Take advantage of falling oil prices
People often call oil “black gold.” It is valuable and useful in many ways, and just like gold, the majority of petroleum can be found in certain regions. In the past six months, the international price of this valuable resource has dropped by nearly 60 percent. This was something that could not have been predicted a year ago, and many countries are experiencing mixed consequences from the unexpected price change.
Petroleum producers have been directly hit by the falling prices. Russia, Iran, Nigeria and Venezuela are some countries with a high dependency on oil exports. Russia has especially been hit hard, as 50 percent of public revenue comes from petroleum and gas exports. Japan, India and China are big importers and benefit from the price drop. Korea is also enjoying a windfall. Korea imported 915 million barrels of oil a year as of 2013, which added up to nearly $100 billion. A $10 drop in oil per barrel saves Korea nearly $10 billion a year.
The price of oil was a hot topic at the recent Davos Forum in Switzerland. Some predicted that it would remain low for the next three years while others argued that it will discourage investment, and that reduced production would lead to a price surge, up to $200 per barrel. For now, no one knows which side is right.
But in the long run, it is clear that the low oil price provides Korea a rare strategic opportunity. Korea is heavily dependent on energy imports, buying 97 percent of energy sources from other countries. Whether the price is high or low, securing oil is an unavoidable task for Korea. China is taking advantage of this opportunity and state-run oil companies are searching around the world to buy cheap mining claims. China’s state-run corporations and banks are acting shipshape for national interests.
Until now, Korea has been making various efforts to secure resources, but Korea has mere 0.2 percent of global petroleum and gas reserves. It is far lower than Korea’s share in global petroleum consumption of 2.9 percent. If there are any misdirected policies, they must be corrected immediately, and the government needs to create an environment to pursue long-term projects to develop and secure natural resources. We must not make a folly of missing a national opportunity because of short-sighted planning or political rhetoric.
by Kwag Chang-ho, Director of POSCO Research Institute
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