TMF World Energy Map: Japan and Korea


Japan and Korea have very little in the way of natural resources; energy imports dominate their consumption patterns and the two countries remain important players on the world energy scene.

Last year's earthquake, tsunami, and ensuing disaster at Japan's Fukushima power plant drastically altered the country's future energy outlook. Once planning to increase nuclear capacity, Japan is now looking to replace nuclear power wherever possible. The country is heavily dependent on costly imports, leaving the door wide open for the growth of renewables. Japan's government is expected to officially put in place an act that encourages utilities to buy renewable energy at fixed feed-in tariff prices sometime this summer.

As of last summer, South Korea is home to the world's largest tidal power installation. The plant's capacity is 254 MW. The country is also exploring the possibility of adding two more plants with capacities of 480 MW and 1 GW, respectively.

Korea is also pursuing wind power, recently signing on with the United Kingdom to establish the U.K.-Korea Ocean Energy Technology Cooperation Project. The U.K. is the world's offshore wind leader; Korea is looking to grow its presence and has 2,500 MW of wind power currently in development.

Korea has 23 nuclear reactors generating 20.7 GW of electricity and expects to increase its nuclear program so that it provides 59% of the country's power by 2030.

Japan used to be the third largest nuclear power generating nation in the world, but after last year's Fukushima disaster, the country's output has fallen to zero. Prior to the disaster, nuclear power accounted for 13% of Japan's electricity generation. The country has relied more heavily on fossil fuel imports to account for the lack of nuclear power since last March.

Japan is the second largest importer of coal in the world, after China; Korea is third.

In 2011, Coal accounted for 43% of fossil fuel generated power in Japan. The country stopped producing coal in 2002, relying solely on imports since. In 2010, Japan imported 207 million short tons of coal.

Korea has minimal coal reserves, and domestic production tops out around 3 million short tons a year. Consumption, and therefore imports, has increased steadily since 2005 and is now over 120 million short tons a year.

In 2011, Japan's oil production was 130,000 barrels per day, but only 5,000 barrels were crude oil. Not surprisingly, Japan is the third largest importer of oil in the world, importing 4.3 million barrels per day. The country's oil companies have also made a serious effort to grow its global exploration and development footprint, establishing joint ventures in virtually every region of the world.

Korea has the sixth largest refining capacity in the world, but with no domestic reserves it relies solely on imports to meet demand. Its largest oil company, Korea National Oil Corporation, is active overseas, and has recently begun to explore offshore Korea for potential drilling locations.

Natural gas
Japan and Korea rank first and second in the world for LNG imports. Japan alone accounts for 33% of the world LNG market. The country has natural gas reserves of about 738 billion cubic feet at the beginning of this year, which is half of what they were five years ago. Japan consumed 3.7 TCF of gas in 2010, importing 3.4 TCF. Imports popped 12% to 3.8 TCF after Fukushima.

Korea Gas is the largest single LNG importer in the world. The country covers 1.3% of demand with production from its one offshore gas field, and imports the rest. Korea consumed 1.5 TCF in 2010, a 25% increase from the year before when demand was weak in light of the recession.

Geopolitical risk
The majority of the risk here is in shrinking, or changing, demand. In one year, Japan went from being the world's third biggest generator of nuclear power to generating no nuclear power at all. At some point some of the reactors will be brought back online, but ultimately the country would like to move away from nuclear power and that will affect uranium exporters.

LNG exporters also rely heavily on this market. A rapid conversion to renewable energy or electricity imports would leave exporters with a big hole to fill on their balance sheets.

Finally, simply the location of South Korea is a risk. North Korea is a ticking time bomb, who knows what could happen there.

Korea Electric Power (NYSE: KEP)
Korea's electric utility has several subsidiaries that manage the country's various power sources, including nuclear, hydro, and thermal. The company is active abroad, taking equity stakes in mines and establishing joint ventures to secure future energy supply. It has acquired at least a stake in projects in Australia, Indonesia, and Canada.

KEPCO does not boast great profit margins, but shares have performed well recently on expectations that margins will improve when the government increases electricity prices in July.

Samsung Heavy Industries
Samsung Heavy is one of the major players in Korean shipyards. The company builds drill ships, container ships, and LNG carriers and is a crucial component in the world energy picture. The company will be increasingly relevant in the coming years as offshore drilling ramps up in the Arctic. Samsung has built the first Arctic Shuttle-Tanker, and developed Arctic Ice-Breaker container ships.

Mitsubishi (OTC: MSBHY.PK)
The Japanese trading company has been busy over the past year trying to secure LNG supply. Earlier this year, the company signed a deal with Encana to develop its Cutbank Ridge assets in British Columbia. Mitsubishi paid $2.9 billion for a 40% stake in over 400,000 acres.

The company also has a 20% share in an LNG export project in Kitimat, British Columbia. Mitsubishi has partnered with Shell, PetroChina, and Korea Gas to construct a facility with export capacity of 12 million metric tons.

BP has a fairly diverse presence in Korea, providing lubricants, LNG, petrochemicals, and PV solar cells and modules. The company also buys numerous vessels from Korean shipyards, including tankers, LNG carriers, and drill ships. The company has been in Korea for 30 years.

Chevron (NYSE: CVX)
Chevron is the operator of two new LNG terminals in Australia that are both scheduled to come online in the next five years. The new projects are so crucial to Japan's energy future that Tokyo Electric Power just bought an equity stake in one of them. TEPCO will buy an 8% stake in the Wheatsone LNG facility, and has increased its total deliveries from the plant to 4.3 million tons per year.

Chevron also has a Wheatstone LNG purchase commitment from another Japanese utility, Tohuku Power.

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