gas play (LNG) in Korea’s energy future?

Natural gas already plays an important role in Korea, accounting for 19 per cent of the energy mix and having a penetration rate of 78 per cent. I expect natural gas will play an even greater role in Korea’s energy future if the growing abundance of gas leads to lower prices. Furthermore, as nuclear safety standards and climate policies become more demanding, the long-term growth potential of natural gas looks particularly positive. However, Korea imports most of its gas sources. So for gas to play a bigger role in Korea’s future, we need the growing abundance of natural gas to be accompanied by lower LNG prices. This will require considerable changes to some of the practices in the natural gas industry, such as rigid gas contracts.

What will the impact be on KOGAS as we see a more integrated global marketplace with significantly more LNG likely moving around the world?

The integration of gas markets is definitely a great opportunity for KOGAS, which is the single largest LNG importer in the world. While the natural gas market won’t transform into a global commodity market like the oil market overnight, integration is progressing more rapidly than expected, thanks to increased shale gas production in North America and the expansion of LNG trade. For KOGAS, this is a chance to resolve the issue of the Asian gas price premium, ensure flexibility in the gas trades, and diversify import sources. It will be easier for KOGAS to obtain a secure source of gas at a lower price. KOGAS will also have more opportunities to participate in the LNG trading business. In response to these changes in the world gas market, KOGAS is planning a long-term import strategy and preparing to expand its overseas business.

Mr. Jang believes that if the growing abundance of natural gas leads to lower prices, it will certainly help developing countries’ economic growth.

Mr. Jang believes that if the growing abundance of natural gas leads to lower prices, it will certainly help developing countries’ economic growth.

Abundance has real implications for price, and in a world where affordable energy is essential to addressing global poverty, gas can play a growing role.  How does KOGAS view this role, and particularly on technology?  What do you see as other emerging/near commercialization natural gas technologies that the world can use? Does KOGAS have a mandate/program to support innovation?

If the growing abundance of gas leads to lower prices, it will certainly help developing countries’ economic growth and contribute to eradicating poverty around the world. Lower prices will also stimulate natural gas usage in power generation and transportation in developed countries. Meanwhile, we are doing everything we can at KOGAS. Economic development and efficient use of gas are extremely important to the  company. We place a high importance on liquefaction technology like FLNG, as well as the commercialization of technology like LNG bunkering and LCNG. In addition, KOGAS is making every effort to develop the production of unconventional gases like shale gas, CBM, methane hydrate, etc. We are also preparing for the future by working on applications for natural gas that can be used in conjunction with hydrogen energy. The R&D center at KOGAS is also pursuing long-term development strategies in accordance with the government’s technology policy, and thereby contributing to the development and propagation of LNG technology throughout the world.

For KOGAS, this (LNG) is a chance to resolve the issue of the Asian gas price premium.

For KOGAS, this (LNG) is a chance to resolve the issue of the Asian gas price premium.

Our countries recently signed a free trade agreement, deepening already strong ties.  How do you see this affecting the energy trading relationship between our two countries?

I am optimistic that the FTA between Canada and Korea will encourage Korean companies to invest in the Western Canadian supply industry. KOGAS may also acquire additional natural gas assets to secure a stable feed gas for the LNG Canada Project. However, in regards to LNG procurement, Canada is in competition with the U.S., which also has a FTA with Korea. As you probably know, there are 47 LNG export applications in North America that have approval from NEB and DoE to export LNG. Eleven are in Canada, 36 in the United States. As an LNG buyer, KOGAS welcomes competition in North America. We hope that Canada will further strengthen its competitiveness in the current market and that our two countries can take full advantage of the FTA to pursue mutually rewarding projects.

“I expect natural gas will play an even greater role in Korea’s energy future if the growing abundance of gas leads to lower prices.”

“Lower prices will stimulate natural gas usage in power generation and transportation in developed countries.”

Koreans enjoy high living standards, high educational standards, democratic institutions and access to first-class infrastructure.

Koreans enjoy high living standards, high educational standards, democratic institutions and access to first-class infrastructure.

Canada has long been a natural gas exporter, but the changing supply picture in North America has broadened the opportunity from pipeline exporter to one market (the U.S.) to LNG exporter to markets around the world.  As a key player in the global LNG marketplace, what advice would you offer to Canada as we venture into the LNG world?

 

“The shale gas revolution has fundamentally changed the dynamics of supply and demand in North America.”

The shale gas revolution has fundamentally changed the dynamics of supply and demand in North America. With large reserves of shale gas, America’s reliance on Canada’s natural gas is rapidly diminishing as the U.S. becomes an LNG exporter itself. I realize this affects Canada directly since the U.S. had mainly been importing from Canada. It’s necessary for Canada to seek new markets with WCSB for natural gas now that both countries are developing projects that will allow them to export LNG. If all 47 of the LNG export applications I mentioned above go into operation, they will produce approximately 400 million tonnes of LNG. That’s actually more than the current total LNG trading volume. It follows then that only the projects that offer competitive prices will survive in the market. Generally speaking, LNG projects in Western Canada have an advantage of proximity and gas price index over projects in the U.S. On the other hand, the projects in Canada are on relatively green field sites and estimated to be short on labor compared to the US. projects. This may increase Canada’s CAPEX. In order for Canada to stay competitive against the U.S., I believe support from federal and local governments in the form of tax breaks and regulatory considerations will be essential and effective.

Mr. Seokhyo Jang, president and CEO of KOGAS

Mr. Seokhyo Jang, president and CEO of KOGAS