No delay on overseas resource development

Kang Cheon-gu
The author is a guest professor of energy and resources engineering at Inha University.

The dragged-out conflict between two trade superpowers — the United States and China — and strong inflation continue to feed volatility in energy sources like oil, gas, and coal as well as industry-intensive commodities like lithium and copper. Geopolitical risks from the wars in Ukraine and the Middle East added fuel to a synchronized rally in the U.S. dollar and raw material prices.

According to the Korea Mine Rehabilitation and Mineral Resources Corp. (Komir), lithium carbonate prices were at 109,500 yuan ($15,147) per ton as of April 30, up 26.5 percent from 86,500 yuan at the beginning of the year. The prices of copper, a barometer of industrial activity, rose to $9,974 per ton, gaining 18.3 percent from $8,430 in just four months. But the uptick didn’t come from increased demand from global economic recovery. Mining companies have begun to cut back on production due to the shrinking in the electric vehicle market.

Countries increasingly resort to weaponization of their resource riches amid the deglobalization trend,. In the most blatant example, China in September 2010 curbed exports of rare earths to Japan during a row over disputed islands. The move dealt a heavy blow to Japan because the country is the largest importer of rare earth elements, consuming 60 percent of the global output, to manufacture high-tech products.

Resource nationalism also gained grounds. China recently banned exports of technology for making rare-earth magnets and imposed other restrictions on exports of vital industrial metals. Indonesia has banned exports of nickel ore and is readying to take similar actions with other unprocessed minerals like tin and copper.

According to the World Energy Trilemma Index Ranking 2022, Korea scored 98th among 124 countries in energy security due to its high reliance on energy import. To ensure sustainability in resources for a resource-poor country like Korea, increased overseas portfolio through exploration and development can be the most effective answer. Resource development has strong impact on engineering, construction and infrastructure industries, as well as creating additional values through commercialization process.

A project usually takes 10 to 15 years from early exploration to development, production and redemption. It requires a long-term — and comprehensive — approach as it involves massive capital and infrastructure. But Korea lacks a competitive system on overseas resource development and acquisition.

The country had to dispose of its hard-won 26 overseas mines in a fire-sale in 1998 to pay off its international bailout during the Asian financial crisis. The price of the hasty dilution proved to be dear after resource prices started to soar from 2008. The government as well as companies turned eyes to overseas resources once again.

The self-sufficiency rate through direct sourcing of oil and gas from overseas assets rose from 4.2 percent in 2007 to 13.7 percent in 2011. The self-sufficiency rate on six strategic minerals — bituminous coal, uranium, iron ore, copper, zinc, and nickel — increased to 29 percent in 2011 from 18.5 percent in 2007. The rate for rare metals like lithium and rare-earth elements doubled to 12 percent from 6.1 percent during the same period. Korea tapped into lithium mines in Chile, Argentina and Bolivia to source the key element for secondary batteries.

Overseas resource business came to a halt after budget was slashed in 2014 under the Park Geun-hye administration. The government associated overseas resource development with corruption and abnormalities performed under the Lee Myung-bak government. Investment for overseas resource development stopped at pitiful $6.8 billion in 2014, compared with $93.5 billion in Japan and $71.2 billion in China. Budget for overseas resource development that reached 140 billion won ($103 million) in 2013 became zero in 2014, wiping out the country’s resource development ecosystem.

Korea inevitably must rely on overseas resources due to the dearth at home. The country must not let its hard-acquired knowhow, time and capital it spent to build network with resource-rich countries go to waste, regardless of its past successes and failures in overseas resource development. China’s export control over rare earths and graphite as a part of its conflict with America involves resources fundamentally. For a country without resources, access to overseas reserves is essential for economic security. Korea is bound to regret 10 years later if it loses the timing on resource development. It must renew overseas foray. Its policy must stay consistent regardless of who is at the sitting power.

Translation by the Korea JoongAng Daily staff.