The energy market is rapidly changing. The US is still the largest importer of oil, but not for long. While its net oil imports are quickly falling, those of China, the world’s second largest oil consumer, are quickly rising. According to the Energy Information Administration (EIA), China is expected to be the world’s largest net oil importer before year-end.
But China is not the only country heading that direction: India and newly industrialized economies like South Korea and Taiwan are quickly catching up.
Just under half of the world’s top 10 net oil importers come from emerging Asia.
South Korea is the sixth largest net oil importer.
South Korea’s energy consumption levels have increased over time and, given that its production capacity is relatively low and rigid, its energy imports have been rising.
Nearly half of Korea’s energy use is in the form of petroleum, making the Gulf Cooperation Council (GCC) South Korea’s main source of imports for over a year now, exporting over $98 billion worth of goods in the 12 months prior to July 2013 or 20 percent of South Korea’s total imports, its highest share since the 1979 oil crisis.
Among the GCC countries, Saudi Arabia is the largest exporter to South Korea and fifth at the global level.
Saudi shipped $37.5 billion worth of goods in the 12 months to July 2013, followed by Qatar with $26 billion, Kuwait with $18.4 billion and the UAE with $16.2 billion.
Kuwait became South Korea’s third largest exporter from the GCC in 2011.
According to Korea National Oil Corporation (KANO), Kuwait exported to South Korea 518,000 barrels per day in July, about a fifth of its July oil production and also fifth of South Korea’s total oil imports. In terms of value, Kuwait’s July exports to South Korea increased the most, by 45.1 percent year-on-year (YoY), followed closely by the UAE at 44.8 percent YoY.
Saudi Arabia’s exports to South Korea only grew 1.2 percent YoY while Qatar’s declined by 16.1 percent YoY. Looking at aggregated numbers for the last year, exports to South Korea are generally decelerating due to the global trend of deceleration.
South Korea is growing below its potential level, because its industrial and consumer sectors are suffering due to the country’s large exposure to the US, EU and Japan (the G3).
It is through this channel that the GCC’s trade sector can be most affected, rather than through direct links to developed economies. The same applies to China, Taiwan and other countries in the region.
The GCC exports nearly twice as much to emerging Asia than it does to the G3.
Less developed Asian economies, such as Vietnam and Cambodia, are also increasing their demand for the Gulf’s energy products, as they develop their industrial sectors, while the G3 is reducing its imports from the GCC, as their industries stall and as they become more energy self-sufficient.
Nonetheless, Asian demand for GCC’s energy products will remain robust as the regional industrial expansion continues in spite of the weak economic background.
South Korea is an important economic partner to the Gulf, a certain level of competition exists among GCC countries to increase their share of exports.
Currently, Saudi Arabia leads exports more than the rest of the Gulf to South Korea.
However, the GCC should adopt a strategy of diversification.
About a third of South Korea’s energy consumption comes from coal (being the world’s largest producer, China is the main supplier) and another third comes from nuclear and natural gas. South Korea is the world’s second largest importer of liquefied natural gas, and its demand is rising fast, benefiting Qatar.
The UAE is already diversifying away from energy into trade, finance and tourism.
Kuwait needs to diversify its energy exports to profit from Korean demand.
Kuwait has a large quantity of proved natural gas reserves, the 18th biggest in the world, but produces very little.
The economic center of the world is shifting East, and the Gulf’s oil producers should get prepared to cater for Asian needs if they want to get a piece of that pie.