The 1976 oil hoopla redux?

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

“We found oil!” President Park Chung Hee announced the mind-blowing news, jubilating the nation at the beginning of the year. That was the headline of a newspaper dated Jan. 15, 1976. In his New Year’s address, the president confirmed that Korea had discovered oil reserves underneath an area near Yeongil Bay on the southeastern coast the prior month.

He explained that the government carried out drilling in three potential locations and had found several drums of oil from one of them, adding that four or five months would be needed to determine whether the deposit bears crude oil with economical value.

The media raised a hoopla and the public celebrated the news as the country in the early industrialization stage entirely depended on imported oil and the whims of oil powers. The government had been secretly exploring for oil in three spots off the coast of Pohang, North Gyeongsang, from May 31, 1975. The first borehole some 1,150 meters (3,773 feet) deep was stopped by a solid layer of granite. Petroleum is typically found in sedimentary rock formations. The second drilling 1,400 meters down also came upon granite. Things did not look good.

But on Dec. 3, the second borehole spurted a gush of black liquid upon breaking through the granite. A sample arrived at the Blue House and the president rushed to make the announcement.

But an analysis of the sample was a disappointment. It mostly contained diesel. Crude oil usually is composed of constituents of gasoline, kerosene, diesel, and heavy oil. Diesel was used as a lubricant during the drilling, and the liquid could have stayed between rocks. Additional petroleum was not found in the area.

President Yoon Suk Yeol in a televised briefing on Monday announced the prospect of vast oil and gas deposits in the waters off the bay in Pohang. Based on the exploration results “verified by leading research institutions,” he said he had given the green light to the Ministry of Industry, Trade, and Energy to carry out deep-sea exploration in the East Sea. Drilling will be initiated at the end of the year to deliver results on the prospect within the first half of next year, he said.

The president’s in-person briefing, with the reference to Yeongil Bay of Pohang and the need for further exploration, bore too many resemblances with the former president’s comments a half-century ago. The stark difference is the public response. The public were in complete exhilaration 50 years ago. People were jumping and hugging in the streets in newspaper photos on the following day.

The news had been a windfall as the poor country was battered by global oil crises and high inflation. After the first oil shock in 1973, gasoline prices jumped more than four times over a year. Developed economies were also experiencing a recession. Because of the high hopes in Korea, the disappointment came down that much more heavily.

But the response this time has been lukewarm. Some are drumming up expectations of becoming an oil producing country, but skepticism mostly prevails. Korea is the 13th largest economy, with its per capita GDP nearing $40,000. Korean brands top in memory chips, smartphones, automobiles and home appliances. The situation is different from 50 years ago. The “black oil” dream is not as desperate as then.

The political background behind the oil reserve hype is also similar. The economy was in dire straits in 1976 from the second oil shock. As public sentiment soured, President Park’s approval rating was dipping. People suspected a political motive behind his hasty announcement on oil. President Yoon’s approval rating has hit a dismal 21 percent, the lowest since taking office two years ago. Negative response reached 70 percent. The administration is in deep water.

There is no need to overrate or underestimate the latest announcement. There is no need to raise suspicion about a political motive, either. It is common wisdom that gas reserves sit under the sea off the coast of Pohang. The question is about the economic value. Since exploration costs 500 billion won ($362 million), the government should be fully aware of the accountability for the consequences. People only would have to wait for a report on economic feasibility. One sure difference from 50 years ago is that people today are not naïve enough to blindly believe the words of the president.