Opening Remarks
by
H.E. Cho Tae-yul
Vice Minister of Foreign Affairs
of the Republic of Korea
at the GASTECH Northeast Asia Gas PricingGathering
March 23, 2014
Conrad Seoul Hotel

President Jang Seok-hyo,
Distinguished Guests,
Ladies and Gentlemen,

Thank you very much for joining us this morning to participate in the Northeast Asia Gas Pricing Gathering that is taking place here in Seoul on the occasion of GASTECH 2014.

I would like to express my sincere appreciation to DMG Energy Events and KOGAS for jointly organizing this meaningful event with the Ministry of Foreign Affairs of the Republic of Korea. This event is very timely, given the significant global implications of the rapidly transforming gas market in Northeast Asia.

Today’s gathering is aimed at facilitating dialogue among distinguished global energy leaders from  governments, industries, and academia in Northeast Asia, including Korea, Japan, and China, as well as Russia, the United States, and the International Energy Agency (IEA). 

It also aims to provide a unique opportunity for the participants to discuss potential areas of cooperation that mutually benefit the countries in the region, with a view to reducing the Asian gas premium while facilitating intra-regional trade of natural gas.

Distinguished Guests,

Natural gas is an important energy source in Northeast Asia, and the demand is expected to grow continuously. It is expected to play an increasingly important role as a realistic alternative to nuclear power in the aftermath of the Fukushima nuclear accident in Japan. China also plans to use more natural gas to resolve its serious air pollution caused by the massive use of coal.  

It is well known that natural gas is much more affordable than renewable energy in terms of price, while producing relatively lower greenhouse-gas emissions than other fossil fuels. Therefore, natural gas can help address climate change problem by playing a bridging role between fossil fuels and renewable energy.

As the world’s largest LNG importer, Northeast Asia lies at the center of the global energy demand. Japan and Korea are the world’s number one and second largest LNG importers, respectively, and the total import volume of LNG in Japan, Korea, China, and Taiwan accounts for approximately 60 percent of the global LNG trading volume.  

However, Northeast Asian importers have been facing an Asian gas premium which keeps prices much higher than in other markets, such as the United States and Europe. Presumably, the premium is mainly due to the rigid import contracts, oil-linked long-term pricing mechanisms and limited supply sources.

In fact, most Asian countries’ contracts with long-standing LNG suppliers are less flexible in using the delivered gas due to rigid regulations such as destination clauses and the ‘take or pay’ obligation.

However, the global LNG market has become more short-term oriented and flexible over the last decade as a result of the increased global LNG production mostly due to the development of shale gas.

The increased supply of shale gas is expected to bring significant changes into the global gas market, turning the U.S. into a net energy exporter. It has not only economic but geopolitical implications as well since shale reserves are dispersed across the globe.

For instance, as the U.S. is becoming largely self-sufficient in gas supply due to increased shale gas production, Canada has lost its biggest gas importer, the U.S., and is likely to expand its gas exports to the Asian market.

Australia and East Africa have also discovered big gas fields in recent years and have emerged as promising gas suppliers to Asia.

With the emergence of these new supply sources, importers in Northeast Asia have been trying to make joint efforts to rationalize the LNG price formula and increase flexibility in the Asian gas market. 

According to an IEA report, Asia is on course to become the world’s second largest gas market by 2015. The IEA also raised the issue of developing a gas trading hub in which prices better reflect the local supply and demand fundamentals while facilitating intra-regional gas trade.  

It is one of the priority policies of the Korean government to transform Korea into a regional hub for both gas and oil trading. The Korean government has a plan to build large-scale oil storage facilities estimated at 1.9 billion U.S. dollars. The project is expected to transform Korea into one of the four major oil trading hubs along with the United States, Northern Europe, and Singapore. We could anticipate a synergy effect between the two hubs, if the plan is successfully implemented.

On March 5 of this year, we in the Ministry of Foreign Affairs convened an ‘International Gas Trading Hub Symposium.’ The symposium was organized to share information and perspectives on the current status and future prospect of gas trading hubs in terms of mitigating the Asian gas premium and increasing natural gas trading in the region. 

During the Symposium, many experts agreed on the need for a regional gas trading hub, but cautioned against optimism that the hub will likely be created in the near term. In fact, most of the hubs in Europe and North America took nearly ten to fifteen years to successfully commence operations.

Nevertheless, Northeast Asia is home to a number of big energy producers and consumers. By increasing energy connectivity and facilitating energy infrastructure, intra-regional gas trade could be promoted rapidly in the coming years, which in turn will help facilitate the development of a regional hub for gas and oil trading. 

The Korean government will continue to work with other countries in the region with a view to ensuring an affordable and reliable gas supply and realizing its vision for becoming a hub for intra-regional trading of gas and oil.

Ladies and Gentlemen,

Northeast Asia is a region where we could see a mismatch between growing economic interdependence on the one hand, and backward political and security cooperation on the other. This is a reflection of what we call “the Asia Paradox”.

It was against this background that President Park Geun-hye proposed the Northeast Asia Peace and Cooperation Initiative (NAPCI). The initiative seeks to accumulate small but significant interactions in non-traditional, soft cooperative issues such as environment, disaster relief, nuclear safety and energy security so that they turn into habits of cooperation among the countries in the region.

I believe that cooperation among countries in Northeast Asia in gas sector could also contribute to creating an environment conducive to promoting a regional peace and security as it could help build an infrastructure of trust in the region. The Korean government is committed to actively participating in the regional efforts to promote intra-regional gas trading as it will further enhance energy security in the region.

Distinguished Guests,

There is an old saying that "nothing great gets done alone." Every stakeholder, including exporting and importing countries, should work together to establish a viable pricing mechanism that guarantees transparency and accountability.

I believe that today’s meeting is a useful platform for the representatives with diverse professional backgrounds to freely share their views and ideas on regional gas issues. I look forward to a   productive and fruitful outcome of this meeting.

Thank you. /END/