This transcript is from a CSIS podcast published on October 31, 2023. Listen to the podcast here.
Lisa Hyland: Hello and welcome to Energy 360, the Energy Security and Climate Change Program podcast at CSIS. I’m your host, Lisa Hyland. I hope you enjoyed our miniseries, New Shores, hosted by my colleague Allegra Dawes. We’ll be turning away from the IRA and U.S. policy to take a look this week as how several other major economies shaped their energy policies.
Korea and Japan are both resource-poor when it comes to energy sources. Powering their economies has required both countries to develop global supply chains for fossil fuels, nuclear power, and renewable energy.
To help us understand how these two countries employed different approaches to achieving energy security, we are joined today by Dr. Seong-ik Oh, Director General of the Korean Ministry of Land, Infrastructure, and Transport. Dr. Oh is the author of the recent book, Overseas Energy Investment of Korea and Japan: How Did Two East Asian Resources-Rare Industrial Giants Respond to Energy Security Challenges. This in-depth study offers practical insights into how Korea’s and Japan’s political landscapes shaped their energy policies. Dr. Oh is joined by my colleague Jane Nakano – here’s Jane to lead the discussion.
Jane Nakano: You recently published a book, Overseas Energy Investment of Korea and Japan, so there's some very well-known similarities between South Korea and Japan. One of the major similarities is that both South Korea and Japan are industrial democracies that are heavily dependent on overseas energy resources by the maritime transit. But one of the key takeaways from your book is that the two countries have still ended up with different energy security policies despite some major similarities. So, could you tell us more about that finding or the takeaway? In other words, what are some of the key differences between Korea's and Japan's energy security policies?
Seong-Ik Oh: Yeah, I want to point out two key differences. The first one is that while Japan's overseas oil and gas development is mainly done by private sector, more than half of Korea's overseas oil and gas development is carried out by the public corporations such as KNOC and KOGAS. The second notable difference lies in policy consistency and the resulting outcome. In the case of Japan, its energy security policies have been consistently pursued, resulting in an upward trend of oil and natural gas self-sufficiency ratio. On the other hand, Korea has witnessed shift in policy priorities with every change of administration. Some political leaders showed high interest, others were rather indifferent, and this created a challenging environment for maintaining policy consistency. Such a lack of consistency affected policy outcomes resulting in a decline in oil and gas self-sufficiency ratio in the second decade of 21st century.
Jane Nakano: Is there any other factor that also accounted for such differences, or is it mainly really the difference in the political system and also the leadership level of interest? Is that a fair way to characterize?
Seong-Ik Oh: So basically, my explanation is the number of veto players accounts for such differences according to the veto player theory. If there are more veto players, it is more difficult to change policies, which leads to policy (inaudible). Here veto player refers to an individual or collective actor with the authority or power to block or veto changes in policy. In other words, their agreement or consent is necessary for any policy decision or change to be implemented. Japan has a larger number of veto players than Korea. Their presence is a very noticeable in the significant role of Japan's Liberal Democratic Party, LDP, in policymaking. LDP's Policy Affairs Research Council and the LDP Executive Council are quite influential in Japan's political scene. Another aspect is the role of interest groups acting as veto players in policymaking such as the Japan Business Federation, Keidanren.
Jane Nakano: And for those that are not as familiar with the basic structures of Korean and Japanese political systems. While Japan has a parliamentary system, Korea has a presidential system, and it's also interesting, unlike ours, the United States, I think it's a one term five-year system. Yes. I think there's still, I guess enough varieties within the presidential system, I suppose.
Seong-Ik Oh: Yes.
Jane Nakano: That is definitely an interesting difference between the two countries. And in your book, you closely examine the relations between these different stakeholders. So there's the political leadership bureaucracy and the entities or agents for overseas oil and gas development in these two countries. And you've already mentioned in Korea, KNOC and KOGAS are the key entities for Japan. I think your book mentions impacts. So how have these entities come about? What gave birth to these entities?
Seong-Ik Oh: Yeah. Well first in Korea, KNOC was established in the 1970s. Initially the idea was to establish a state-owned enterprise solely for oil stockpiling in the aftermath of the first oil shop. But this concept evolved leading to the creation of a vertically integrated state-owned oil company, Korea's ministry of trade and industry, and later its successor, the Ministry of Energy and Resources made great efforts in establishing the Korea Petroleum Development Corporation, we call PEDCO, in 1979, which would later become KNOC. The successful realization of this endeavor was fueled by high domestic interest in oil resources at that time, and Japan's delayed ratification of the Korea -Japan agreement on joint development of continental shelf in the East China Sea. In Japan, the modern-day impacts was established during the Koizumi administration as a response to the disbandment of the Japan National Oil Corporation. We called it JNOC. At first, Japan's Ministry of Economy, Tade and Industry (METI) proposed creation of a state-owned oil company to manage the important oil and gas assets inherited from JNOC. However, METI's proposal failed to be realized. Instead, INPEX, one of JNOC's better performing subsidies went through the process of privatization. Faced with a complex political landscape with many better players, and in particular the operation from Mr. Horiuchi, then head of the LDP Executive Council, METI evaded these difficulties by creating a quasi-SOE through a rarely utilized market mechanism known as the golden share.
Jane Nakano: That's really interesting. As far as some of the specific roles, what are some of the examples of the roles that they play in trying to secure the nation's energy security?
Seong-Ik Oh: Both of them have played a major role in domestic and overseas oil and gas exploration. For KNOC, oil stockpiling was another important task.
Jane Nakano: And right at the moment, I think energy security is gaining renewed appreciation, unfortunately, due to Russia's invasion of Ukraine that's causing a lot of energy security concerns, not just in Europe and many of the other countries given volatilities and oil gas markets and et cetera. How are these entities in both South Korea and Japan responding to the current energy security concern?
Seong-Ik Oh: Yeah, their responses differ, but they both share a common objective that is securing autonomous development of oil and gas in the face of supply fluctuations and price volatility. While KNOC has focused on the domestic offshore sector INPEX is focusing on enhancing its exploration capacity based on its own operatorship in overseas projects like Abadi Project in Indonesia. At this point, I would like to stress that it is crucial for both Korea and Japan to establish a robust energy supply base within the region. This can be achieved by leveraging the Korea -Japan agreement on joint development of continental shelf in the East China Sea. This agreement has been in effect since June, 1978 and is set to expire in June, 2028. If there is a three-year prior notice given in June, 2025, now I would like to encourage Korea and Japan to consider extending this agreement to address the current uncertainties in the global energy market. Just like back in the 1970s when Korea and Japan had overcome their differences and successfully cooperated for joint development in the East China Sea to overcome the first oil shock.
Jane Nakano: There have been, from what I understand in the media, quite a few rounds of positive exchanges between Seoul and Tokyo. From what I understand, would you say that maybe there is a higher chance that this agreement could be extended before 2028?
Seong-Ik Oh: What I can say is, I hope so.
Jane Nakano: Yeah, fair enough. Yeah. Let me stay with this energy security theme for a moment, but also throw in this climate change challenge that the world faces. I think a growing number of countries, especially the advanced industrialized economies, view energy security and climate change as the dual challenge. It's no longer, oh, if we try to secure energy, then we have to give up on decarbonization. I think right at the moment there is considerable efforts to really address both and to some extent, or I think to a large extent, there are many technologies that are becoming available that can help governments pursue both. But what does this dual challenge both energy security and climate change mean to Korea's and Japan's quest for energy security?
Seong-Ik Oh: During this period of facing the dual challenge, it signifies a shift in how we secure our energy supply. In the past, energy security relied on diversifying the countries from which we imported oil and gas. Now, in the midst of this dual challenge, energy security is achieved not only by diversification of import sources, but also through diversification of energy production sources such as renewable energy.
Jane Nakano: Is this dual challenge altering the scope of these entities like KNOC, KOGAS in the case of South Korea, and INPEX in case of Japan, their missions and or actions?
Seong-Ik Oh: Their responses to the dual challenges are rather different. KNOC, for instance, is expanding its business scope to include renewable energy. Revising the KNOC law is being liberated in the National Assembly and KNOC is currently studying the possibility of carbon capture and storage (CCS) project. On the other hand, INPEX is focusing on ESG initiatives within its own exploration and development activities. Such initiatives include environment and social assessment and monitoring, as well as the greenhouse gas emission management process.
Jane Nakano: So, the United States has become a major supplier of oil and gas in the world, and energy trade has become a key element of U.S. economic ties with key allies and partners such as South Korea and Japan. Do you observe any difference between the Korean and Japanese approaches to energy engagements with the United States?
Seong-Ik Oh: Yeah. Korea has maintained a robust partnership with the U.S. and took a significant step of stopping its imports of Russian oil last year. Moreover, Korea's natural gas imports from the U.S. now surpass those from Russia with the volume being three times larger. This also puts Korea ahead of Japan in terms of the volume of U.S. natural gas imports. On the other hand, Japan's natural gas market experienced a shift in 2022 with the share of U.S. natural gas becoming smaller than that of Russia, which is quite different from the situation in 2021. Also, Japan granted permission for the importable Sakhalin oil and gas from the project in which Japanese companies hold equity, this year. This change in approach seems to be connected to whether or not a country has equity oil assets in Russia, or so it can be explained that whether decision-making system is centralized or not affect this different approach between two countries.
Jane Nakano: So, I guess Japan is still staying with LNG projects like Sakhalin two?
Seong-Ik Oh: Yeah.
Jane Nakano: So, does Korea not have any engagements on either gas side or oil side with Russia?
Seong-Ik Oh: For exploration? There's no equity.
Jane Nakano: Okay. And Russia is one of the resource rich countries in the Indo Pacific region, and I think the geopolitical environment shifting as drastically in recent years certainly makes this sort of a calculation behind the sourcing and volume, and I think types of engagements quite challenging. Now, that was really interesting comparison.
I'd be interested in your view on how both Korea and Japan are approaching non-oil and gas energy engagements with the United States. Do you think it will start shifting away from oil and gas given some of the environmental scrutiny or because there are so many Korean companies that are active in partnering with U.S. companies and also U.S. states and different localities to help develop clean energy manufacturing and et cetera. It's definitely an area where we see a lot of coverage. Is that some trend that's going to stay for a while, or?
Seong-Ik Oh: I think that Korea and Japan, both countries are eager to pursue energy security by utilizing renewable energy sector and enhancing battery industry. And the trilateral cooperation between the U.S., Korea and Japan will make this environment more better than before. So, I hope trilateral cooperation can be a stepping stone for Korea and Japan and the U.S. cooperate for the better future by responding to climate change wisely.
Jane Nakano: So going back to the Russia question. So what accounts for the difference between particularly Korea's decision to walk away from Russia more decisively and probably quickly than Japan's decision? If I'm not mistaken, there's engagement, but I think there has been pause on expanding any future or further energy engagement between Japan and Russia. But what accounts for the difference in approach, even though I think that both countries are key allies of the United States.
Seong-Ik Oh: So basically, the decision-making structure matters. Korea. In Korea, we have small number of veto players and Japan have large number of veto players. Therefore, Korea's policy change is very decisive, and Japan's policy change is gradual. That can explain how Korean and Japan respond to current geopolitical situation vis-a-vis Russia.
Jane Nakano: This was a really interesting conversation, not just because I think your book is a great resource for anyone who's interested in how energy security policymaking has been done and perhaps evolving in Northeast Asia, but then also your analysis implications for what's happening right now in the energy market, but then also future energy security concerns. So, I very much enjoyed our conversation. Thank you so much, Seong-Ik for joining me today.
Seong-Ik Oh: Thank you, Jane.
Lisa Hyland: Thanks to Dr. Oh for joining energy 360 and sharing his insights into Korea and Japan’s energy sectors, as well as their approach to climate change, global energy markets and their relationships with the United States. For those looking for a readable study on energy security policy, there is a link in our show description to Dr. Oh’s book.
You can find more episodes of Energy 360, wherever you listen to podcasts and at csis.org. For updates follow us on Twitter @CSISEnergy. And as always thanks for listening.
(END.)