Korea’s state oil company to expand explorations in domestic coastal areas

Gas field in the East Sea [Photo provided by Korea National Oil Corporation]

State-run Korea National Oil Corp. plans to expand its domestic continental shelf oil exploration project to the south and west coastal areas as part of its efforts to reduce the country’s reliance on imports amid soaring crude prices due to the prolonged war between Russia and Ukraine.

KNOC decided to pursue a three-dimensional physical exploration of the shelves off the south and west coasts this year and is preparing to apply for licenses to explore a total of five blocks, including 1·1-2, 1-3,2·2-2, 3 off the west coast and 6-2 and 7 off the south coast, according to energy industry insiders on Monday. If the company is successful, it will be the first achievement in 25 years since it has discovered a commercially viable gas field off the east coast in 1988.

Physical exploration is the process of searching for areas with the potential for oil reserves after securing exploration and extraction licenses from the government. The results of the exploration will decide whether to drill or not.

There are a total of 10 exploratory wells on the continental shelf in Korea. By region, there are two off the east coast, four off the south, three off the west and one called the Joint Development Zone. This was set in 1978 based on an agreement between Korean and Japan. Because of the agreement, KNOC is unable to conduct its physical exploration in JDZ alone, so the block was excluded from this exploration. The gas field in block 6-1 off the east coast, which had been discovered for the first time in Korea in 1998, ended production in 2021.

The reason KNOC has decided to resume domestic oil explorations is that it judged that demand for fossil fuels would expand, given the long process of transitioning to carbon neutrality. The Russia-Ukraine war has also highlighted the importance of energy security across the world, boosting the perception that the ability to secure oil determines national competitiveness.

“We have continuously carried out domestic oil explorations, but there have been no remarkable results other than the gas field off the east coast,” a KNOC official said. “The development of exploration technologies also necessitates resuming our domestic explorations.”

Meanwhile, JDZ, which expires in five years, appears to be the biggest variable for KNOC to pursue its future development projects. Under the agreement, KNOC cannot develop or explore areas in JDZ if Korea or Japan objects. There had been two rounds of joint explorations in the area until the 1990s, but the two countries returned their mining rights in 1993 because they judged the exploration was not economically viable.

Then, China succeeded in developing a gas field near JDZ and the Korean and Japanese governments again decided in 2001 to resume their joint explorations. In 2020, KNOC was selected again to carry out the project from the Korean government but Japan has yet to make a selection. In fact, as Japan refuses to jointly explore the JDZ, some observers say that there could be a conflict between the two countries over developing oil reserves in the area in the future. As JDZ has many places close to Japan, there is a possibility that these areas will likely be handed over to Japan after the agreement expires, industry insiders noted. In other words, there is no reason for Japan to rush.

“Since the gas field project off the east coast has ended, it is important to continue domestic explorations even if they cost money,” said Yoo Seung-hoon, dean of the College of Future Energy Convergence at Seoul National University of Science and Technology. “The latest Korea-Japan summit has raised the possibility of cooperation with Japan. it is important to seek as much cooperation with Japan as possible.”

In 2022, KNOC turned to a profit for the first time in 12 years and posted a record operating profit on the back of rising international crude oil prices. Operating profit was 1.78 trillion won ($1.36 billion) on sales of 3.64 trillion won.