South Korea currently relies on imported liquefied natural gas (LNG) for most of its natural gas consumption requirements, though it began producing a small quantity of natural gas from one offshore field in early 2004. Despite limited domestic natural gas resources, consumption has grown rapidly in the last decade. Preliminary data shows that South Korea consumed 1,077 billion cubic feet (Bcf) of natural gas in 2005, while producing less than 2 Bcf. In 2005, the country imported 1,075 Bcf (22.1 million metric tons, or MMt) of LNG, making it the second-largest importer of LNG in the world. The leading sources of these LNG imports were Qatar (27 percent), Indonesia (25 percent), Malaysia (21 percent), and Oman (19 percent).

The Korea Gas Corporation (KOGAS) is the leading player in South Korea’s natural gas sector. KOGAS is the sole importer and distributor of natural gas in South Korea and the largest purchaser of LNG in the world. KOGAS operates three LNG import terminals as well as the country’s natural gas pipeline system. As in the oil sector, KNOC is the primary company involved in exploration and production of natural gas, although domestic natural gas reserves contribute only a small fraction of the country’s consumption requirements. KOGAS has plans to become a fully-integrated energy company and is increasingly involved in upstream activities overseas. KOGAS is 27 percent-owned by the government, 25 percent-owned by the state-controlled Korea Electric Power Corporation (KEPCO), with the remaining equity split among local government and institutional investors.

In 1998, KNOC discovered South Korea’s first natural gas deposits at the offshore Donghae-1 field, which holds proven reserves of 250 Bcf, according to the company. KNOC began producing natural gas from the field in 2004, and average production in 2005 stood at 50 million cubic feet per day (MMcf/d). While this find was significant for South Korea, 2005 production supplied less than two percent of the country’s total natural gas consumption. KNOC followed up the Donghae-1 find with the discovery of natural gas reserves in the Gorae-8 and Gorae-14 structures in 2004 and 2005, respectively. KNOC estimates that Gorae-8 holds 25 Bcf of recoverable natural gas reserves, making it a relatively small find. KNOC continues to explore South Korea’s offshore territories for natural gas deposits, but for the foreseeable future the country will remain heavily dependent on imports.

As in the oil sector, South Korean companies are actively involved in overseas E&P projects. In addition to KNOC’s overseas investments, KOGAS formed the International Projects Group in 2001 to expand its overseas investments. To date, KOGAS has invested in several foreign LNG projects that send supplies to South Korea, including a 5 percent equity stake in Oman LNG, a 5 percent stake in Qatar’s Ras Laffan LNG Co. Ltd. (known as the RasGas project), and a 6 percent stake in Yemen LNG (see the Oman, Qatar, and Yemen Country Analysis Briefs for more information). In addition, KOGAS has invested in natural gas projects in Burma and Vietnam (see the Vietnam Country Analysis Brief for more information).

In 2005, South Korea imported 1,075 Bcf (22.1 MMt) of LNG, the second-highest in the world behind Japan (see the Japan Country Analysis Brief for more information). LNG imports have increased by an average of 10 percent per year during 2001-2005. South Korea currently gets most of its LNG from Qatar, Indonesia, Malaysia, and Oman, with smaller volumes coming from Australia, Brunei, Egypt, and the UAE. KOGAS purchases the bulk of its LNG supplies under long-term supply agreements, although the company also purchased 21 spot cargoes of LNG in 2005. KOGAS operates three LNG import terminals in South Korea (Pyongtaek, Inchon, Tongyeong) with a combined sendout capacity of 2 trillion cubic feet (40.7 MMt) per year. In July 2005, Pohang Iron and Steel Corporation (POSCO) and Japan’s Mitsubishi started commercial operations at South Korea’s fourth LNG import terminal, located at Kwangyang. The plant is the country’s first privately owned LNG receiving facility and has an annual capacity of 83 Bcf (1.7 MMt).