It’s all about energy independence

Kim Chang-gyu
The author is the economic news editor of the JoongAng Ilbo.

Russian President Vladimir Putin defied an international plea and opposition to his invasion of Ukraine on Feb. 24. To his chagrin, the attack, which should have ended in “two or three days,” has gone on for more than 20. The aggression has not panned out as Russia planned because of two misjudgments.

First of all, Putin has underestimated Ukraine’s capabilities and its people’s resistance. Russia’s mighty military force — the world’s second most powerful — could not move easily into major cities in the face of strong resistance. The Russian advance was blocked by motivated Ukraine forces. The upset came from misreporting. Russian intelligence had fed Putin information that would please him. The result brought about a catastrophic backlash.

Putin also underestimated Europe. U.S. sanctions were predictable. But he had expected a passive response from European countries as in the wake of its forced annexation of Crimea. Putin had faith in the country’s powerful weapon — energy. European Union members rely on Russia for 40 percent of their natural gas and for 25 percent of their crude oil. Moscow holds the key to the energy lifeline in the EU. But as soon as Moscow started a war, the EU announced strong sanctions as well as all-out support for Ukraine.

The war has sent fire to fuel prices. International petroleum that cost $70 to $80 per barrel before the war has doubled to $140. Experts project prices could break $200.

Korea will pay a heavy price. The Korean Peninsula surrounded by three seas and cut in two is a loner when it comes to energy. The country must ready self-sufficiency against contingencies. The Ukraine crisis could cause as big a blow as the first oil shock of 1973-1974 and the second in 1979-1980.

Despite the growth in the economy, energy self-sufficiency has come down. Reliance on imports for energy was 75 percent shortly after the second oil shock, mostly as a result of coal mining in Korea. As of 2020, however, energy imports were 92.8 percent of the total. If the energy producers sneeze, Korea could catch a very bad cold.

Korea’s nominal gross domestic product (GDP) was No. 10 globally last year, largely boosted by trade. It performed better than Russia at 11th. In energy terms, Korea is a poor country. Without energy security, the country would have to look others for help. The economy has already been shaken by the war’s lengthening into the third week. In the first 10 days of this month, trade balance reached a deficit of $1.39 billon as imports grew 15.3 percent, bigger than export gain of 14.9 percent. Due to a spike in fuel costs, imports prices for crude oil jumped 43.6 percent, natural gas 87 percent and petroleum products 46.3 percent.

The world is scrambling for energy. Upon declaring a ban on Russian fuel, Western nations are ratcheting up energy self-sufficiency. During a summit meeting in Paris March 10 through March 11, the 27 EU members vowed to reduce reliance on Russian fossil fuels and completely stop importing it by 2027. They vowed to seek alternative import channels for gas and oil while speeding up renewable energy production. Announcing on March 8 a plan to stop importing Russian energy, U.S. President Joe Biden stressed the need of energy independence for the long-term protection of the U.S. economy. America is entirely capable of sourcing energy from its soil. Still, it is emphasizing energy independence.

Korea relying on imports for 92.8 percent of energy has further weakened its energy security by pushing the ambitious policy of phasing out nuclear reactors and coal-fueled generation and raising the share of sourcing from expensive natural gas imports for carbon neutrality. The country must reexamine its energy roadmap in the context of energy independence. The entire energy policy of the country, including fossil fuels, nuclear reactors, and renewable sources, must be redesigned.

Without energy independence, the country’s industrial and economic power cannot be sustained.