The Koreas

How South Korea Can Wean Itself off Russian Fossil Fuels

Recent Features

The Koreas | Environment | East Asia

How South Korea Can Wean Itself off Russian Fossil Fuels

With the prospect of further disruptions from the war to energy supplies, South Korea should take a serious look at its own energy vulnerabilities.

How South Korea Can Wean Itself off Russian Fossil Fuels
Credit: Wikimedia Commons/ HappyMidnight

With Russia continuing to target civilians in Ukraine, the United States is working with its European partners to reduce their dependence on imports of Russian fossil fuels. While South Korea would be reluctant to end imports of Russian fossil fuels immediately, there are practical steps that Seoul can take to reduce its dependence on Russian fossil fuels and phase them out in the medium term.

While South Korea needs Russian supplies in the short term, not planning for a reduction in Russian fossil fuels runs risks for the South Korean economy. In response to Seoul’s decision to enforce financial and tech sanctions on Russia, Moscow has designated South Korea an “unfriendly country.” Russia has also recently demanded that exports of gas to “unfriendly countries” be paid for in rubles. While South Korea currently pays for its Russian gas through a Japanese bank, if Russia holds to this position it may become increasingly impractical to continue purchasing Russian gas. The G-7 has already rejected Russia’s demands.

More practically, with Western oil majors pulling out of Russia, its longer-term production comes into question. Western oil majors provided the technology and expertise for the more challenging exploration projects in Russia, such as the Sakhalin Island LNG project, and were expected to help facilitate exploration efforts in the Arctic and other challenging environments.

With Russia also potentially taking steps to remove its own crude oil from markets, it would be prudent for South Korea to have a transition plan in place. With the prospect of further disruptions from the war to energy supplies, South Korea should take a serious look at its own energy vulnerabilities, climate objectives, and national security concerns to make necessary changes in its own energy mix.

Russia’s Role in South Korea’s Energy Sector

South Korea’s economy is heavily dependent on fossil fuels, which are almost completely imported due to a lack of domestic natural resources. Petroleum and other liquid fuels account for 43 percent of South Korea’s energy consumption, with coal accounting for 28 percent and natural gas 16 percent. The rest consists of nuclear and a small renewable energy mix.

Across all fossil fuels, Russia is South Korea’s fourth largest source, accounting for about 9 percent of all fossil fuels that South Korea imported in 2021 by volume. Russia accounted for 6 percent of South Korea’s crude oil imports last year and about 5 percent of its LNG imports. However, Russia accounts for 17.5 percent of South Korea’s coal imports and is the dominant source for naphtha, which is used by South Korea’s petrochemical industry.

Beyond the political pressures that will likely build in the weeks ahead to reduce fossil fuel imports from Russia, eliminating Russian fossil fuels could help South Korea to achieve its emissions reduction objectives and improve national security.

At COP26, South Korea pledged to reduce its greenhouse gas emissions by 40 percent from 2018 levels. Meeting this goal will require South Korea to remove or abate 268.6 million tons of carbon dioxide by the end of the decade. Emissions fell in 2019 and 2020, but it is unclear if that trend continued during South Korea’s recovery from the pandemic last year.

In 2018, the baseline year for emissions reductions, coal accounted for 340.40 million metric tons of South Korea’s emissions, while petroleum accounted for 179.1 million metric tons and gas 117.2 million metric tons. If South Korea were to eliminate imports of Russian coal, crude oil, and LNG, while not permanently replacing them with fossil fuels from other countries, it could reduce its emissions by roughly 73.5 million metric tons by 2030 based on 2020 levels (the most recent year for both emissions and import data).

These are just back of the envelope calculations and long-term contracts will prevent a full phase out over this decade, but the size of the potential cuts also demonstrates the challenge South Korea faces in reducing its emissions over the next decade. However, emissions will need to be reduced. Cutting imports of Russian fossil fuels would be a significant start in the process.

Reducing South Korea’s dependence on Russian fossil fuels, while transitioning to renewables, would also improve national security. Because South Korea is dependent on imports of energy to run its economy, it is vulnerable to disruptions, and not just from wars similar to Russia’s invasion of Ukraine that raise prices and risk reducing supply. South Korea is also vulnerable to the pressure tactics Russia applied on Europe in advance of its invasion of Ukraine. According to the International Energy Agency (IEA), Russia held back a third of the gas it could have sent to Europe to create the impression of tight supplies in the lead up to the invasion.

At a minimum, Russia has demonstrated a willingness to use energy for geopolitical leverage. More broadly, reducing South Korea’s dependence on fossil fuels would enhance its national security by reducing the leverage fossil fuel suppliers – not only Russia – have over its economy and insulating it from price shifts or shortages in future crises.

What Steps South Korea Can Take

An initial first step that South Korea can take is to prohibit the purchase of Russian crude oil or other fossil fuels on spot markets. Major oil companies such as Shell, BP, and Eni have already taken this step and Total is set to do so by the end of the year.

Kogas, the primary South Korean importer of LNG, for example purchases 70 percent of its LNG imports on long-term contracts. Ending spot purchases of Russian fossil fuels will require coordination among the United States and its partners to ensure supplies flow where needed, especially as Seoul is already diverting some of its LNG imports form the United States to Europe. The U.S. also has its own constraints in terms of export capacity, so in the short-to-medium term South Korea may need to turn to regional producers.

However, South Korea need not necessarily compete with European countries that are also looking to reduce their fossil fuel imports from Russia. In the case of coal, China’s informal bans on Australian coal imports could play to South Korea’s advantage. Australia could also be a potential source for increased LNG imports, along with Malaysia.

Some countries will be unable to increase production or redirect supply to South Korea in the short term, but now is the time to begin discussions.

The next step is to prohibit the signing of new long-term contracts with Russia. Kogas, for example, has a long-term contract to import LNG from Gazprom until 2045. South Korea will likely need new long-term fossil fuel contracts on its road to net-zero emissions, but it should look to partners that are less likely to use energy for geopolitical advantage for future contracts.

South Korea should also quicken the closure of coal power plants. Under current plans, South Korea has already closed 10 coal power plants as part of a plan to close 30 by 2034. While 24 of these plants will be converted to LNG, plans also call for increasing renewables to 30.2 percent of South Korea’s energy mix by 2030. If President-elect Yoon Suk-yeol maintains South Korea’s renewables commitment and works to revive South Korea’s nuclear power industry, speeding up the closure of the remaining 20 coal plants by 2034 should be feasible.

South Korea could also look to expand partnerships for the development of renewables. Seoul recently established a bilateral partnership with Australia on clean energy technologies and critical minerals, but it could look to deepen and broaden cooperation on the production of green hydrogen in Australia with other countries. Technical issues on transport still need to be resolved, but a minilateral partnership to produce green hydrogen could allow South Korea to transition some of the expected LNG conversions to a lower emissions fuel.

To manage these transitions, South Korea should also review its strategic reserves policy. Just prior to the current crisis South Korea has expanded its reserve capacity to just under 150 million barrels of oil. However, those reserves only had 96 million barrels of petroleum, equal to 106 days of South Korea’s needs. Private sector supplies boost that to about 200 days of supplies, but there was reluctance to add to the government’s reserves due to prices. While prices at the end of last year were high, adding to the reserves would have been prudent.

If Seoul is to achieve these objectives, it will need to engage in domestic reforms. As the IEA has noted, South Korea’s current wholesale energy market does not account for emissions or security of supply. If South Korea reformed its wholesale market, it would encourage greater investment in renewable energy.

The government could also put in place a policy to phase out internal combustion engines. The IEA estimates that to achieve carbon neutrality by 2050, one out of every two cars sold needs to be an electric vehicle by 2030. Putting in place a plan to phase out internal combustion engines in new cars would also incentivize Hyundai and Kia to speed up their own transition and provide a larger domestic base for South Korea’s electric vehicle battery industry. If paired with a move away from coal power plants, it could further help South Korea reduce its emissions and dependence on Russia.

Because these shifts will also likely result in price increases in the short to medium term, the government should also consider fuel subsidies to protect the most vulnerable from higher energy costs and subsidies to support the private sector’s transition to alternative fuels.

The Costs of Phasing Out Russian Fossil Fuels

These steps would not be without costs. The most immediate cost would be higher prices. However, the war has already built higher prices into global markets and these shifts are unlikely to change in the coming months. It will take time to secure alternative supplies and to bring new renewable projects online, but Germany has shown that new supplies can be secured relatively quickly.

Limiting reductions of Russian fossil fuels, for the moment, to only the spot market will provide more time to bring new renewable projects online and transition to other sources, even if the cost of spot prices is driven up as countries shun Russian supplies or Moscow removes them from the market.

There would also be a potential inter-Korean cost. Prior South Korean administrations have considered the development of a gas pipeline from Russia through North Korea as one option for inter-Korean cooperation. Weaning South Korea off Russian supplies would at a minimum make this project more challenging, but perhaps that’s not a bad thing. One lesson from the current crisis is that a pipeline from Russia across North Korea could be used as leverage against South Korea in a future conflict.

There is also the risk that Russia could retaliate against South Korea, but Moscow will find it difficult to retaliate against all of its energy partners. If Seoul were to be singled out, Washington has shown a willingness in its own actions in Europe to work with allies to meet their energy needs.

Fossil fuels have funded Russia’s invasion of Ukraine. Lessening that revenue stream is important for continuing to apply pressure on Moscow to withdraw its troops. However, the invasion can also be an opportunity to advance South Korea’s own climate objectives, strengthen its economy, and enhance its own national security. The shift doesn’t need to be abrupt, but it is time to begin planning how to wean South Korea off Russian fossil fuels.