[Editorial] Gas, oil exploration

President Yoon Suk Yeol’s surprise press briefing Monday over the possibility of gas and oil sent energy stocks higher and generated plenty of media buzz about a rosy scenario for a country heavily dependent on imported resources. But there are skeptical views about its feasibility.

Yoon said the government has approved a massive project to kick off exploratory drilling in search of gas and oil reserves in the deep sea off the country’s southeastern coast. He said the reserves could hold up to 14 billion barrels of gas and oil, a potentially significant quantity that would be sufficient for the country to use for as many as 29 years and four years, respectively.

The government entrusted Act-Geo, a US-based deep-sea technology consultancy, with the review of the geophysics study on the potential natural resources in February last year, Yoon said.

He added that experts verified the potential of the “14 billion barrels of gas and oil” that might be buried in the reserve off Yeongil Bay in Pohang, North Gyeongsang Province.

But Yoon’s comment about the potential reserve should be taken with a grain of salt. According to the Industry Ministry, Act-Geo’s review said that the buried amount of natural resources could be somewhere between 3.5 billion and 14 billion barrels, suggesting that the actual discovery might be far smaller than what the president announced.

During the briefing held at the presidential office in Seoul, Industry Minister Ahn Duk-geun also tried to paint an optimistic picture of the exploration plan, saying that “the potential for the project is very high” and global resource development firms have expressed their intention to participate.

Understandably, Yoon’s briefing has raised hopes among people and businesses related to the exploration project. If confirmed, it would certainly become a substantial boon for Korea, which depends on imports for around 97 to 98 percent of its energy needs. The reserves in question are also located within Korea’s exclusive economic zone, which means the country does not have to cooperate with other nations for the drilling. In addition to the use at home, Korea may be able to sell the resources overseas and secure sizable profits.

The way the government highlighted mainly the maximum valuation of the potential gas and oil reserves, however, raised questions. Ahn said the value of the reserves could be “as high as five times the market cap of Samsung Electronics.” Given that Samsung’s market cap was 451.9 trillion won ($328.2 billion) on Monday’s closing, Ahn’s projection puts that value at around $1.6 trillion.

Ahn’s comparison may be easier to figure out the massive scale, but critics said his valuation by using the name of the country’s flagship company was overly optimistic.

Since 1966, Korea has been carrying out exploration projects to find resources, but the endeavors often ended up with dashed hopes and repeated disappointments. In 1976, then President Park Chung-hee announced that oil had been extracted from an underwater field near Pohang, touching off excitement across the nation. But the government later gave up on the exploration project due to the lack of economic benefits.

One meaningful case involved the 1998 discovery in which Korea hit a gas reserve containing 45 million barrels in waters near Pohang. This led to commercial drilling from 2004 through 2021, bringing in 1.4 trillion won in net profit, but the result was still commercially lackluster.

Likewise, the government’s latest exploratory drilling project is based on rosy assumptions. The success rate of the drilling project is thought to be around 20 percent, a relatively high level in the gas and oil exploration sector, but this translates into an 80 percent chance of failure. And it remains uncertain whether the project will go ahead without changes through 2035 when commercial development is likely to begin.

At Monday’s press briefing, Yoon spent just four minutes making a surprise announcement and left without taking any questions. If the exploration project is as important as he said, Yoon should have spent more time on it.