Mid-Term Korea Energy Demand Outlook(2010~2015)

KEEI

KEEI

Mid-Term Korea Energy Demand Outlook(2010~2015)

ISSN 1599-9009

March 2011

Volume 12QUARTERLY ENERGY OUTLOOK

Korea Energy Economic Institute132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do

Phone: (031)420-2114

Fax: (031)422-4958

E-mail : [email protected]

Hompage : http://www.keei.re.kr

Korea

Energy

Econom

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Mid-Term

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중기수요전망12 문표지 2011.6.27 9:23 AM 페이지1 매일3 MAC2PDF_IN 600DPI 175LPI T

ISSN 1599-9009

March 2011

Volume 12

KEEIMid-Term Korea Energy Demand Outlook(2010~2015)

중기수요전망12 문 2011.6.27 9:46 AM 페이지1 매일3 MAC2PDF_IN 300DPI 125LPI T

·In charge of overall research Choi, Do-young ([email protected])

·Petroleum Kim, Soo-il ([email protected])

·Electricity/Transformation Choi, Do-young ([email protected])

·Town gas/Coal Lee, Sang-youl ([email protected])

·Research support Lee, Bo-hye ([email protected])

·Research support Hwang, In-wook ([email protected])

·Statistical support Chung, Chang-bong ([email protected])

Phone: +82-31-420-2148, +82-31-420-2234

Fax: +82-31-420-2164

KEEI Mid-Term Korea Energy Demand Outlook (2010-2015)

The 「KEEI Mid-Term Korea Energy Demand Outlook (2010-2015)」is a report thatanalyzes energy supply/demand trends in Korea and makes mid-term forecasts onenergy demand.

This report analyzes changes in energy supply/demand that were witnessed since2000, and provides various energy supply/demand forecast indexes for the next fiveyears and information for government policies. It is intended to contribute togovernment efforts in setting and adjusting an overall policy direction regarding energysupply and demand.

This report was written and edited by the Energy Demand and Supply Researchdivision under the Center for Energy Information and Statistics of KEEI.


Summary …………………………………………………………………………………………8

Ⅰ. Energy Consumption Trends in Korea…………………………………………………27

1. Primary energy consumption trends ……………………………………………………29

2. Final energy consumption trends ………………………………………………………38

3. Petroleum product consumption trends ………………………………………………47

4. Electricity consumption trends …………………………………………………………53

5. LNG and town gas consumption trends ………………………………………………58

6. Coal and other energy consumption trends……………………………………………65

Ⅱ. Mid-Term Energy Demand Outlook (2010~2015)……………………………………77

1. Forecast methodology and assumptions………………………………………………79

2. Primary energy demand outlook ………………………………………………………85

3. Final energy demand ……………………………………………………………………93

4. Petroleum product demand ……………………………………………………………100

5. Electricity demand outlook ……………………………………………………………105

6. LNG and town gas demand outlook …………………………………………………109

7. Coal and other energy demand outlook………………………………………………115

Ⅲ. Energy Demand Outlooks based on Different Scenarios…………………………123

1. Economic growth scenarios……………………………………………………………125

2. Primary energy demand by scenario …………………………………………………127

3. Final energy demand by scenario ……………………………………………………135

Ⅳ. Outlook Characteristics and Implications……………………………………………143

1. Key characteristics ………………………………………………………………………145

2. Policy implications ………………………………………………………………………155

Contents

3http://www.keei.re.kr

Summary

Table of Contents for Titles


KEEI Mid-Term Korea Energy Demand Outlook

4 KOREA ENERGY ECONOMICS INSTITUTE

<TableⅠ-1> Primary energy consumption trends ……………………………………………………29<TableⅠ-2> Changes in added value by industry ……………………………………………………30<TableⅠ-3> Changes in key economy and energy consumption indicators ………………………34<TableⅠ-4> Trends in final energy consumption ………………………………………………………39<TableⅠ-5> Trends in energy consumption by different types of business

in the manufacturing sector ………………………………………………………………41<TableⅠ-6> Oil consumption trends (1990~2010) ……………………………………………………47<TableⅠ-7> Oil consumption by sector (1990~2010)…………………………………………………48<TableⅠ-8> Trends in consumption of key petroleum products (1990~2010) ……………………52<TableⅠ-9> Trends in electricity consumption …………………………………………………………54<TableⅠ-10> Changes in share of electricity consumption taken up by each sector ……………57<TableⅠ-11> Trends in consumption per LNG use……………………………………………………59<TableⅠ-12> Trends in town gas consumption per use ……………………………………………62<TableⅠ-13> Coal consumption trends…………………………………………………………………65<TableⅠ-14> Trends in coal consumption by use ……………………………………………………68<TableⅠ-15> Trends in anthracite consumption per use ……………………………………………70<TableⅠ-16> Trends in bituminous coal consumption per use………………………………………72<TableⅠ-17> Trends in consumption of thermal energy, new & renewable energy,

and other energy …………………………………………………………………………74<TableⅡ-1> Assumptions for economic growth of mid-term model ………………………………83<TableⅡ-2> Assumptions on temperature variables …………………………………………………84<TableⅡ-3> Primary energy demand outlook (2010~2015) …………………………………………85<TableⅡ-4> Outlook on key economy and energy consumption indicators ………………………88<TableⅡ-5> Outlook on electric power generation mix ………………………………………………91<TableⅡ-6> Outlook on final energy demand …………………………………………………………93<TableⅡ-7> Expansion of facilities that consume great amounts of energy in 2010………………95<TableⅡ-8> Outlook on oil demand (2010~2015)……………………………………………………100<TableⅡ-9> Outlook on key petroleum product demand (2010~2015) …………………………103<TableⅡ-10> Mid-term outlook on electricity demand (2010~2015)………………………………105<TableⅡ-11> Outlook on LNG demand ………………………………………………………………109<TableⅡ-12> Outlook on town gas demand …………………………………………………………112<TableⅡ-13> Areas planned to be supplied with town gas…………………………………………113<TableⅡ-14> Outlook on coal demand by source and by use ……………………………………115<TableⅡ-15> Outlook on anthracite demand per use ………………………………………………117

Table of Contents for Tables


SummaryContents


<TableⅡ-16> Outlook on bituminous coal demand per use ………………………………………120<TableⅡ-17> Outlook on thermal energy, new & renewable energy, and other energy demand …121

<TableⅢ-1> Economic growth scenarios ……………………………………………………………126<TableⅢ-2> Outlook on primary energy demand by scenario ……………………………………127<TableⅢ-3> Outlook on energy intensity by scenario ………………………………………………128<TableⅢ-4> Comparison among scenarios in the share of consumption occupied

by each energy source (Year 2015) ……………………………………………………131<TableⅢ-5> Change in demand for key energy sources among scenarios

(compared to standard scenario) ………………………………………………………131<TableⅢ-6> Outlook on final energy demand per scenario …………………………………………135<TableⅢ-7> Changes in demand among scenarios in the final consumption sector

(compared with the standard scenario)…………………………………………………137<TableⅢ-8> Changes in the share of final energy occupied by each sector by scenario ………140

<TableⅣ-1> Trends in GDP and the added value of three key high-consuming industries ……145<TableⅣ-2> Trends in energy consumption by the three energy-intensive industries …………146<TableⅣ-3> Outlook on key indicators related to energy efficiency ………………………………148

[DiagramⅠ-1] Primary energy consumption trends ……………………………………………………31[DiagramⅠ-2] Trends in key energy consumption indicators …………………………………………33[DiagramⅠ-3] Changes in primary energy consumption by energy source…………………………36[DiagramⅠ-4] Share of consumption of each energy source…………………………………………37[DiagramⅠ-5] Trends in final energy consumption ……………………………………………………38[DiagramⅠ-6] Rate of increase in consumption per final energy sector ……………………………42[DiagramⅠ-7] Share of consumption of each final energy sector ……………………………………43[DiagramⅠ-8] Consumption increase rate per key final energy source ……………………………45[DiagramⅠ-9] Share of consumption occupied by each final energy source ………………………46[DiagramⅠ-10] Oil consumption trends (1990~2010) …………………………………………………49[DiagramⅠ-11] Changes in share of oil consumption occupied by each sector (1990~2010) …50[DiagramⅠ-12] Changes in oil consumption by the industrial sector (1990~2010) ………………51[DiagramⅠ-13] Changes in the share of oil consumption taken up by each product ……………53[DiagramⅠ-14] Trends in the annual average electricity consumption increase rate by period …54

Table of Contents for Diagrams




[DiagramⅠ-15] Electricity consumption increase rate by sector ……………………………………56[DiagramⅠ-16] Trends in share of electricity consumption taken up by each sector………………58[DiagramⅠ-17] Changes in consumption by LNG use ………………………………………………60[DiagramⅠ-18] Changes in composition of LNG consumption………………………………………61[DiagramⅠ-19] Trends in consumption per town gas use ……………………………………………63[DiagramⅠ-20] Changes in share of final energy taken up by town gas and number

of customers ……………………………………………………………………………64[DiagramⅠ-21] Changes in the share of coal consumption taken up by source …………………67[DiagramⅠ-22] Changes in the share of coal consumption taken up by each use ………………69[DiagramⅠ-23] Trends in anthracite consumption per use……………………………………………70[DiagramⅠ-24] Trends in bituminous coal consumption per use ……………………………………73[DiagramⅠ-25] Trends in thermal energy consumption ………………………………………………75[DiagramⅠ-26] Trends in new & renewable energy and other energy consumption………………75

[DiagramⅡ-1] Outlook model structure …………………………………………………………………79[DiagramⅡ-2] Changes in CDD and HDD and forecast assumptions ………………………………84[DiagramⅡ-3] Primary energy demand outlook…………………………………………………………86[DiagramⅡ-4] Share of primary energy taken up by energy for raw materials………………………87[DiagramⅡ-5] Outlook on key energy consumption indicators ………………………………………89[DiagramⅡ-6] Outlook on primary energy demand by energy source ………………………………90[DiagramⅡ-7] Outlook on share of consumption of each energy source……………………………92[DiagramⅡ-8] Outlook on final energy demand…………………………………………………………94[DiagramⅡ-9] Outlook on rate of increase in demand by final energy sector ………………………96[DiagramⅡ-10] Outlook on share of consumption taken up by each final energy sector …………97[DiagramⅡ-11] Outlook on rate of increase in demand by key final energy source ………………98[DiagramⅡ-12] Outlook on share of consumption of each final energy source ……………………99[DiagramⅡ-13] Outlook on demand by sector (2010~2015) ………………………………………101[DiagramⅡ-14] Outlook on share taken up by each sector (2010~2015) …………………………102[DiagramⅡ-15] Consumption trends and outlook for each key petroleum

product (2010~2015) …………………………………………………………………104[DiagramⅡ-16] Outlook on rate of increase in electricity demand by sector………………………106[DiagramⅡ-17] Outlook on share of electricity demand by sector …………………………………107[DiagramⅡ-18] Outlook on demand by LNG use ……………………………………………………110[DiagramⅡ-19] Outlook on share of LNG demand taken up by different uses……………………111[DiagramⅡ-20] Outlook on town gas demand by use ………………………………………………113[DiagramⅡ-21] Outlook on town gas demand occupied by different uses ………………………114[DiagramⅡ-22] Outlook on coal demand by source …………………………………………………116[DiagramⅡ-23] Outlook on coal demand by different uses …………………………………………117


Summary


[DiagramⅡ-24] Outlook on anthracite demand per use ……………………………………………118[DiagramⅡ-25] Outlook on bituminous coal demand per use………………………………………120[DiagramⅡ-26] Outlook on thermal energy, new & renewable energy, and

other energy demand …………………………………………………………………122

[DiagramⅢ-1] Outlook on GDP per scenario …………………………………………………………126[DiagramⅢ-2] Comparison among scenarios in terms of primary energy demand outlook ……128[DiagramⅢ-3] Outlook on coal demand per scenario ………………………………………………132[DiagramⅢ-4] Outlook on oil demand per scenario …………………………………………………133[DiagramⅢ-5] Outlook on LNG demand per scenario ………………………………………………133[DiagramⅢ-6] Outlook on the amount of nuclear power generation by scenario…………………134[DiagramⅢ-7] Comparison among scenarios in terms of final energy demand outlook …………136[DiagramⅢ-8] Outlook on energy demand in the industrial sector by scenario……………………137[DiagramⅢ-9] Outlook on energy demand in the transport sector by scenario …………………138[DiagramⅢ-10] Outlook on energy demand in the residential/commercial/public and

other sectors by scenario ……………………………………………………………139[DiagramⅢ-11] Changes in the share of energy demand accounted for by the

industrial sector by scenario …………………………………………………………140[DiagramⅢ-12] Changes in share of energy demand taken up by the transport sector

by scenario………………………………………………………………………………141[DiagramⅢ-13] Changes in share of energy demand occupied by the

residential/commercial/public sector by scenario …………………………………141

[DiagramⅣ-1] Share of GDP taken up by the three energy-intensive industries (%) ……………145[DiagramⅣ-2] Trends in Dubai crude oil prices ………………………………………………………147[DiagramⅣ-3] Energy intensity and GDP elasticity ……………………………………………………147[DiagramⅣ-4] Oil dependence trends and outlook……………………………………………………149[DiagramⅣ-5] Trends and outlook on the share taken up by LNG and nuclear energy …………150[DiagramⅣ-6] Trends and outlook on share taken up by each key final energy source …………151[DiagramⅣ-7] Trend and outlook on share of consumption taken up by the industrial sector …152[DiagramⅣ-8] Share of primary energy occupied by energy loss in transformation sector ……157




Primary energy demand is expected to record annual average growth rate of 3.3%

from 2010 to 2015, and reach 307.1 million TOE in 2015.

The rate of increase in primary energy demand is projected to gradually go down after

recording 3.7% in 2011. It is forecast to record a year-on-year rise of 3.0% in 2015.

Notes: Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures

Primary energy demand outlook

Summary▶

CategoryAnnual averageincrease rate(2010~2015)

2010p 2011 2012 2013 2014 2015

Oil 794.5 801.6 811.5 821.5 827.2 832.90.9(Million bbl) (2.1) (0.9) (1.2) (1.2) (0.7) (0.7)

-Excluding 462.8 460.9 462.7 465.0 465.5 467.90.2naphtha (1.5) (-0.4) (0.4) (0.5) (0.1) (0.5)

Coal 119.5 122.4 123.8 124.9 128.2 139.43.1(Million ton) (10.3) (2.4) (1.2) (0.9) (2.6) (8.7)

-Excluding 94.1 94.8 95.1 95.4 97.9 108.72.9coking coal (7.4) (0.8) (0.3) (0.3) (2.7) (11.1)

LNG 32.0 35.4 38.0 40.6 42.7 41.95.6(Million ton) (22.6) (10.6) (7.4) (6.8) (5.2) (-1.7)

Hydro 6.3 6.5 6.7 6.9 7.0 7.12.5(TWh) (11.6) (3.7) (3.3) (2.4) (1.6) (1.5)

Nuclear power 147.5 155.1 167.8 182.2 193.6 199.36.2(TWh) (-0.2) (5.2) (8.2) (8.6) (6.2) (2.9)

Other 6.2 6.8 7.8 8.7 9.7 10.711.6(Million TOE) (13.4) (10.2) (13.4) (11.9) (11.3) (11.1)

Primary energy 261.2 270.8 280.1 289.0 298.0 307.13.3(Million TOE) (7.3) (3.7) (3.4) (3.2) (3.1) (3.0)

Primary energy 200.9 207.8 215.3 222.7 230.5 238.9-Excluding 3.5for raw (7.2) (3.4) (3.6) (3.4) (3.5) (3.6)materials

<Primary energy demand outlook (2010~2015)>


When excluding naphtha and coking coal, which are used as industrial raw materials,

the rate of increase in primary energy consumption is forecast to record an annual

average 3.5% from 2010 through 2015.

- The share of primary energy occupied by energy for raw materials will likely go

down from 23.1% in 2010 to approximately 22.2% in 2015.

Energy intensity (TOE/Million won) temporarily went up in 2009 and 2010, but is

projected to turn around and make an improvement starting from 2011 to record

0.239 in 2015.

Per capita energy demand is forecast to go up from 5.3 TOE in 2010 to roughly 6.2

TOE in 2015 together with a rise in income levels.

The annual GDP elasticity of primary energy demand recorded 1.21 in 2010. It is

projected to continually go down during the forecast period to post around 0.73 in

2015.


Summary

[Outlook on economic growth rate and primary energy demand (2010~2015)]


Outlook by energy source

Oil demand is projected to indicate low growth of an annual average 0.9% from 2010

through 2015. LNG demand is forecast to post annual average growth of 5.6%, and

continue to lead a rise in primary energy consumption.

- Oil demand is forecast to record a low increase rate owing to a downward trend in

demand in the transformation sector. LNG is projected to record high growth due

to a rise in demand for power generation.

Nuclear power is projected to record annual average growth in the low 6% range

since new facility expansion is concentrated in the forecast period. Coal demand is

forecast to indicate gradual growth of an annual average 3.1%.

- New power plant capacities that will be built during the forecast period will total

6,800MW. Coal demand for power generation and for industrial use is forecast to

rise stably.

Consumption of new & renewable energy is expected to post an annual average rise

of between 11 and 12% during the forecast period. The upward trend in demand

witnessed in the 2000s (annual average of 11.3%) will likely continue.

Regarding the share of primary energy demand occupied by each energy source

during the forecast period, the share taken up by LNG and nuclear energy is forecast

to go up, while the share accounted for by coal and oil is projected to go down.

The share of oil reached its peak at 63% in 1994 and continually went down

afterwards. It dropped to 40% in 2010. It is projected to record a figure between 35

and 36% in 2015.

The share occupied by coal is forecast to slightly drop as the speed at which new

power generation facilities are built is expected to slow down and demand for

industrial use will likely stabilize.





Summary

[Outlook on share of primary energy demand taken up by each source (2010~2015)]


In terms of final energy demand from 2010 through 2015, the industrial sector is

forecast to record the highest level of growth of an annual average 3.3%.

The residential/commercial sector and public/other sector is projected to post

gradual growth of an annual average 2.8% and 2.9%, respectively. In contrast, the

transport sector is forecast to record the lowest growth of an annual average 1.5%.

Operation of facilities that consume great amounts of energy was recently launched

in the steel making industry. This is why energy demand in the industrial sector is

forecast to indicate the highest growth during the forecast period.

Oil demand for transport is projected to indicate a low increase rate of an annual

average 1% owing to high oil prices. For this reason, the transport sector is forecast

to post the lowest demand increase rate.

Regarding final energy demand by energy source, demand for network-based, energy,

such as electricity and town gas, will likely indicate relatively fast growth. Demand for oil

and coal is expected to show comparatively gradual growth.

Oil consumption is forecast to continue low growth in the low 1% range during the

forecast period. The rate of increase is projected to slow down to less than 1% in

2015. Coal demand is forecast to record annual average growth of 2.7% (anthracite:

1.4%; bituminous coal: 3.0%).

Electricity and town gas demand are forecast to continue high growth of an annual

average 4.9% and 4.8%, respectively, during the forecast period, led by demand for

industrial use.

Regarding the share of consumption taken up by each energy source, the share of

consumption occupied by oil will likely continually drop while the share accounted for

by electricity and town gas is expected to continue an upward trend.



Outlook on final energy demand




Summary


2010 2011 2012 2013 2014 2015

Industry 115.4 120.5 124.9 129.1 132.8 135.93.3(Million TOE) (8.8) (4.4) (3.6) (3.4) (2.9) (2.3)

-Excluding for 55.2 57.6 60.2 62.8 65.3 67.74.2raw materials (9.7) (4.3) (4.5) (4.4) (3.9) (3.7)

Transport 36.6 36.9 37.7 38.4 39.0 39.51.5(Million TOE) (1.9) (0.7) (2.2) (1.9) (1.5) (1.4)

Residential 38.3 39.3 40.3 41.6 42.8 44.0/commercial 2.8(Million TOE) (7.1) (2.7) (2.6) (3.1) (3.0) (2.7)

Public/other 4.6 4.8 4.9 5.1 5.2 5.32.9(Million TOE) (6.8) (4.2) (2.7) (3.2) (2.2) (2.2)

Total 194.9 201.4 207.8 214.2 219.8 224.72.9(Million TOE) (7.0) (3.4) (3.2) (3.1) (2.6) (2.2)

Total 134.6 138.5 143.1 147.8 152.3 156.5-Excluding for 3.1raw materials (6.6) (2.9) (3.3) (3.3) (3.0) (2.8)

Oil 768.0 775.9 786.1 797.6 805.7 811.51.1(Million bbl) (2.1) (1.0) (1.3) (1.5) (1.0) (0.7)


Anthracite 9.3 9.6 9.8 10.0 10.1 10.01.4(Million ton) (10.1) (3.5) (2.5) (1.4) (0.8) (-1.0)

Bituminous 32.0 34.1 35.3 36.3 36.8 37.1 3.0coal(Million ton)

(16.2) (6.8) (3.4) (2.7) (1.5) (0.7)

-Excluding 6.5 6.5 6.6 6.7 6.5 6.4-0.6coking coal (-3.5) (0.1) (0.7) (1.6) (-3.5) (-1.6)

Electricity 434.2 457.2 481.5 504.7 527.7 550.54.9(TWh) (10.1) (5.3) (5.3) (4.8) (4.6) (4.3)

Town gas 20.8 21.9 23.0 24.2 25.3 26.34.8(Billion m3) (12.6) (5.5) (4.9) (5.1) (4.6) (3.9)

Thermal and 7,553 8,167 9,083 9,987 10,977 12,050other 9.8

(Thousand TOE) (17.7) (8.1) (11.2) (10.0) (9.9) (9.8)

<Final energy demand outlook (2010~2015)>


In consideration of uncertainties in mid-term forecasts, this report sets a high and a low

economic growth scenarios and provides an energy demand outlook for each scenario.

Notes: p refers to tentative figures; values in parentheses refer to the year-on-year growth rate (%)



<Outlook on rate of increase in demand of each key final energy source>

(Unit: %)

Outlook per scenario

(Unit: Trillion won)

Category Baseline High growth scenario Low growth scenario

2010p 1,040 (6.1) 1,040 (6.1) 1,040 (6.1)

2011 1,086 (4.5) 1,091 (5.0) 1,081 (4.0)

2012 1,134 (4.4) 1,150 (5.4) 1,118 (3.4)

2013 1,183 (4.3) 1,211 (5.3) 1,155 (3.3)

2014 1,232 (4.2) 1,274 (5.2) 1,191 (3.2)

2015 1,284 (4.2) 1,340 (5.2) 1,230 (3.2)

Annual average growth rate (%) 4.3 5.2 3.4(2010~2015)

<Economic growth scenarios>


Outlook on primary energy demand for each scenario

In case of the high growth scenario, primary energy demand is forecast to post an

annual average increase rate of 4.1%, which is 0.8%p higher than the standard

growth scenario. In case of the low growth scenario, the rate of increase in demand

is projected to be an annual average of 2.5%.

Notes: p refers to tentative figures; Values in parentheses refer to the year-on-year growth rate (%)


Summary

(Unit: 1 million TOE)


2010p 261.2 (7.3) 261.2 (7.3) 261.2 (7.3)

2011 270.8 (3.7) 271.6 (4.0) 269.7 (3.3)

2012 280.1 (3.4) 283.0 (4.2) 277.3 (2.8)

2013 289.0 (3.2) 294.6 (4.1) 283.6 (2.3)

2014 298.0 (3.1) 306.5 (4.0) 290.1 (2.3)

2015 307.1 (3.0) 318.9 (4.0) 295.9 (2.0)

Annual averagegrowth rate (%) 3.3 4.1 2.5(2010~2015)

<Outlook on primary energy demand by scenario>

[Comparison among scenarios in terms of primary energy demand outlook]



The energy intensity improvement rate is forecast to be an annual average 1.1% in

case of the high growth scenario and -0.9% in case of the low growth scenario. It is

forecast that energy intensity will further drop as economic growth takes place more

quickly.


Outlook on final energy demand per scenario

Changes in final energy demand levels among scenarios are similar to primary

energy.

- The annual average increase rate of final energy demand is projected to be 3.6% in

case of the high growth scenario which is 0.7%p higher than the standard scenario.

Final energy demand in 2015 is forecast to reach 232.9 million TOE, which is

around 1.2 times the 2010 level.



(Unit: TOE/1 million won)


2010p 0.251 0.251 0.251

2011 0.249 0.249 0.250

2012 0.247 0.246 0.248

2013 0.244 0.243 0.246

2014 0.242 0.241 0.243

2015 0.239 0.238 0.241

Annual averageimprovement rate (%) -0.98 -1.08 -0.85

(2010~2015)

<Outlook on energy intensity by scenario>



The transport sector indicates the greatest difference among the demand forecasts

of the different scenarios. The residential/commercial and public/other sectors show

the smallest difference.

- In terms of demand in the transport sector, the annual average increase rate for the

high growth scenario is forecast to be 2.3% and for the low growth scenario, 0.7%.

- The annual average increase rate in demand in the industrial sector is forecast to be

4.1% in case of the high growth scenario and 2.5% in case of the low growth

scenario.

- The rate of increase in demand in the residential/commercial and public/other

sectors for the high growth scenario is projected to be 3.3% and for the low growth

scenario, 2.3%.


Summary



2010p 194.9 (7.0) 194.9 (7.0) 194.9 (7.0)

2011 201.4 (3.4) 202.2 (3.7) 200.7 (3.0)

2012 207.8 (3.2) 209.9 (3.8) 205.6 (2.5)

2013 214.2 (3.1) 218.1 (3.9) 210.2 (2.2)

2014 219.8 (2.6) 225.7 (3.5) 214.0 (1.8)

2015 224.7 (2.2) 232.9 (3.2) 216.8 (1.3)

Annual averageincrease rate (%) 2.9 3.6 2.2(2010~2015)

<Outlook on final energy demand by scenario>


Gradual growth in primary energy demand

The annual average increase rate of primary energy demand is projected to be 3.3%

during the forecast period. This is a gradual increase, lower than the annual average

economic growth rate (4.3%).

The gradual increase in demand results from the fact that the Korean economy is

entering a phase of stable growth, breaking away from the high growth trend of the

past. Another reason is a slowdown in the rate of increase in energy consumption by

industries that consume great amounts of energy and that led a rise in energy

demand.

A rise in domestic energy prices as a result of high oil prices that continued since the

mid-2000s and continued improvements in energy efficiency are forecast to

contribute to the stabilization of energy demand.



[Comparison among scenarios in terms of final energy demand outlook]

(Unit: Million TOE)

Outlook characteristics


Continued improvements in energy intensity

Energy intensity (TOE/1 million won) temporarily worsened in 2009 and 2010, but is

forecast to turn around and indicate improvements starting from 2011.

* Year 2009: Primary energy consumption went up 1.1% as a result of completed

construction of facilities that consume great amounts of energy, while economic

growth remained stagnant (0.2%) because of the financial crisis.

* Year 2010: There was a soar in demand for cooling and heating as a result of

abnormal weather and a sharp rise in consumption for industrial use (8.8%)

triggered by favorable conditions in the economy and base effects.

The annual GDP elasticity of primary energy demand posted 1.21 in 2010. It is

forecast to continually go down during the forecast period and stand at around 0.73

in 2015.

Continued decrease in level of oil dependence

Oil dependence on primary energy reached its peak at 63% in 1994, and then

continued to drop. It was below 50% in 2002, and is projected to decrease even

more to between 35 and 36% in 2015.

The decrease in the share of consumption accounted for by oil is assessed to be the

result of the government’s continuous oil dependence reduction policies aimed at

achieving energy security.

* A project to build metropolitan area town gas pipelines, strengthening of

environmental regulations, etc.

International oil prices have been soaring since the mid-2000s. This has resulted in a

decrease in oil consumption and further acceleration in replacement of oil for fuel by

other energy sources.


Summary


Notes: The price for 2011 is an estimate made by the Korea Energy Economics InstituteSource: Oil information network of the Korea National Oil Corporation (www.petronet.co.kr)

Korea Energy Economics Institute, 2011 International Crude Oil Market Condition and Oil Price Outlook,January 2011

A rise in share accounted for by LNG and nuclear energy

LNG is comparatively clean and convenient as a network-based energy. The share of

primary energy occupied by LNG rose from 13.3% in 2005 to 15.9% in 2010. It is

forecast to go up further to reach approximately 17.8% in 2015.

The share of primary energy accounted for by nuclear energy, a base power

generation source, went down from 16.1% in 2005 to 12.1% in 2010 due to sluggish

facility expansion. However, it is projected to gradually go up during the forecast

period to reach around 14% in 2015.

Increased share of final energy accounted for by electricity

The share of final energy taken up by electricity is forecast to rise from 16.7% in 2005

to between 21 and 22% in 2015.

Consumption of electricity, a high-class energy source, is continuing comparatively



[Trends and outlook on Dubai crude oil prices]

(Unit: $/bbl)


high growth even in the 2000s. This is due to several factors.

* Rapid growth of the fabricated metal industry, which consumes great amounts of

electricity, launch of operation of facilities in the steel making industry that

consume great amounts of electricity, a charge that does not reflect production

costs, and energy replacement (oil → electricity) in the heating energy market, etc.

Electricity is projected to continue to perform leading roles in energy use due to

several factors: convenience in use, and changes in lifestyles resulting from a rise in

income levels and technological development.

An increase in final energy consumption led by the industrial sector

Energy demand in the industrial sector, which sensitively responds to favorable

conditions in the economy, is forecast to indicate sound growth of an annual average

3.3% if the economic growth rate (assumption of an annual average 4.3%) reaches

the potential growth rate level during the forecast period.

The final energy share occupied by the industrial sector maintained the 55 to 56%

range up until the mid-2000s, but gradually went up afterwards and reached 59.2%

in 2010. It is projected to go up further to 60.5% in 2015.


Summary

[Trends and outlook on share of consumption occupied by the industrial sector]

(Unit: %)


A rise in energy consumption in the industrial sector is the result of production

activities in the economy. This is why it is unavoidable. As such, there is a need to

promote high added-value industries that do not consume much energy in the long

term to ensure energy efficiency of the national economy.

Urgent need for LNG supply/demand stabilization measures according to increased

uncertainties in the international LNG market

As a result of the earthquake in Japan, operation of most nuclear power plants in

eastern Japan has stopped. Supply of electricity is not expected for a considerable

period.1)

- If the Japanese government covers 40% of the amount of nuclear power

generation that has come to a halt with natural gas power generation, there will be

a need for an additional 4~5 million tons/year of natural gas. This is equivalent to

12.5~15.6% of Korea’s natural gas consumption level in 2010.

There is greater uncertainty in the international LNG market due to a rise in natural

gas demand in Japan. As such, there is a need to carry out an examination of the

LNG supply/demand status and formulate mid-term supply/demand stabilization

measures.

- There probably won’t be any issues in short-term LNG supply/demand. However, if

LNG demand goes up as projected, there is a need to acquire 10.72 million tons

more than the consumed level of 2010 (32 million tons) in 2014.

- There is also the possibility of additional demand for LNG if controversy arises on



Policy implications

1) Korea Energy Economics Institute, Weekly Global Energy Market Insight, Volume 11-3 (March 18, 2011)


whether to continue operation of Wolseong Power Plant Unit No. 1, whose planned

lifespan comes to an end in 2012, and after a re-examination of the nuclear power

plant construction plan.

- Unstable factors related to international LNG supply/demand may cause additional

burden on the Korean economy, including an increase in energy prices, by raising

import prices in the long term.

Need to strengthen electricity demand management and boost efficiency in electricity

use

According to the standard scenario of this outlook, electricity demand will indicate an

annual average increase rate of 4.9%. Consumption in 2015 is projected to reach

550.5 TWh, which is 1.27 times the level posted in 2010.

- According to the base power generation facility construction plan of the 5th

Electricity Supply and Demand Plan, LNG power generation is projected to perform

important roles in satisfying increasing electricity demand.

Electricity triggers transformation loss during the production process, thus expediting

a rise in primary energy demand.

- If the same final energy requirement were to be covered by electricity and not oil or

town gas, this would trigger an additional increase in demand for primary energy

sources (especially LNG for peak load).

- The increased share of final energy taken up by electricity consumption is a result of

electrification of energy consumption, triggered by a rise in income levels and

convenience in use. This tendency is also witnessed in major advanced countries.

- According to data released by OECD/IEA, the share of primary energy

consumption occupied by transformation loss is rising most quickly in Korea

compared to other countries. As of 2008, it reached the level recorded by Japan.


Summary


Notes: Energy loss = Primary energy consumption - Final energy consumptionSource: OECD/IEA, Energy Balances of OECD Countries (2010ed)

It is critical to engage in electricity demand management and to boost efficiency in the

use of electricity to ensure mid-term (2011~2015) stability in energy supply/demand.

- There is a need to actively review the adoption of the EERS (Energy Efficiency

Resource Standard) to strengthen electricity demand management.

- There is a need to encourage an appropriate level of cooling and heating in

buildings (buildings used for industrial purposes, large buildings used by the service

industry and by the public sector, etc.), where there is much potential to reduce

electricity demand. There is also a need to improve efficiency of lighting fixtures by

promoting the ESCO project, and facilitate the adoption of electricity-saving building

management systems.

- In particular, there is a need to adjust the electricity charge to a realistic level to

restrain excessive consumption (especially for heating purposes) in order to

enhance efficiency in electricity consumption.



[Share of primary energy occupied by energy loss in transformation sector]

(Unit: %)


ChapterⅠEnergy Consumption

Trends in Korea

1. Primary energy consumption trends

2. Final energy consumption trends

3. Petroleum product consumption trends

4. Electricity consumption trends

5. LNG and town gas consumption trends

6. Coal and other energy consumption trends


Primary energy consumption indicated annual average growth of 3.1% from 2000

through 2010.

Primary energy consumption recorded a gradual increase, lower than the economic

growth rate (annual average of 4.1%), in the 2000s.

Notes: 1) Values in parentheses refer to the rate of increase from the previous year (%); p refers to tentative figures2) The changed K-factor was applied after 2007 (Article 5, Paragraph 1 of the Enforcement Regulations of theEnergy Basic Act)

3) LNG consumption in 2010 includes the estimated directly-adopted and consumed volume of POSCO and K-POWER

ChapterⅠ Energy Consumption Trends in Korea


Primary energy consumption trends1


2000 2005 2006 2007 2008 2009 2010p

Oil 742.6 761.1 765.5 794.5 760.6 778.5 794.50.7(Million bbl) (3.2) (1.2) (0.6) (3.8) (-4.3) (2.3) (2.1)

-Excluding 513.5 487.8 478.5 477.6 449.3 455.9 462.8-1.0naphtha (2.5) (-0.3) (-1.9) (-0.2) (-5.9) (1.5) (1.5)

Coal 66.5 84.8 87.8 94.1 104.2 108.4 119.56.0(Million ton) (12.5) (3.3) (3.5) (7.2) (10.7) (4.0) (10.3)

-Excluding 47.1 64.0 67.1 72.6 80.6 87.6 94.17.2coking coal (15.8) (4.5) (4.8) (8.2) (11.0) (8.7) (7.4)

LNG 14.6 23.4 24.6 26.7 27.4 26.1 32.08.2(Million ton) (12.3) (7.1) (5.4) (8.3) (2.9) (-4.9) (22.6)

Hydro 5.6 5.2 5.2 5.0 5.6 5.6 6.31.2(TWh) (-7.5) (-11.5) (0.6) (-3.4) (10.3) (1.4) (11.6)

Nuclear power 109.0 146.8 148.7 142.9 151.0 147.8 147.53.1(TWh) (5.7) (12.3) (1.3) (-3.9) (5.6) (-2.1) (-0.2)

Other 2.1 4.0 4.4 4.8 5.1 5.5 6.211.3(Million TOE) (17.9) (-0.4) (10.0) (10.8) (5.1) (7.9) (13.4)

Primary energy 192.9 228.6 233.4 236.5 240.8 243.3 261.23.1(Million TOE) (6.4) (3.8) (2.1) (1.3) (1.8) (1.1) (7.3)

Primary energy 150.9 180.1 183.2 180.8 184.4 187.5 200.9-Excluding 2.9for raw (6.8) (4.1) (1.7) (-1.3) (2.0) (1.7) (7.2)materials

<TableⅠ-1> Primary energy consumption trends


- The annual average increase rate of primary energy consumption in the 1990s

stood at 7.3%, higher than the economic growth rate (annual average of 6.1%) of

the same period, resulting from rapid growth of industries that consume a great

amount of energy such as the petrochemical industry.

The decrease in the primary energy consumption increase rate in the 2000s is a

result of changes made in the industrial structure into a low energy consumption

structure as well as energy efficiency improvements throughout the nation.

Notes: 1) The three key industries that consume great amounts of energy include petroleum/coal/chemical product,nonmetallic mineral, and metalware manufacturing industry (steel making)

2) The fabricated metal industry includes general machinery, electric and electronic equipment, precision instrument,and transportation equipment manufacturing industries

Source: Statistics Korea, national statistics portal (KOSIS)

- Relatively fast growth is witnessed in the fabricated metal industry and service

industry, which use less energy than industries that have traditionally consumed



(Unit: Trillion won, constant prices of 2005)

IndustryAnnual averageincrease rate(2000~2009)

2000 2005 2006 2007 2008 2009

26.8 27.8 28.2 29.2 30.7 31.2 1.7

155.9 213.6 230.9 247.4 254.5 250.3 5.4

62.6 80.0 81.9 85.5 82.3 79.2 2.6

61.5 100.4 115.1 128.0 138.4 141.1 9.7

61.8 76.9 78.9 81.2 80.8 82.9 3.3

Service industry 378.7 457.5 477.7 502.1 516.0 520.9 3.6

Total 623.2 775.9 815.7 859.8 882.0 885.3 4.0

Agriculture, forestry, and

fisheries industry,and mining industry

Manufacturingindustry

- Three keyindustries energy-

intensive - Fabricated metal

industry

Electricity, gas,waterworks, andconstructionindustry

<TableⅠ-2> Changes in added value by industry


great amounts of energy such as oil, chemical, and steel making industries.

- From 2000 through 2009, the added value growth rate of three key industries that

consume great amounts of energy remained at an annual average of 2.6%. In

contrast, the annual average added value growth rate of the fabricated metal

industry and service industry reached 9.7% and 3.6%, respectively.

Primary energy consumption for 2010 has been tentatively tallied at 261.2 million TOE,

a year-on-year rise of 7.3%.

The primary energy consumption increase rate recorded in 2010 is the highest level

witnessed in the 2000s. Key factors that led to the high rise in consumption are the

favorable turn in the economy in 2010 (including base effects from the economic

downturn of the previous year) and climate (abnormally low temperatures in the

winter and high temperatures and high humidity in the summer).

An increase in the number of steel-making facilities that consume a great amount of

electricity and a sharp rise in electricity consumption for cooling and heating

purposes, triggered by the abnormal climate, expedited the rise in primary energy

consumption of 2010.



[DiagramⅠ-1] Primary energy consumption trends


Trends in primary energy consumption, excluding energy for raw materials

The primary energy consumption increase rate from 2000 through 2010 becomes

even lower, at an annual average of 2.9%, when excluding coking coal in the steel

making industry and naphtha in the petroleum and chemical industry which are

energy sources that are used as industrial raw materials.

Consumption of petroleum products, excluding naphtha, went down 1.0% during

the same period. This indicates that replacement of oil by other energy sources for

fuel continued even after 2000.

The share of primary energy occupied by energy for raw materials (naphtha, coking

coal) slightly went up from 21.7% in 2000 to 23.1% in 2010, attributable to favorable

conditions in production in the oil and chemical industries.

- From 2000 through 2009, the production volume of basic oil products2) in the oil

and chemical industries posted annual average growth of 3.2%.

Key indicators related to energy consumption

Energy intensity (TOE/million won) recorded an annual average improvement rate of

1.0% from 0.278 in 2000 to 0.251 in 2010, but has worsened for the last two years

with 2008 as the starting point.

- When excluding energy for raw materials, the energy intensity improvement rate in

the same period is an annual average 1.2%.

- The worsened energy intensity of 2009 resulted from a substantial increase in

consumption for industrial use with the operation of new facilities in industries that

consume great amounts of energy, such as the electric furnace steel factory of

Dongbu Steel (annual production of 3 million tons; operation launched in July 2009),

while the economic growth rate substantially went down due to the financial crisis.



2) Includes six products - ethylene, propylene, butadiene, benzene, toluene, xylene - which are basic rawmaterials produced from naphtha or natural gas.


- The worsened energy intensity of 2010 resulted from a soar in energy

consumption, attributable to favorable conditions in the economy, an increase in

the number of steel facilities3), and abnormal climate.

The GDP elasticity of energy consumption remained at less than 1.0 after 2000, but

recently recorded a figure above 1.0 for the last two consecutive years.

Per capita energy consumption went up from 4.1 TOE in 2000 to 5.3 TOE in 2010,

posting an annual average increase rate of 2.7%.



[DiagramⅠ-2] Trends in key energy consumption indicators

3) Blast Furnace No. 1 and No. 2 of Hyundai Steel (Total annual production of 8 million tons; operation of BlastFurnace No. 1 launched in January 2010; operation of Blast Furnace No. 2 launched in November 2010),plate plant of Dongkuk Steel (annual production of 1.5 million tons; operation launched in May 2010), etc.


Notes: 1) Values in parentheses refer to the rate of increase from the previous year (%); p refers to tentative figures2) Primary energy consumption of 2010 includes the estimated directly-adopted and consumed volume of POSCOand K-POWER

3) Annual average primary energy consumption increase rate÷Annual average economic growth rate

Primary energy consumption per energy source

Oil consumption recorded a relatively high increase of an annual average 7.6% in the

1990s, but the rate of increase considerably slowed down to record an annual

average increase rate of 0.7%, owing to influence from high oil prices, in the 2000s.

- Oil consumption in the 2000s, excluding naphtha, posted an annual average

decrease rate of 1.0%. This indicates that there was active replacement of oil

consumption, mainly for fuel, by town gas and electricity.

- Consumption of naphtha for raw materials indicated sound growth of an annual




2000 2005 2006 2007 2008 2009 2010p

GDP (Trillion won) 695 865 910 957 978 980 1,040 4.1(8.8) (4.0) (5.2) (5.1) (2.3) (0.2) (6.1)

47.0 48.1 48.3 48.5 48.6 48.7 48.9 0.4

192.9 228.6 233.4 236.5 240.8 243.3 261.2 3.1(6.4) (3.8) (2.1) (1.3) (1.8) (1.1) (7.3)

4.1 4.7 4.8 4.9 5.0 5.0 5.3 2.7

0.72 0.96 0.40 0.26 0.79 5.44 1.21 0.753)

0.278 0.264 0.256 0.247 0.246 0.248 0.251 -1.0

0.217 0.208 0.201 0.189 0.188 0.191 0.193 -1.2

<TableⅠ-3> Changes in key economy and energy consumption indicators

Populationprojections

(Million people)

Primary energyconsumption(Million TOE)

Per capitaconsumption

(TOE)

GDP elasticity of energy

consumption

Energy intensity(TOE/Million won)

Energy intensity- Excluding for raw

materials


average 3.8% during the same period.

- In 2010, oil consumption reached 794.5 million barrels, a year-on-year increase of

2.1%. This was caused by a soar (5.7% compared to the previous year) in

consumption for use as heating fuel in the residential and commercial sectors,

attributable to the economic recovery and abnormal climate, as well as a 2.8% rise

in naphtha consumption.

In the 1990s, coal consumption indicated an annual average increase of 4.4%. It

recorded an annual average increase rate of 6.0% from 2000 through 2010. The

increase rate thus went up in comparison to the 1990s.

- Anthracite consumption decreased to annual average decrease rate of 11.7%.

However, anthracite consumption turned around and posted an annual average

increase rate of 5.0%. This was attributable to a rise in demand for industrial use

and the recovery of demand for residential/commercial use, triggered by high oil

prices in the 2000s. The rate of increase in bituminous coal consumption for power

generation also marked high growth of an annual average 8.8%.

- In 2010, coal consumption rose 10.3% from the previous year, thus leading a rise in

primary energy consumption. Bituminous coal consumption for power generation

and industrial use both rose substantially.

- The rate of increase in coal consumption, excluding coking coal consumption,

recorded an annual average of 7.2% during the same period.

Even in the 2000s, LNG consumption maintained high growth, recording an annual

average of 8.2%. The level of increase in consumption is slowing down as town gas

propagation gradually reaches the state of saturation.

- LNG marked a high consumption increase rate of an annual average 20.1% in the

1990s.

- In 2010, LNG consumption posted a year-on-year increase of 22.6%, attributable

to a substantial rise in LNG demand for both power generation and town gas.

Nuclear power recorded an annual average rise of 7.5% in the 1990s, but the level of

increase slowed down to 3.1% in the 2000s.




- In the 2000s, nuclear power generation facilities increased at an annual average of

2.6% (total 4,000MW). In the 1990s, facility capacity went up 6.1% every year (total

6,100MW).

- As of December 2010, nuclear power plant capacity totals 17,716MW (Total 20

plants).

Primary energy consumption structure

In terms of the consumption structure by energy source in the 2000s, oil dependence

dropped and the share occupied by LNG and coal rose.

The share taken up by oil is continually going down. It dropped from 52.0% in 2000

to around 40% in 2010.

The share occupied by coal is indicating an upward trend, owing to a rapid increase

in demand for power generation, in the 2000s. In 2010, it reached 29.1% with a

considerable increase in consumption for industrial use as well.



[DiagramⅠ-3] Changes in primary energy consumption by energy source(Million TOE)


The share taken up by LNG was merely 3.2% in 1990, but went up to 9.8% in 2000

and approximately 16% in 2010, owing to increased propagation of town gas and a

rise in LNG consumption for power generation.

Changes in the share occupied by nuclear power are influenced by the operation of

new nuclear power plants. Its share of primary energy went up to around 16% by

2005, when facility expansions continued. This figure dropped to 12% in 2010 since

no new facilities were constructed.



[DiagramⅠ-4] Share of consumption of each energy source


From 2000 through 2010, the final energy consumption increase rate recorded an

annual average of 2.7%, which was lower than the primary energy increase rate.

From 2000 through 2009, the final energy consumption increase rate fluctuated but

gradually went down.

- The annual average increase rate of final energy stood at 7.2% in the 1990s.

The slowdown in the level of increase has become more apparent after the Asian

financial crisis. This is basically attributable to a slowdown in the nation’s economic

growth, but is also the result of a gradual change in the industrial structure into a low

energy-consuming structure.



Final energy consumption trends2

[DiagramⅠ-5] Trends in final energy consumption


Notes: 1) Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures2) The changed K-factor was applied after 2007 (Article 5, Paragraph 1 of the Enforcement Regulations of theEnergy Basic Act)




2000 2005 2006 2007 2008 2009 2010p

Industry 83.9 94.4 97.2 104.3 106.5 106.1 115.43.2(Million TOE) (5.1) (1.5) (3.0) (7.3) (2.0) (-0.3) (8.8)

-Excluding for 42.0 45.9 47.0 48.7 50.1 50.3 55.22.8raw materials (5.3) (0.2) (2.6) (3.5) (2.9) (0.4) (9.7)

Transport 30.9 35.6 36.5 37.1 35.8 35.9 36.61.7(Million TOE) (8.1) (2.7) (2.7) (1.5) (-3.4) (0.4) (1.9)

Residential 32.4 36.9 36.0 35.9 36.2 35.7 38.3/commercial 1.7(Million TOE) (1.4) (5.9) (-2.4) (-0.2) (0.9) (-1.4) (7.1)

Public/other 2.6 4.1 3.8 4.1 4.1 4.3 4.65.7(Million TOE) (-0.9) (13.2) (-5.7) (8.0) (-1.1) (4.8) (6.8)

Total 149.9 170.9 173.6 181.5 182.6 182.1 194.92.7(Million TOE) (4.7) (2.9) (1.6) (4.5) (0.6) (-0.3) (7.0)

Total 107.9 122.4 123.4 125.8 126.2 126.3 134.6-Excluding for 2.2raw materials

(4.7) (3.0) (0.8) (2.0) (0.3) (0.0) (6.6)

Oil 698.7 729.9 734.6 763.6 740.9 752.2 768.01.0(Million bbl) (1.3) (1.5) (0.6) (3.9) (-3.0) (1.5) (2.1)

-Excluding 469.7 456.6 447.6 446.7 429.6 429.6 436.3-0.7naphtha (-0.2) (0.1) (-2.0) (-0.2) (-3.8) (0.0) (1.6)

Anthracite 3.3 6.7 7.5 7.5 8.3 8.4 9.310.7(Million ton) (37.1) (15.5) (11.9) (0.9) (9.5) (2.0) (10.1)

Bituminous 27.0 27.9 27.8 28.9 31.2 27.5 32.0 1.7coal (4.6) (-1.9) (-0.5) (4.1) (7.8) (-11.8) (16.2)(Million ton)-Excluding 7.6 7.1 7.1 7.4 7.6 6.8 6.5

-1.5coking coal (2.9) (-6.6) (-0.8) (5.0) (2.7) (-11.1) (-3.5)

Electricity 239.5 332.4 348.7 368.6 388.1 394.5 434.26.1(TWh) (11.8) (6.5) (4.9) (5.7) (5.3) (1.7) (10.1)

Town gas 12.0 17.0 17.5 18.0 18.7 18.4 20.85.7(Billion m3) (19.5) (10.0) (3.2) (2.6) (4.3) (-1.5) (12.6)

Thermal and 3,248 5,426 5,517 5,929 6,259 6,418 7,553other 8.8

(Thousand TOE) (15.8) (2.9) (1.7) (7.5) (5.6) (2.5) (17.7)

<TableⅠ-4> Trends in final energy consumption


Final energy consumption for 2010 was tentatively tallied at 194.9 million TOE, a year-

on-year increase of 7.0%.

The high increase in final energy consumption is a result of a rise in industrial activities

resulting from the economic recovery, an increase in energy demand for heating and

cooling purposes due to the abnormal climate, and base effects from decreased

consumption in 2009.

Changes in final energy consumption excluding energy for raw materials

When excluding naphtha and coking coal which are used as industrial raw materials,

the final energy consumption increase rate recorded an annual average of 2.2% from

2000 through 2010.

When excluding 2010, when the energy consumption increase rate was high, the

annual average increase rate from 2000 through 2009 was merely around 1.6%.

Final energy consumption by sector

Energy consumption in the industrial sector posted the highest increase rate (annual

average of 8.8%) in the 1990s, but the level of increase considerably slowed down in

the 2000s to post an annual average of 3.2%.

- When excluding energy sources for raw material use, the annual average energy

consumption increase rate stood at 2.8% in the 2000s.

- Energy consumption in the fabricated metal industry, which has a relatively low

energy-consuming structure, went up an annual average 5.6% in the 2000s, thus

leading a rise in consumption in the manufacturing sector (annual average added

value increase rate from 2000 through 2009: 9.7%).

- The annual average energy consumption increase rate of the three key industries

that consume great amounts of energy - oil/chemical industry, basic metal industry

(steel making), and non-metal mining industry - was 2.8% in the 2000s, thus

maintaining stable growth.

- In 2010, energy consumption in the industrial sector recorded high growth of 8.8%

owing to a rise in industrial activities (index of industrial production rose 16.2%).




Consumption in the basic metal and assembled metal industries went up 21.9%

and 11.8%, respectively. The oil and chemical industry also indicated sound growth

of 3.5%.

Notes: 1) Considering that the K-factor changed in 2007, data before 2007 was converted to the changed K-factor forconsistency in energy consumption by business type

2) In terms of anthracite and new & renewable energy/other energy, only overall statistics for the manufacturingindustry are tallied. There are no statistics per business type. For this reason, they have been exempted fromanalysis of consumption per business type.

Energy consumption in the transport sector rose an annual average 7.9% in the

1990s, but the level of increase substantially slowed down to an annual average of

1.7% in the 2000s.



(Unit: Million TOE)

Business type

Annual averageincrease rate(2000~2010)

2000 2005 2006 2007 2008 2009 2010

Food and 1.6 1.6 1.6 1.7 1.6 1.6 1.7 0.3cigarette

Textile and 3.5 2.6 2.3 2.2 2.1 2.0 2.1 -4.8clothing

Lumber and 2.2 2.1 2.0 1.9 1.8 1.8 1.8 -2.2printing

Oil and 35.9 42.9 44.7 49.0 49.2 51.0 52.7 3.9 chemicals

Non-metal 5.4 5.2 5.4 5.5 5.6 4.9 4.8 -1.2mining

Basic 17.4 18.7 18.8 19.9 21.4 19.2 23.4 3.0metal

Fabricated 5.1 6.2 6.5 7.1 7.7 7.9 8.8 5.6metal

Other 3.4 3.3 3.6 3.0 3.0 3.0 3.5 0.3manufacturing

Manufacturing 74.7 82.6 84.9 90.3 92.4 91.3 98.8 2.8industry

<TableⅠ-5> Trends in energy consumption by different types of business in the manufacturing sector


- The energy consumption increase rate in the transport sector greatly slowed down

in the 2000s because automobile ownership is approaching the state of saturation.

There was also considerable influence from a drop in consumption in 2008 (year-

on-year comparison of -3.4%), a result of continued high oil prices and the

economic downturn.

- In 2010, consumption in the transport sector indicated year-on-year growth of

1.9%. Gasoline and jet fuel consumption rose 4.7% and 8.3%, respectively,

attributable to favorable conditions in automobile sales as well as a rise in overseas

traveling and exports. In contrast, diesel (+0.7%) and LPG consumption (-1.1%)

remained weak.

Energy consumption in the residential/commercial/public sector went up an annual

average 3.5% in the 1990s and an annual average 2.0% in the 2000s. Compared to

other sectors, the slowdown in the level of increase is gradual.

- In 2010, energy consumption in the residential/commercial/public sector marked a

year-on-year increase of 7.1%. This resulted from a soar in energy consumption for

cooling and heating purposes, attributable to abnormally low temperatures in the

winter and high temperatures and high humidity in the summer.



[DiagramⅠ-6] Rate of increase in consumption per final energy sector


Share of consumption taken up by each sector

Regarding the energy consumption structure by sector, the share occupied by the

industrial sector remained at 55 to 56% up to the mid-2000s, but gradually increased

afterwards to reach 59.2% in 2010.

The residential/commercial/public sector maintained a share between 23 and 24%

up to the mid-2000s, but slightly went down to between 22 to 23% afterwards.

The share of energy consumption accounted for by the transport sector remained at

20 to 21% from 2000 through 2007, but indicated a downward trend afterwards and

posted 18.8% in 2010.

Final energy consumption by energy source

Oil, which takes up the highest share among final energy sources, indicated a sharp

slowdown in the consumption increase rate in the 2000s. Oil consumption recorded

an annual average increase rate of 8.0% in the 1990s, but plummeted to 1.0% in the

2000s.

- When excluding naphtha, a raw material for industrial use, oil consumption posted

an annual average decrease rate of -0.7% from 2000 through 2010.

- The level of increase in oil consumption substantially slowed down as a result of



[DiagramⅠ-7] Share of consumption of each final energy sector


contracted consumption, triggered by high oil prices and strengthened

environmental regulations, and active replacement of oil for fuel by town gas and

electricity.

- In 2010, oil consumption indicated sound growth, recording a year-on-year rise of

2.1%, gaining strength from a rise in demand for heating fuel, triggered by

abnormally low temperatures, as well as for transport fuel (gasoline and jet fuel),

attributable to favorable conditions in the economy.

Bituminous coal, which is used only for industrial purposes mainly in the steel making

industry, recorded a consumption increase of an annual average 5.3% in the 1990s.

The level of increase substantially slowed down in the 2000s, marking an annual

average of 1.7%.

- The annual consumption increase rate indicated relatively high fluctuations

according to business fluctuations in the steel making and cement industries, which

mainly consume bituminous coal.

- In terms of thermal coal excluding coking coal, a consumption decrease rate of an

annual average 1.5% was recorded in the 2000s with the continued recession of

the cement industry, a key consuming industry.

- In 2010, bituminous coal consumption posted high growth of 16.2% from the

previous year, gaining strength from an upswing in the steel making industry.

Anthracite marked a sharp decrease in consumption of an annual average 16.2%, a

result of a rapid drop in briquette consumption in the 1990s. However, consumption

turned around and recorded a high increase of an annual average 10.7% in tandem

with a considerable rise in consumption for industrial use after 2000.

- In 1990, briquette consumption in the residential/commercial and public/other

sectors accounted for 98.6% of total anthracite consumption, but this figure went

down to 35.6% in 2000 and 20.0% in 2010.

Electricity consumption indicated an annual average increase of 9.8% in the 1990s,

and continued sound growth of an annual average 6.1% in the 2000s.

- Electricity is indicating relatively fast growth after 2000 due to several factors: low

charge, diversification and increased propagation of equipments that use electricity,




high growth of the fabricated metal industry, which is in high demand of electricity,

and convenience in use.

- In 2010, electricity consumption recorded a year-on-year rise of 10.1% to reach

434.2 TWh. Electricity consumption for industrial use, which is sensitive to business

fluctuations, went up 12.9%, influenced by the economic recovery. Consumption in

the residential/commercial and public/other sectors indicated high growth of 7.1%

and 8.5%, respectively, owing to abnormally low temperatures.

Consumption of town gas posted high growth of an annual average 28.6% with the

rapid expansion of gas pipe networks in the 1990s. The level of increase substantially

slowed down to an annual average 5.7% in the 2000s as propagation of town gas

approached the state of saturation.

- In 2009, town gas consumption went down for the first time (-1.5%) after it began

to be supplied, a result of the economic downturn and mild weather. In 2010, it

posted an increase rate of 12.6%, attributable to a favorable turn in the economy,

abnormally low temperatures, and base effects from the decrease in consumption

in the previous year.



[DiagramⅠ-8] Consumption increase rate per key final energy source


Final energy consumption structure by energy source

The share of consumption occupied by oil went up from 60.3% in 1990 to 68.2% in

1994 to record the highest level ever, and then continually went down afterwards. It

dropped to 59.9% in 2002, a figure less than 60%. In 2010, it went down even more

to 51.6%.

The share of consumption accounted for by coal continually maintained the mid-13%

range in the 2000s, but went up to 14.2% in 2010 in tandem with a recent rapid rise

in consumption for industrial use.

The share of consumption occupied by electricity continued an upward trend since

the 1990s. It went up from 10.8% in 1990 to 13.7% in 2000 and 19.2% in 2010.

The share of consumption taken up by town gas rapidly rose in the 1990s, but

indicated gradual growth in the 2000s. The share of final energy occupied by town

gas went up from 8.4% in 2000 to 11.2% in 2010.



[DiagramⅠ-9] Share of consumption occupied by each final energy source


Total consumption of petroleum products, in terms of primary energy, went up an

annual average 1.4% after the Asian financial crisis and reached 794.5 million barrels in

2010. Even in terms of final energy, it posted annual average growth of 1.5% after

1998 and reached 768.0 million barrels in 2010.

- Oil consumption recovered the level recorded before the Asian financial crisis in

2007, owing to a steady rise in consumption for industrial raw materials and

consumption in the transport sector. However, consumption plummeted in 2008,

attributable to high international oil prices and the economic downturn caused by

the global financial crisis.

- In 2010, oil consumption rose across all sectors as the economy rapidly recovered

after the international financial crisis. Consumption of key products went up except

for heavy oil.

Notes: ‘Oil consumption in the final sector’excludes the transformation sector including power generation and town gas productionThe values in parentheses of ‘primary oil consumption’refer to the share of primary energy consumption taken upby oil consumption



Petroleum product consumption trends3

YearPrimary energyconsumption

(Thousand TOE)

Primary oil consumption

(Thousand barrels)

Oil consumption in the final sector(Thousand barrels)

1990 93,192 356,348 (53.8) 323,981

1997 180,638 793,899 (60.4) 719,247

1998 165,932 670,278 (54.6) 642,761

2000 192,887 742,557 (52.0) 698,709

2010p 261,186 794,517 (39.9) 768,010

Annual average (%)9.9 12.1 12.1(1990~1997)

Annual average (%)3.9 1.4 1.5(1998~2010)

<TableⅠ-6> Oil consumption trends (1990~2010)


- The share of primary energy consumption occupied by oil steadily went down after

the financial crisis to stand at 39.9% in 2010, owing to a slowdown in the rate of

increase in petroleum product consumption and continued fuel replacement due to

high oil prices.

Source: Korea Energy Economics Institute, Yearbook of Energy Statistics

What is noticeable in terms of oil consumption by sector after the Asian financial crisis

is the rise in consumption in the transport and industrial sectors and decreased

consumption in the residential/commercial/public sector and transformation sector, a

result of fuel replacement.

- The rate of increase in petroleum product consumption in the industrial sector

substantially slowed down after the Asian financial crisis, but recorded an annual

average of 2.1% with a steady rise in consumption of non-energy oil.

- The rate of increase in petroleum product consumption in the transport sector

substantially slowed down after the Asian financial crisis, but led a rise in oil

consumption by posting high growth of an annual average 2.9% from 1998



[DiagramⅠ-10] Oil consumption trends (1990~2010)


through 2010. This is attributable to a rise in automobile ownership with an increase

in income levels as well as a steady increase in freight volume, triggered by

economic growth.

Notes: Values in parentheses refer to the share of total oil consumption taken up by each sector (%)

- There was a wide range of fluctuation in consumption in the residential/commercial

and public/other sectors according to price changes or temperatures, but

consumption quickly dropped, recording an annual average of 4.6% after the Asian

financial crisis.

- The transformation sector continued a downward trend, owing to an expansion in

base load, such as coal and nuclear power, in tandem with changes in the electric

power generation mix, as well as continuous replacement of diesel and heavy oil for

power generation by LNG and others. There were substantial changes in

consumption according to price changes in energy sources and electricity

supply/demand conditions.



(Unit: Thousand barrels, %)

Year Industry Transport Residential /commercial / public Transformation

1990 139,263 (39.1) 101,145 (28.4) 83,574 (23.5) 32,367 (9.1)

1997 348,501 (43.9) 219,626 (27.7) 151,120 (19.0) 74,652 (9.4)

1998 345,804 (51.6) 187,734 (28.0) 109,223 (16.3) 27,518 (4.1)

2000 362,034 (48.8) 223,453 (30.1) 113,223 (15.2) 43,848 (5.9)

2010p 421,040 (55.6) 255,573 (33.2) 66,093 (7.8) 18,019 (3.3)

Annual average (%)14.0 11.7 8.8 12.7(1990~1997)

Annual average (%)1.7 2.6 -4.1 -3.5(1998~2010)

<TableⅠ-7> Oil consumption by sector (1990~2010)


In terms of the share of oil consumption taken up by each sector in 2010 (tentative),

the industrial sector recorded 55.6%, the transport sector 33.2%, the

residential/commercial sector 7.8%, and the transformation sector 3.3%.

- After the Asian financial crisis, the share of consumption accounted for by the

transport sector and industrial sector continually went up. In contrast, the share

occupied by the residential/commercial sector plummeted. The share occupied by

the transformation sector dropped to between 3 and 4%.

- Oil for fuel in the industrial sector is being replaced by other energy sources, leading

to a continuous decrease in consumption. Oil consumption for raw materials,

mainly naphtha, steadily rose. The share of industrial sector oil consumption taken

up by non-energy oil reached 80.7% in 2010.



[DiagramⅠ-11] Changes in share of oil consumption occupied by each sector (1990~2010)


Trends in consumption of key petroleum products

- Gasoline consumption is maintaining an upward trend, marking an annual average

increase of 1.0% after 1998. It fluctuated greatly by year, influenced by energy tax

reform and international oil prices. Recently, gasoline consumption slightly went up

despite a rise in prices. This resulted from a considerable rise in automobile

ownership and strengthened measures against irregular gasoline.

- Consumption of diesel for transport rapidly went up, owing to a recovery in

industrial activities after the Asian financial crisis. The level of increase in

consumption of diesel for transport substantially slowed down after 2004 as a result

of several factors: sluggish domestic demand, relative price increase of diesel as a

result of energy tax reform, poor sales of diesel-powered passenger vehicles, and

conversion of diesel-powered buses to CNG buses.

- Kerosene and diesel, excluding diesel for transport, are indicating a downward

trend of an annual average 5.0%, attributable to active replacement by other energy

sources in the sectors of heating and industrial fuel as well as fuel for power

generation.



[DiagramⅠ-12] Changes in oil consumption by the industrial sector (1990~2010)


Notes: Values in parentheses refer to the share of primary oil consumption taken up by each product (%)

- Consumption of heavy oil is decreasing across all sectors, including heavy oil

consumption for power generation. A drop in consumption is especially prominent

in the industrial sector and residential/commercial/public sector.

- Propagation of LPG-powered vehicles rapidly expanded after the Asian financial

crisis, leading to a considerable rise in LPG consumption for transport. There was a

soar in consumption of LPG as a replacement of naphtha after 2007, resulting in an

annual average increase in consumption of 3.7% after 1998.

- Naphtha consumption greatly rose together with facility expansions in the

petrochemical industry in the 1990s. As a single petroleum product, it posts the

highest level of consumption. The rate of speed at which naphtha consumption

increased remained fast, owing to favorable conditions in the global petrochemical

market and repair and expansion of petrochemical facilities, but decreased 1.7% in

2008 due to the global economic downturn.



(Unit: Thousand barrels)

Year Gasoline Diesel for transport

Kerosene and diesel Heavy oil LPG Naphtha

199023,691 52,974 69,418 108,675 35,712 47,334 (6.6) (14.9) (19.5) (30.5) (10.0) (13.3)

199771,357 90,489 161,327 164,742 71,623 194,918(9.0) (11.4) (20.3) (20.8) (9.0) (24.6)

199861,089 71,581 110,253 110,642 67,992 213,860(9.1) (10.7) (16.4) (16.5) (10.1) (31.9)

200062,382 90,819 108,520 129,721 84,688 229,046 (8.4) (12.2) (14.6) (17.5) (11.4) (30.8)

2010p68,925 104,848 59,215 65,548 105,170 331,674(8.7) (13.2) (7.5) (8.3) (13.2) (41.7)

Annual average (%)17.1 7.9 12.8 6.1 10.5 22.4

(1990~1997)

Annual average (%)1.0 3.2 -5.0 -4.3 3.7 3.7

(1998~2008)

<TableⅠ-8> Trends in consumption of key petroleum products (1990~2010)


In terms of the share of oil consumption taken up by each product in 2010, naphtha

occupied the highest share at 41.7%, followed by diesel for transport (13.2%) and

LPG (13.2%). The share accounted for by gasoline dropped to 7.7% in 2004, but

steadily rose to stand at around 8.7%.

In the 2000s, after the Asian financial crisis, there were structural changes where the

level of increase in electricity consumption rapidly stabilized. It is an energy source that

is maintaining a relatively sound upward trend, among final energy sources.

Before the 2000s, electricity consumption continued high growth of more than 10%

every year, except for periods of extreme economic recession such as the oil crisis

and the Asian financial crisis.



[DiagramⅠ-13] Changes in the share of oil consumption taken up by each product

Electricity consumption trends4


Electricity consumption indicated annual average growth of 12.5% in the 1980s,

followed by an annual average increase rate of 11.4% from 1990 through 1997, just

before the Asian financial crisis.

Notes: p refers to tentative figures



[DiagramⅠ-14] Trends in the annual average electricity consumption increase rate by period

(Unit: TWh, %)

YearResidential Commercial Industry Total

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

2000 37.1 7.3 70.2 19.4 132.3 9.4 239.5 11.8

2001 39.2 5.7 82.7 17.9 135.8 2.7 257.7 7.6

2002 42.3 7.8 91.7 10.9 144.5 6.4 278.5 8.0

2003 44.6 5.4 98.6 7.5 150.4 4.1 293.6 5.4

2004 48.6 9.1 105.1 6.6 158.3 5.3 312.1 6.3

2005 50.9 4.6 114.7 9.1 166.9 5.4 332.5 6.5

2006 52.5 3.2 121.5 5.9 174.7 4.7 348.7 4.9

2007 54.2 3.1 128.2 5.5 186.3 6.6 368.6 5.7

2008 56.2 3.8 134.2 4.7 194.6 4.5 385.1 4.5

2009 57.6 2.4 139.1 3.7 197.7 1.6 394.5 2.4

2010p 61.2 6.2 149.8 7.7 223.2 12.9 434.2 10.1

3.5 7.9 5.4 6.1Annual averageincrease rate

(%)

<TableⅠ-9> Trends in electricity consumption


The rate of increase in electricity consumption alleviated to an annual average of

6.1% together with the slowdown in economic growth in the 2000s.

Except for 2010, when the consumption increase rate stood at 10.1%, the electricity

consumption increase rate posted an annual average of 4.5% from 2000 through

2009.

Consumption of electricity, continued relatively high growth, among final energy

sources, even in the 2000s, as a result of several factors.

- The main reason is because the fabricated metal industry (machinery and

equipment, electric and electronics, semiconductor, automobile, etc.), an industry

that consumes great amounts of electricity, continued to record the highest degree

of growth among manufacturing industries.

* Average added value increase rate from 2000 through 2010: (Manufacturing

industry) 2.8%, (Fabricated metal) 5.6%

- There was a rise in demand for cooling according to growth of the service industry,

which accounts for most of electricity consumption for commercial use. Such

increased demand also contributed to a rise in electricity demand.

- Another important factor is the rapid replacement of oil and town gas by electricity

in the energy market for heating, attributable to the persistence of an electricity

charge that does not reflect production costs and continued high oil prices.

Electricity is expected to continue to lead increasing trends in energy use due to



Trends in electricity consumption by sector

Electricity consumption for commercial sector recorded an annual average increase

rate of 7.9% in the 2000s, thus indicating the fastest growth, followed by

consumption for industrial sector with an annual average increase rate of 5.4% and

consumption for residential sector with an annual average increase rate of 5.1%.

The level of increase in consumption for commercial use rapidly slowed down after

the early 2000s. Consumption for residential sector is going up and down according




to climate conditions.

Consumption for industrial sector, which responds sensitively to the economy,

maintained relatively stable growth of around 5%, together with decreased economic

growth (annual average of 4.1%) in the 2000s. However, there was a wide fluctuation

in the increase rate, which stood at 1.6% in 2009 and 12.9% in 2010, attributable to

base effects from economic recession in 2009 and favorable conditions in the

economy in 2010.

Changes in share by sector

What is most noticeable in terms of changes in the share of electricity consumption

taken up by each sector in the 2000s is an upward trend in the share taken up by

consumption for commercial use and a general decrease in the share accounted for

by consumption for industrial and residential use.

- However, the share taken up by consumption for industrial use turned around to

indicate gradual growth after 2006, while the share occupied by consumption for

commercial use gradually decreased.

With regard to changes in the share taken up by each sector, electricity consumption



[DiagramⅠ-15] Electricity consumption increase rate by sector

(Unit: %)


for industrial use occupied more than half at 51.4% in 2010. The share occupied by

consumption for commercial use and residential use recorded 34.5% and 14.1%,

respectively.


- The share accounted for by consumption for residential use reached 15.5% in

2000, but the share continually dropped together with a slowdown in consumption

after 2004. It stood at around 14% in 2010.

- The share occupied by electricity consumption for commercial use continued an

upward trend after recording 29.3% in 2000. It stabilized at the high 34% range

after the mid-2000s.

- The share taken up by electricity consumption for industrial use continues to remain

in the 51% range after 2003.



(Unit: %)

Year Residential Commercial Industry Total

2000 15.5 29.3 55.2 100

2001 15.2 32.1 52.7 100

2002 15.2 32.9 51.9 100

2003 15.2 33.6 51.2 100

2004 15.6 33.7 50.7 100

2005 15.3 34.5 50.2 100

2006 15.1 34.9 50.1 100

2007 14.7 34.8 50.5 100

2008 14.6 34.9 50.5 100

2009 14.6 35.3 50.1 100

2010p 14.1 34.5 51.4 100

<TableⅠ-10> Changes in share of electricity consumption taken up by each sector


A. LNG consumption trends

LNG consumption posted high growth of an annual average 20.1% in the 1990s,

owing to increased propagation of town gas and increased demand for power

generation. However, the level of increase substantially slowed down to an annual

average 8.4% in the 2000s.

The slowdown in the level of increase in LNG consumption after 2000 is attributable

to a slowdown in the economic growth rate and maturation of the LNG supply

foundation, including town gas pipe networks.



[DiagramⅠ-16] Trends in share of electricity consumption taken up by each sector

(Unit: %)

LNG and town gas consumption trends5


Notes: p refers to tentative figures; the LNG total is the total primary energy including internal consumption

LNG consumption for power generation rose an annual average of 12.5% from 2000

through 2010, marking the highest level of growth among different areas of use. This is

attributable to a rise in demand for alternative power generation, triggered by high oil

prices, as well as a rise in the number and use of gas combined cycle power plants,

which is used to handle peak load, resulting from a soar in electricity consumption.

The highest level of annual increase was recorded in 2004 in the 2000s. There was a

year-on-year rise of 40.8% as a result of influence of high oil prices and the

breakdown of Yeonggwang Nuclear Power Plant Units 5 and 6.

There was a downward trend from 2008 through 2009 owing to poor electricity

consumption, triggered by the economic downturn, and an increase in bituminous

coal-based power generation facilities. However, a high increase rate of 38.3% was



(Unit: 1,000 tons)

YearFor power generation For town gas For district heating TotalConsumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

2000 4,353 -5.2% 9,528 20.8% 335 89.3% 14,556 12.3%

2001 4,657 7.0% 10,300 8.1% 630 88.1% 15,990 9.9%

2002 5,900 26.7% 11,194 8.7% 609 -3.3% 17,768 11.1%

2003 5,853 -0.8% 11,978 7.0% 615 1.0% 18,611 4.7%

2004 8,242 40.8% 12,504 4.4% 576 -6.3% 21,809 17.2%

2005 8,359 1.4% 14,077 12.6% 685 18.9% 23,350 7.1%

2006 9,859 17.9% 13,957 -0.9% 619 -9.6% 24,618 5.4%

2007 11,296 14.6% 14,596 4.6% 631 1.9% 26,664 8.3%

2008 11,175 -1.1% 15,489 6.1% 603 -4.4% 27,439 2.9%

2009 9,705 -13.2% 15,634 0.9% 524 -13.1% 26,083 -4.9%

2010p 14,150 38.3% 17,611 12.6% 652 24.3% 31,971 22.6%

12.5% 6.3% 6.9% 8.2%

<TableⅠ-11> Trends in consumption per LNG use



recorded in 2010 in comparison to the previous year. This was a result of a soar in

electricity demand (year-on-year comparison of 10.1%) owing to the economic

recovery and abnormal climate as well as zero expansion of base power generation

facilities (nuclear power plants, bituminous coal fired power plants).

LNG consumption for town gas led a rise in overall LNG consumption, recording a

high annual average increase rate of 34.6%, in the 1990s. The level of increase slowed

down in the 2000s in tandem with a rise in the town gas propagation rate, recording

an annual average increase rate of 6.3%.

The number of customers of town gas is reached a state of saturation, especially in

large cities, in the 2000s. As a result, consumption for town gas is sensitively

responding to average temperature changes.

- In 2006, when abnormally high temperatures were witnessed in the winter, a year-



[DiagramⅠ-17] Changes in consumption by LNG use

(Unit: 1,000 tons)


on-year drop of 0.9% was recorded. The abnormally low temperatures that

continued through May 2010 resulted in high year-on-year growth of 12.6%.

What is most noticeable in terms of LNG consumption taken up by different uses in

the 2000s is a prominent increase in the share occupied by consumption for power

generation and a decrease in the share accounted for by consumption for town gas.

Demand for power generation recorded the highest growth in tandem with a soar in

electricity demand. The share occupied by demand for power generation went up

from 30% in 2000 to 44% in 2010.

- In 2008 and 2009, when electricity demand was low due to the economic

downturn, the share taken up by consumption for power generation was

somewhat low at 41% and 37%, respectively. However, the share went up again

together with the economic recovery in 2010.



[DiagramⅠ-18] Changes in composition of LNG consumption


B. Town gas consumption trends

The 1990s is when supply of town gas was fully launched. In the 1990s, town gas

consumption posted high annual average growth of 30.5%. With a rise in the town gas

propagation rate in the 2000s, stable growth of an annual average 5.7% was

recorded.

Town gas consumption for residential use recorded sharp growth of an annual

average 36.0% in the 1990s, but the level of increase substantially slowed down to

an annual average of 2.9% in the 2000s.

- In 2006, when winter temperatures were high compared to the average year,

consumption for residential use went down for the first time. In 2008 as well, a low

increase rate of 1.1% was posted despite base effects from the previous year.

Notes: p refers to tentative figures; the town gas total includes town gas for transport and co-generation



(Unit: Million m3)

YearResidential Commercial Industry Total

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

2000 7,003 14.7% 1,764 21.5% 3,150 30.7% 11,963 19.5%

2001 7,168 2.3% 1,982 12.3% 3,440 9.2% 12,657 5.8%

2002 7,720 7.7% 2,208 11.4% 3,795 10.3% 13,873 9.6%

2003 8,126 5.3% 2,437 10.4% 3,978 4.8% 14,734 6.2%

2004 8,218 1.1% 2,718 11.5% 4,176 5.0% 15,420 4.7%

2005 8,900 8.3% 3,176 16.8% 4,432 6.1% 16,963 10.0%

2006 8,868 -0.4% 3,298 3.8% 4,618 4.2% 17,504 3.2%

2007 8,752 -1.3% 3,349 1.5% 4,944 7.1% 17,967 3.1%

2008 8,849 1.1% 3,404 1.6% 5,624 13.7% 18,735 4.3%

2009 8,877 0.3% 3,404 0.0% 5,585 -0.7% 18,445 -1.5%

2010p 9,302 4.8% 3,693 8.5% 6,905 23.6% 20,768 12.6%

2.9% 7.7% 8.2% 5.7%Annual averageincrease rate(2000~2010)

<TableⅠ-12> Trends in town gas consumption per use


Town gas for commercial use also recorded high growth of an annual average

19.3% in the 1990s, but the level of increase substantially slowed down to an annual

average 7.7% in the 2000s.

- The annual consumption increase rate of town gas for commercial use slowed

down every year after 2000 and remained stagnant up until 2009. However,

consumption turned around and went up 8.5% in 2010 from the previous year,

together with the economic recovery.

Town gas for industrial use indicated the highest growth in the 2000s. It recorded an

annual average rise of 8.2%, thus leading a rise in overall town gas consumption.

- Consumption of town gas for industrial use, which is used for industrial processes

(mainly for forging, rolling, heating, welding, and boiler operation), is continually

increasing with increased supply of town gas to industries and relative price

reduction resulting from high oil prices.

In the 2000s, town gas for industrial use decreased only in 2009, when the global

financial crisis broke out, posting a year-on-year drop of 0.7%. It recorded an

extremely high increase rate of 23.6% from the previous year in 2010, together with

the economic recovery, thus leading an overall rise in town gas consumption.



[DiagramⅠ-19] Trends in consumption per town gas use

(Unit: Million m3)


The share of final energy occupied by town gas was 8.4% in 2000, but steadily went

up to reach 11.2% in 2010.

The share of final energy taken up by town gas was a mere 1.4% in 1990. However,

town gas is growing into an extremely important final energy source since town gas

propagation reached maturity in the 2000s.

The number of town gas customers in the 1990s recorded sharp growth of as much

as an annual 30% to 40%, a result of the government’s policy on increasing supply of

natural gas. In the 2000s, when the phase of stabilization was reached, stable growth

of less than 10% was witnessed.

According to data released by the Korea City Gas Association, the number of town

gas customers across the nation, as of November 2010, totaled 14.3million,

including 13.7million for residential use, 578thousand for commercial use, and

1.2thousand for industrial use.



[DiagramⅠ-20] Changes in share of final energy taken up by town gas and number of customers (Unit: 1,000)


A. Coal consumption trends

Coal consumption marked an annual average increase rate of 4.9% in the 1990s. In

the 2000s, coal consumption recorded annual average growth of 6.0%, attributable to

a rise in thermal coal demand for power generation.

Bituminous coal took up more than 90% of total coal consumption in 2010. It posted

an annual average increase of 6.1% in the 2000s. Consumption of bituminous coal

reached 109.4million tons in 2010.




Coal and other energy consumption trends6

(Unit: 1,000 tons)

YearAnthracite Bituminous Total

Consumedvolume

Increase rate

Consumedvolume

Increase rate

Consumedvolume

Increase rate

2000 6,196 24.1% 60,329 11.4% 66,525 12.5%

2001 7,137 15.2% 63,686 5.6% 70,823 6.5%

2002 7,687 7.7% 68,264 7.2% 75,952 7.2%

2003 8,581 11.6% 70,540 3.3% 79,121 4.2%

2004 8,137 -5.2% 73,978 4.9% 82,116 3.8%

2005 9,034 11.0% 75,790 2.4% 84,823 3.3%

2006 9,829 8.8% 77,998 2.9% 87,827 3.5%

2007 9,698 -1.3% 84,430 8.2% 94,128 7.2%

2008 10,215 5.3% 93,983 11.3% 104,198 10.7%

2009 9,777 -4.3% 98,602 4.9% 108,378 4.0%

2010p 10,105 3.4% 109,413 11.0% 119,517 10.3%

5.0% 6.1% 6.0%

<TableⅠ-13> Coal consumption trends



Anthracite consumption recorded an annual average increase of 5.0% in the 2000s,

triggered by increased consumption in the industrial sector, despite a drop in the

residential/commercial sector and power generation sector. It reached 10.1million

tons in 2010.

Regarding changes in the share of coal consumption taken up by source, anthracite

accounted for 49.6% of overall coal consumption in 1990, but this figure sharply

dropped to 8.5% in 2010.

The share of consumption occupied by anthracite dropped to 9.3% in 2000 in

tandem with a sharp drop in briquette consumption, triggered by heating fuel

replacement as a result of town gas propagation, together with a government policy

on curtailing anthracite production based on the coal industry rationalization plan in

the 1990s.

- The share occupied by anthracite consumption rapidly decreased in the 1990s, but

maintained the 8% to 10% range in the 2000s. This resulted from a rise in

consumption in the industrial sector and a slight rise in briquette consumption,

triggered by the economic downturn and high oil prices.

The share of consumption occupied by bituminous coal was 50.4% in 1990. In

2010, bituminous coal accounted for 91.5% of overall coal consumption, attributable

to a decrease in anthracite consumption and a soar in bituminous coal consumption

for power generation.




With regard to changes in coal consumption per use in the 2000s, consumption for

power generation recorded an annual average rise of 6.0%. Consumption for industrial

use and residential/commercial use posted annual average growth of 5.0% and 6.1%,

respectively.

In the 2000s, coal consumption for power generation rose an annual average 6.0%,

leading a rise in overall coal consumption.

- In 2010, coal consumption for power generation reached 78.3million tons,

accounting for 66% of overall coal consumption.

Consumption of coal for industrial use, which is used for raw materials and fuel in the

industrial sector, repeatedly went up and down according to the economy in the

2000s, but indicated annual average growth of 5.0% to reach 39.4million tons in

2010.

Consumption for residential/commercial use is decreasing as a result of heating fuel

replacement. It recorded annual average growth of 6.1% with a slight rise in

consumption of briquettes for heating fuel, triggered by high oil prices. Consumption

reached 1.9million tons in 2010.



[DiagramⅠ-21] Changes in the share of coal consumption taken up by source



Regarding changes in the share of coal consumption taken up by each different use,

the share of consumption for power generation is sharply rising.

Consumption for power generation took up a mere 18% of overall coal consumption in

1990. However, it rapidly rose with the increase in size and use of coal power plants.

The share of consumption accounted for by industrial use relatively went up with the

decrease in the share occupied by consumption for residential/commercial use in the 1990s.

However, a soar in consumption for power generation in the 2000s resulted in consumption

for industrial use accounting for approximately 33% of overall coal consumption in 2010.

Consumption for residential/commercial use accounted for 44% of overall coal

consumption in 1990, but occupied only around 2% of overall coal consumption in

2010, attributable to decreased briquette-based heating.



(Unit: 1,000 tons)

YearIndustry Residential/commercial Power generation

Consumedvolume

Increase rate

Consumedvolume

Increase rate

Consumedvolume

Increase rate

2000 29,179 7.4% 1,192 6.7% 36,155 17.2%

2001 30,302 3.9% 1,230 3.2% 39,291 8.7%

2002 32,075 5.9% 1,175 -4.4% 42,701 8.7%

2003 33,588 4.7% 1,191 1.3% 44,341 3.8%

2004 32,863 -2.2% 1,385 16.3% 47,868 8.0%

2005 32,606 -0.8% 2,010 45.1% 50,206 4.9%

2006 32,945 1.0% 2,327 15.8% 52,555 4.7%

2007 34,394 4.4% 2,091 -10.1% 57,643 9.7%

2008 37,158 8.0% 2,289 9.5% 64,751 12.3%

2009 33,986 -8.5% 1,941 -15.2% 69,733 7.7%

2010p 39,366 15.8% 1,860 -4.2% 78,291 12.3%

5.0% 6.1% 6.0%

<TableⅠ-14> Trends in coal consumption by use



With regard to trends in anthracite consumption per use in the 2000s, consumption for

power generation indicated an annual average decrease of 11.5%. Consumption for

residential/commercial use went up an annual average 4.6%. Consumption for

industrial use, which takes up the highest share, posted annual average growth of

13.1% to lead a rise in overall anthracite consumption.

Consumption for residential/commercial use began to substantially drop in the

1990s, but recorded high year-on-year growth from 2003 through 2006 as well as in

2008, when high oil prices were recorded.

Anthracite consumption for industrial use, most of which is imported, indicated sharp

growth of an annual average 13.1% in the 2000s and reached 7.4 million tons in

2010. It accounted for roughly 74% of overall anthracite consumption.

Anthracite consumption for power generation stood at 2.9 million tons in 2000, but

indicated an annual average decrease of 11.5% as a result of the government’s coal

rationalization policy. In 2010, anthracite consumption stood at 839 thousand tons.



[DiagramⅠ-22] Changes in the share of coal consumption taken up by each use





(Unit: 1,000 tons)

YearIndustry Residential/commercial Power generation Total

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

2000 2,155 62.9% 1,192 6.7% 2,850 11.7% 6,196 24.1%

2001 3,217 49.3% 1,230 3.2% 2,689 -5.6% 7,137 15.2%

2002 3,954 22.9% 1,175 -4.4% 2,558 -4.9% 7,687 7.7%

2003 4,680 18.4% 1,191 1.3% 2,710 5.9% 8,581 11.6%

2004 4,396 -6.1% 1,385 16.3% 2,356 -13.1% 8,137 -5.2%

2005 4,670 6.2% 2,010 45.1% 2,354 -0.1% 9,034 11.0%

2006 5,146 10.2% 2,327 15.8% 2,356 0.1% 9,829 8.8%

2007 5,451 5.9% 2,091 -10.1% 2,156 -8.5% 9,698 -1.3%

2008 5,966 9.5% 2,289 9.5% 1,960 -9.1% 10,215 5.3%

2009 6,476 8.5% 1,941 -15.2% 1,801 -8.1% 10,218 0.0%

2010p 7,406 14.4% 1,860 -4.2% 839 -53.4% 10,105 -1.1%

13.1% 4.6% -11.5% 5.0%

<TableⅠ-15> Trends in anthracite consumption per use


[DiagramⅠ-23] Trends in anthracite consumption per use

(Unit: 1,000 tons)


With regard to trends in bituminous coal consumption per use in the 2000s,

consumption for power generation, which takes up most of overall bituminous coal

consumption, indicated high annual average growth of 8.8% and led a rise in overall

bituminous coal consumption.

Bituminous coal consumption for power generation stood at 33.3 million tons in

2000. It rapidly increased together with the construction of large-capacity coal power

plants such as the Boryeong Power Plant and Yeongheung Power Plant. It sharply

rose to 77.4 million tons in 2010.

Bituminous coal for steel making is used as a key raw material for the production of

pig iron, a raw material used for steel products. Consumption of bituminous coal for

steel making continued an annual average increase of 2.7%, a result of growth of key

domestic industries in demand of steel such as the automotive and shipbuilding

industries as well as a rise in international steel product exports.

- In 2010, when the nation’s economy was recovering, year-on-year growth of

22.6% was recorded as a result of base effects from the previous year and the

completed construction of an integrated mill in Dangjin of Hyundai Steel.

Hyundai Steel’s Blast Furnace 1 and Blast Furnace 2 began operation in January and

November 2010, respectively. Each blast furnace has an annual production capacity

of 4 million tons. They account for roughly 17% (as of 2010) of the nation’s converter-

based blister steel production capacity.

Bituminous coal consumption in the cement industry is directly influenced by

fluctuations in the construction business. It marked an annual average decrease of

2.6% in the 2000s. It went down from 5.3 million tons in 2000 to 4.1 million tons in

2010.

- Bituminous coal consumption in the cement industry recorded a year-on-year drop

of 12.4% in 2004 due to the stagnant construction business. It continued a

downward trend through 2006.

- In 2007, the construction business took a favorable turn, although temporarily, as a

result of an upswing in the private capital business, the construction of an innovative

city, and the early implementation of housing projects by the government.




Accordingly, bituminous coal consumption in the cement industry turned around

and went up in 2007. However, it went down again together with the financial crisis

in 2009.

It continually dropped even after the economic recovery in 2009, owing to a rise in

cement inventory, a result of a long-term slump in the construction business, and a

soar in international bituminous coal prices.


Bituminous coal for other industries is used mainly for co-generation fuel at industrial

complexes. Bituminous coal consumption for other industries reached 2.3million tons

in 2000. It recorded a low annual average increase rate of 0.7% to stand at 2.5million



(Unit: 1,000 tons)

Year

Steel making Cement Other industries Power generation Total

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

Consumedvolume

Increaserate

2000 19,415 5.3% 5,308 4.7% 2,301 -1.2% 33,305 17.7% 60,329 11.4%

2001 19,315 -0.5% 5,474 3.1% 2,297 -0.2% 36,601 9.9% 63,687 5.6%

2002 20,097 4.1% 5,669 3.6% 2,356 2.6% 40,143 9.7% 68,265 7.2%

2003 20,509 2.0% 6,060 6.9% 2,339 -0.7% 41,631 3.7% 70,539 3.3%

2004 20,839 1.6% 5,309 -12.4% 2,318 -0.9% 45,512 9.3% 73,978 4.9%

2005 20,810 -0.1% 4,808 -9.4% 2,320 0.1% 47,852 5.1% 75,790 2.4%

2006 20,731 -0.4% 4,738 -1.5% 2,330 0.5% 50,199 4.9% 77,998 2.9%

2007 21,519 3.8% 5,051 6.6% 2,374 1.9% 55,486 10.5% 84,430 8.2%

2008 23,568 9.5% 5,236 3.7% 2,388 0.6% 62,791 13.2% 93,983 11.3%

2009 20,734 -12.0% 4,463 -14.8% 2,314 -3.1% 71,091 13.2% 98,602 4.9%

2010p 25,424 22.6% 4,059 -9.1% 2,478 7.1% 77,452 8.9% 109,413 11.0%

2.7% -2.6% 0.7% 8.8% 6.1%

<TableⅠ-16> Trends in bituminous coal consumption per use

Annualaverage

increase rate(2000~2010)


tons in 2010.

- Increase in bituminous coal consumption in other industries remains stagnant as

bituminous coal is being replaced by LNG for co-generation fuel due to the

government’s environmental regulations, among other factors.

B. Trends in thermal energy and new & renewable/other energy consumption

Thermal energy began to be supplied together with the construction of new cities in

1987. Consumption of thermal energy steadily grew with the construction of new

apartment complexes in the 2000s, recording annual average growth of 4.4%.

- Thermal energy consumption witnessed a year-on-year decrease of 6.9% in 2006

due to the mild weather in the winter. It turned around and indicated an upward

trend in 2007. It posted high year-on-year growth of 10.8% in 2010, when

abnormally low temperatures were recorded in the winter.



[DiagramⅠ-24] Trends in bituminous coal consumption per use(Unit: 1,000 tons)



Consumption of new & renewable energy and other energy recorded high annual

average growth of 10.6% in the 2000s, going up from 2,130,000 TOE in 2000 to

5,835 thousand TOE in 2010.

- The rapid rise in consumption of new & renewable energy and other energy is

attributable to the government’s strong determination to propagate such energy,

based on relevant policies, mainly in the public sector.

With regards to the annual average increase rate of new & renewable energy

consumption by sector in the 2000s, the public/other sector recorded 24.5%, while

the industrial sector posted 10.0% and the residential/commercial sector posted

1.0%.



(Unit: 1,000 TOE)

YearThermal energy New & renewable energy and

other energy

Consumedvolume

Increase rate

Consumedvolume

Increase rate

2000 1,119 11.9% 2,130 17.9%

2001 1,150 2.8% 2,456 15.3%

2002 1,223 6.4% 2,925 19.1%

2003 1,300 6.3% 3,210 9.7%

2004 1,343 3.3% 3,928 22.4%

2005 1,530 13.9% 3,953 0.6%

2006 1,425 -6.9% 4,092 3.5%

2007 1,438 0.9% 4,491 9.7%

2008 1,512 5.1% 4,747 5.7%

2009 1,550 2.5% 4,867 2.5%

2010p 1,718 10.8% 5,835 19.9%

4.4% 10.6%

<TableⅠ-17> Trends in consumption of thermal energy, new & renewable energy, and other energy





[DiagramⅠ-25] Trends in thermal energy consumption

(Unit: 1,000 TOE)

[DiagramⅠ-26] Trends in new & renewable energy and other energy consumption

(Unit: 1,000 TOE)


ChapterⅡMid-Term Energy Demand

Outlook (2010~2015)

1. Forecast methodology and assumptions

2. Primary energy demand outlook

3. Final energy demand outlook

4. Petroleum product demand outlook

5. Electricity demand outlook

6. LNG and town gas demand outlook

7. Coal and other energy demand outlook


A. Model structure and methodology

Model structure for mid-term energy demand outlook

Primary energy demand consists of final energy demand and energy demand in the

transformation sector. Final energy demand is forecast by making a categorization

into different energy sources such as petroleum products, town gas, electricity, coal,

thermal, and others.

Each energy source is then broken down into a couple of uses or demand sectors

including industry, transport, residential/commercial, and public/other. Consumption

patterns and characteristics of each source and sector are incorporated to forecast

demand.

A. Model structure and methodology

Model structure for mid-term energy demand outlook

Primary energy demand consists of final energy demand and energy demand in the

transformation sector. Final energy demand is forecast by making a categorization

into different energy sources such as petroleum products, town gas, electricity, coal,

thermal, and others.

Each energy source is then broken down into a couple of uses or demand sectors

including industry, transport, residential/commercial, and public/other. Consumption

patterns and characteristics of each source and sector are incorporated to forecast

demand.

ChapterⅡ Mid-Term Energy Demand Outlook (2010~2015)


Forecast methodology and assumptions1

[DiagramⅡ-1] Outlook model structure


Use of econometric model for demand outlook per final energy source

Time series data per quarter is used to assume a model per energy source and

sector (use), after which input assumptions (GDP, temperature variable, energy

prices) are applied to forecast demand.

- The resulting forecasts are tallied per energy source and sector to come up with the

overall final energy outlook.

Key explanatory variables that are used for mid-term econometric model

assumptions and forecasts are GDP, industrial (per business type) production index,

energy prices by source and by sector, and information on CDD (Cooling Degree

Days) and HDD (Heating Degree Days).

The forecasts for the industrial production index (by business type) are got from GDP

outlook.

The basic econometric model is a dynamic regression model using the Cochrane-

Orcutt method.

- This model allows autoregressive error terms in explanatory variables, thus

removing autocorrelation and enabling stability in estimate values.

The following method was used for forecasts for the transformation sector.

The fuel input level is needed to come up with demand for secondary energy, such

as electricity, town gas, and thermal energy, forecasted in the final energy sector. The

fuel input level is determined for each of the following: power generation, town gas

production, and district heating energy production.

Method of forecasting fuel input needed for production of electricity

- The total electricity supply volume is projected in consideration of the transmission

and distribution loss and self-consumption as well as total electricity demand.

- The LP (linear programming) model is used to project the power generation of each

energy source needed to satisfy total electricity demand.

- Estimate values for power generation efficiency are applied to the projected power

generation level by source to come up with the fuel input.

- Key information needed to forecast energy demand in the power generation sector




is extracted from the 「5th Basic Plan on Electricity Supply and Demand」.

The estimate values for fuel input in the town gas and thermal energy production

sector are determined by using a similar method and in reverse order from the

‘energy transforming process’.

Method of forecasting oil demand

Final energy consumption is categorized into three sectors: transport, industry, and

residential/commercial/public/other.

A forecast model is established for each key product within each sector.

- Five products in the transport sector (Gasoline, diesel, heavy oil, jet fuel, LPG)

- Five products in the industrial sector (Kerosene/diesel, heavy oil, LPG, naphtha,

asphalt)

- Three products in the residential/commercial/public and other sector

(Kerosene/diesel, heavy oil, LPG)

Each model’s key explanatory variables are GDP (or industrial production index),

product prices, HDD, weather variable, lagged variable of actual consumption,

among others. The setting of a model is differentiated among products.

Kerosene and diesel are grouped together in the industrial and residential/commercial

sectors due to such issues as mutual replaceability and categorization with heating

oil. Omitted products, which take up only a small volume, are adjusted within a scope

that does not influence overall forecasts.

In terms of oil inputted into the transformation sector (power generation, town gas

production, thermal energy production), demand forecast values are determined for

the secondary energy sources (electricity, town gas, thermal energy), after which the

input requirement is determined based on the transformation sector module.

- Consideration is made for relations with other energy sources that can replace oil.

Method of forecasting electricity demand

Electricity demand is categorized into four sectors - industry, residential,

commercial/public, and transport.




Individual models are estimated in consideration of the demand behavior and

characteristics of each sector, after which input assumptions are used to project

electricity demand for the forecast period.

Key explanatory variables for each model’s estimation are the quarterly GDP,

industrial production index, actual electricity charge (unit cost of sales) by sector, and

quarterly temperature information (CDD and HDD).

- The industrial production index is used as the explanatory variable, instead of the

GDP, to forecast electricity demand for industrial use.

Method of forecasting LNG demand

To forecast LNG demand, LNG demand is categorized into demand for town gas

production and demand for power generation.

To project LNG demand for town gas, town gas demand in the final sector is first

estimated.

- Town gas demand is categorized into different uses, such as residential, general,

and industrial use. Prices, income levels, temperature variables such as CDD and

HDD, as well as the number of customers are used as variables on the supply side

to project demand for each different use.

Next, LNG demand for town gas production is projected in consideration of the input

ratio between LNG and LPG, which are raw materials used to produce town gas,

self-consumption, and loss rate, among other factors.

LNG demand for power generation is determined based on the LP model, which is

used to project the power generation level by source in the power generation sector

and energy input level by source.

Method of forecasting coal demand

Coal demand is first categorized into anthracite and bituminous coal demand in the

final consumption sector. Demand is projected for each use (industry,

residential/commercial, power generation) per source and is summed up. For coal

demand for power generation, the coal input level for power generation that is




projected for the transformation sector is used.

Anthracite demand is classified into residential/commercial use and industrial use. For

key explanatory variables, GDP, lagged variables, seasonal variables, etc. are used.

Bituminous coal demand is categorized into demand for steel making, cement, and

other industries. The key explanatory variables of each model are the pig iron

production volume, cement production volume, and industrial production index.

Key explanatory variables of the thermal energy and other energy demand forecast

model are GDP, industrial production index, temperature variables (CDD, HDD),

lagged variables, and seasonal variables.

B. Outlook assumptions

As key input assumptions for the mid-term energy demand outlook, assumed values

for income levels, prices, and temperatures, which have the most influence on energy

demand, are created. For estimate values for income, the GDP increase rate is used,

and for estimate values for prices, international oil prices are used.

The assumed GDP growth rate for 2011 is 4.5%, and it is presumed that the

potential growth rate will be maintained even after 2012.

Notes: The growth rate for 2011 is a forecast made by the Bank of Korea (2011 Economic Outlook, December 2010),while the growth rates for 2012 through 2015 are assumptions made in the 「(Draft) 2nd Basic National EnergyPlan」

Monthly average temperature information for the last 20 years (1990~2010) was used

for temperature variables (CDD, HDD, average temperatures).



Category 2010p 2011 2012 2013 2014 2015 Annualaverage

GDP growth rate (%) 6.1 4.5 4.4 4.3 4.2 4.2 4.3

<TableⅡ-1> Assumptions for economic growth of mid-term model


Notes: CDD (HDD) refers to the difference between the daily average temperature and standard temperature if the dailyaverage temperature is higher (lower) than the standard temperature (18℃). Monthly CDD/HDD is the sum of dailydegree days in the month.



Average-1.8 0.9 6.0 12.7 18.0 22.4 25.1 25.7 21.5 14.9 7.5 -1.3

temperature

CDD 0 0 0 4 34 135 220 240 110 8 0 0

HDD 613 484 373 163 33 1 0 0 5 104 318 598

CategoryJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

2011~2015

<TableⅡ-2> Assumptions on temperature variables

[DiagramⅡ-2] Changes in CDD and HDD and forecast assumptions


Primary energy demand is expected to record annual average growth rate of 3.3%

from 2010 through 2015, and reach 307.1 million TOE in 2015.

Notes: 1) Values in parentheses refer to the rate of increase from the previous year (%); p refers to tentative figures2) The changed K-factor was applied after 2007 (Article 5, Paragraph 1 of the Enforcement Regulations of theEnergy Basic Act)

3) LNG consumption in 2010 includes the estimated directly-adopted and consumed volume of POSCO and K-POWER



Primary energy demand outlook2


2010p 2011 2012 2013 2014 2015

Oil 794.5 801.6 811.5 821.5 827.2 832.90.9(Million bbl) (2.1) (0.9) (1.2) (1.2) (0.7) (0.7)


Coal 119.5 122.4 123.8 124.9 128.2 139.43.1(Million ton) (10.3) (2.4) (1.2) (0.9) (2.6) (8.7)

-Excluding 94.1 94.8 95.1 95.4 97.9 108.72.9coking coal (7.4) (0.8) (0.3) (0.3) (2.7) (11.1)

LNG 32.0 35.4 38.0 40.6 42.7 41.95.6(Million ton) (22.6) (10.6) (7.4) (6.8) (5.2) (-1.7)

Hydro 6.3 6.5 6.7 6.9 7.0 7.12.5(TWh) (11.6) (3.7) (3.3) (2.4) (1.6) (1.5)

Nuclear power 147.5 155.1 167.8 182.2 193.6 199.36.2(TWh) (-0.2) (5.2) (8.2) (8.6) (6.2) (2.9)

Other 6.2 6.8 7.8 8.7 9.7 10.711.6(Million TOE) (13.4) (10.2) (13.4) (11.9) (11.3) (11.1)

Primary energy 261.2 270.8 280.1 289.0 298.0 307.13.3(Million TOE) (7.3) (3.7) (3.4) (3.2) (3.1) (3.0)

Primary energy 200.9 207.8 215.3 222.7 230.5 238.9-Excluding 3.5for raw (7.2) (3.4) (3.6) (3.4) (3.5) (3.6)materials

<TableⅡ-3> Primary energy demand outlook (2010~2015)


In 2011, the rate of increase in primary energy demand is expected to slow down to

3.7% as a result of a slowdown in economic growth (6.1% in 2010 → 4.5% in 2011),

removal of temperature effects based on the assumption that average year temperatures

will be recovered, and base effects from a high rise in consumption in 2010.

The rate of increase in primary energy demand is projected to gradually decrease

from the mid-3% range after 2011 and post a year-on-year rise of 3.0% in 2015.

Primary energy demand outlook, excluding for raw materials

When excluding naphtha and coking coal, which are used as industrial raw materials,

the rate of increase in primary energy consumption is forecast to record an annual

average 3.5% from 2010 through 2015.

- The rate of increase in energy demand for raw materials is projected to post an

annual average 2.5%, lower than the average increase rate of primary energy

(3.3%), during the same period, triggered by a slowdown in growth of relevant

industries.

- Demand for petroleum products, excluding naphtha, is projected to remain

stagnant during the forecast period.



[DiagramⅡ-3] Primary energy demand outlook


- Coal demand for fuel, excluding coking coal, is forecast to post annual average

growth of 2.9%, gaining strength from a rise in bituminous coal demand for power

generation in 2014 and 2015.

The share of primary energy occupied by energy for raw materials will likely go down

from 23.1% in 2010 to approximately 22.2% in 2015.

Outlook on key indicators related to energy

The energy intensity (TOE/million won) temporarily went up in 2009 and 2010, but will

likely turn around and make an improvement starting from 2011.

- The worsened energy intensity in 2009 resulted from a slight rise (1.1%) in primary

energy consumption due to completed construction of facilities that consume great

amounts of energy4), while economic growth remained stagnant (0.2%) due to

influence from the financial crisis.



[DiagramⅡ-4] Share of primary energy taken up by energy for raw materials

4) Electric furnace steel factory of Dongbu Steel (Annual production of 3 million tons, operation launched in July2009), etc.


- The worsened energy intensity of 2010 resulted from a soar in demand for cooling

and heating, attributable to abnormal weather in the summer and winter, as well as

a sharp rise (8.8%) in the increase rate of energy consumption for industrial use,

triggered by an upswing in the economy and base effects.

- Energy intensity is expected to improve at an annual average of 1.0% from 0.251 in

2010 to 0.239 in 2015.

Per capita energy demand is forecast to go up from 5.3 TOE in 2010 to roughly 6.2

TOE in 2015 in tandem with a rise in income levels.

The annual GDP elasticity of primary energy demand recorded 1.21 in 2010. It is

forecast to continually go down during the forecast period to post around 0.73 in 2015.

Notes: 1) Values in parentheses refer to the rate of increase from the previous year (%); p refers to tentative figures2) Primary energy consumption of 2010 includes the estimated directly-adopted and consumed volume of POSCOand K-POWER





2010p 2011 2012 2013 2014 2015

GDP (Trillion won)1,040 1,086 1,134 1,183 1,232 1,284 4.3(6.1) (4.5) (4.4) (4.3) (4.2) (4.2)

Population projections48.9 49.0 49.1 49.2 49.2 49.3 0.2(Million people)

Primary energy 261.2 270.8 280.1 289.0 298.0 307.1 3.3consumption (7.3) (3.7) (3.4) (3.2) (3.1) (3.0)(Million TOE)

Per capita consumption5.3 5.5 5.7 5.9 6.1 6.2 3.1(TOE)

GDP elasticity of1.21 0.82 0.78 0.74 0.74 0.73 0.763)

energy consumption

Energy intensity0.251 0.249 0.247 0.244 0.242 0.239 -1.0(TOE/Million won)

Energy intensity- Excluding for 0.193 0.191 0.190 0.188 0.187 0.186 -0.8raw materials

<TableⅡ-4> Outlook on key economy and energy consumption indicators


Outlook by energy source

Oil demand is projected to indicate low growth of an annual average 0.9% from 2010

through 2015.

- Petroleum product consumption in the final sector will likely post an annual average

increase of 1.1% during the forecast period. Consumption is expected to record an

annual average decrease of between 4 and 5% in the transformation sector as a

result of disuse of heavy oil power plants5).

Coal demand is forecast to post annual average growth of 3.1% from 2010 through 2015.

- Bituminous coal demand is forecast to post annual average growth of 3.4% during

the forecast period as it is expected that demand in the steel making industry and

demand for power generation will stably increase.

- Bituminous coal demand for power generation will remain stagnant up until 2013,

before which there are no plans to build new facilities. Large facility expansions are

planned for 2014 and 2015 (6,740MW; a 29% rise compared to 2013 in facility



[DiagramⅡ-5] Outlook on key energy consumption indicators

5) Disuse of Units 1 and 2 (400MW) of Yeongnam Thermal Power Plant planned for January 2013, and of Units1, 2, and 3 of Ulsan Thermal Power Plant planned for January 2014


capacity as of the end of the year) and this is why a rise in demand is expected.

- Anthracite demand is forecast to post an annual average rise of 1.5% during the

forecast period as it is expected that demand for industrial use, which recorded

two-digit annual average growth in the 2000s, will substantially slow down.

The level of increase in LNG demand is expected to slow down to a certain degree

compared to the rate of increase in the 2000s. However, it will still likely record annual

average growth of 5.6% during the forecast period, thus leading a rise in primary

energy consumption.

- Demand for power generation is forecast to more rapidly rise (annual average of

6.7%) than demand for town gas (annual average of 4.7%), where the number of

customers is reaching the state of saturation.

According to the electric power generation mix plan, construction of new nuclear power

plants is concentrated in 2011 through 2014. For this reason, nuclear power is projected

to record annual average growth in the low 6% range during the forecast period.

- New power plant capacities that will be built during the forecast period will total



[DiagramⅡ-6] Outlook on primary energy demand by energy source(Unit: Million TOE)


6,800MW, resulting in a rise from 17,716MW in 2010 to 24,516MW in 2015.

- Construction will be completed for Singori Nuclear Power Plant Unit 1 and 2

(2,000MW) in 2011, for Sinwolseong Nuclear Power Plant Unit 1 (1,000MW) in 2012,

and Sinwolseong Nuclear Power Plant Unit 2 and Singori Nuclear Power Plant Unit 3

(2,400MW) in 2013, and Singori Nuclear Power Plant Unit 4 (1,400MW) in 2014.

Notes: Values in parentheses refer to the share of facilities taken up by energy source (%); facility capacity as of the end ofthe year

Source: Ministry of Knowledge Economy, 5th Basic Electricity Supply and Demand Plan (Public Notice No. 2010-490 ofthe Ministry of Knowledge Economy), December 2010

Consumption of new & renewable energy is forecast to post an annual average rise

of between 11 and 12% during the forecast period. The upward trend in demand

witnessed in the 2000s (annual average of 11.3%) will likely continue.

Share of primary energy demand occupied by each energy source

The share occupied by oil reached its peak at 63% in 1994 and continually went



(Unit: MW %)

Category Nuclearpower

Bituminouscoal Anthracite LNG Oil

Pumpedstoragepower

New &renewable Group Total

201018,716 23,080 1,125 19,422 5,372 3,900 2,127 1,674 75,416(24.8) (30.6) (1.5) (25.8) (7.1) (5.2) (2.8) (2.2) (100.0)

201119,716 23,080 1,125 20,122 5,384 4,700 2,531 2,299 78,957(25.0) (29.2) (1.4) (25.5) (6.8) (6.0) (3.2) (2.9) (100.0)

201220,716 23,080 1,125 21,405 5,154 4,700 2,906 2,627 81,713(25.4) (28.3) (1.4) (26.2) (6.3) (5.8) (3.6) (3.2) (100.0)

201323,116 23,080 1,125 22,205 4,700 4,700 3,384 3,635 85,945(26.9) (26.9) (1.3) (25.8) (5.5) (5.5) (3.9) (4.2) (100.0)

201424,516 24,820 1,125 23,967 4,108 4,700 3,575 4,058 90,869(27.0) (27.3) (1.2) (26.4) (4.5) (5.2) (3.9) (4.5) (100.0)

201524,516 29,820 1,125 23,517 4,108 4,700 4,183 4,314 96,283(25.5) (31.0) (1.2) (24.4) (4.3) (4.9) (4.3) (4.5) (100.0)

<TableⅡ-5> Outlook on electric power generation mix


down afterwards. It dropped to less than 50% in 2002 and even to 40% in 2010.

The downward trend in the share occupied by oil will likely continue throughout the

forecast period to record a figure between 35 and 36% in 2015.

The share occupied by LNG went up to 15.9% in 2010, gaining strength from a high

rise in consumption. It is forecast that LNG demand for town gas will not record the

high level of growth witnessed before, but there will likely be an increase in LNG

demand for power generation. For this reason, the share accounted for by LNG is

forecast to go up to 17.8% in 2015.

New nuclear power plants will be continually built starting from 2011, when there is

planned facility expansion. The share of primary energy taken up by nuclear energy is

projected to rise from 12.1% in 2010 to 14.0% in 2015.

The share occupied by coal continued an upward trend together with the expansion

of power generation facilities in the 2000s. During the forecast period, the speed at

which new power generation facilities are built is expected to slightly slow down and

demand for industrial use will likely stabilize. The share accounted for by coal is thus

projected to slightly drop from 29.1% in 2010 to 28.9% in 2015.



[DiagramⅡ-7] Outlook on share of consumption of each energy source


Final energy demand is forecast to indicate annual average growth of 2.9% from 2010 through

2015. It is projected to reach 224.7 million TOE in 2015, a 15.3% rise from the 2010 level.

Notes: 1) Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures2) The changed K-factor was applied after 2007 (Article 5, Paragraph 1 of the Enforcement Regulations of the Energy Basic Act)



Final energy demand outlook3

구 분Annual averageincrease rate(2010~2015)

2010 2011 2012 2013 2014 2015

Industry 115.4 120.5 124.9 129.1 132.8 135.93.3(Million TOE) (8.8) (4.4) (3.6) (3.4) (2.9) (2.3)

-Excluding for 55.2 57.6 60.2 62.8 65.3 67.74.2raw materials (9.7) (4.3) (4.5) (4.4) (3.9) (3.7)

Transport 36.6 36.9 37.7 38.4 39.0 39.51.5(Million TOE) (1.9) (0.7) (2.2) (1.9) (1.5) (1.4)

Residential/commercial 38.3 39.3 40.3 41.6 42.8 44.02.8(Million TOE) (7.1) (2.7) (2.6) (3.1) (3.0) (2.7)

Public/other 4.6 4.8 4.9 5.1 5.2 5.32.9(Million TOE) (6.8) (4.2) (2.7) (3.2) (2.2) (2.2)

Total 194.9 201.4 207.8 214.2 219.8 224.72.9(Million TOE) (7.0) (3.4) (3.2) (3.1) (2.6) (2.2)

Total 134.6 138.5 143.1 147.8 152.3 156.53.1-Excluding for raw materials (6.6) (2.9) (3.3) (3.3) (3.0) (2.8)

Oil 768.0 775.9 786.1 797.6 805.7 811.51.1(Million bbl) (2.1) (1.0) (1.3) (1.5) (1.0) (0.7)

-Excluding naphtha 436.3 435.2 437.3 441.1 444.0 446.50.5(1.6) (-0.2) (0.5) (0.9) (0.7) (0.6)

Anthracite 9.3 9.6 9.8 10.0 10.1 10.01.4(Million ton) (10.1) (3.5) (2.5) (1.4) (0.8) (-1.0)

Bituminous coal 32.0 34.1 35.3 36.3 36.8 37.13.0(Million ton) (16.2) (6.8) (3.4) (2.7) (1.5) (0.7)

-Excluding coking coal 6.5 6.5 6.6 6.7 6.5 6.4-0.6(-3.5) (0.1) (0.7) (1.6) (-3.5) (-1.6)

Electricity 434.2 457.2 481.5 504.7 527.7 550.54.9(TWh) (10.1) (5.3) (5.3) (4.8) (4.6) (4.3)

Town gas 20.8 21.9 23.0 24.2 25.3 26.34.8(Billion m3) (12.6) (5.5) (4.9) (5.1) (4.6) (3.9)

Thermal and other 7,553 8,167 9,083 9,987 10,977 12,0509.8(Thousand TOE) (17.7) (8.1) (11.2) (10.0) (9.9) (9.8)

<TableⅡ-6> Outlook on final energy demand


Energy demand by sector

It is assumed that the economic growth rate will be at the potential growth rate level

(annual average of 4.3%) from 2010 through 2015. Based on this assumption,

energy demand in the industrial sector is projected to indicate sound growth of an

annual average 3.3%.

- Energy demand in the industrial sector is forecast to record the highest increase

during the forecast period. This is because energy demand in the industrial sector

sensitively responds to an upswing in the economy the most. Operation of facilities

that consume great amounts of energy was recently launched in the steel making

industry (Hyundai Steel, POSCO, Dongkuk Steel).

- Oil, which accounts for 50% of energy consumption in the industrial sector, is

projected to post annual average growth of 1.5% as a result of a steady rise in

demand for raw material use. Electricity and town gas are expected to maintain

relatively high growth of between 5 and 6%.

Energy demand in the transport sector is forecast to go up an annual average 1.5%

during the forecast period, thus indicating the lowest increase rate.

- Oil demand for transport is forecast to mark annual average growth of 1%. Town



[DiagramⅡ-8] Outlook on final energy demand


gas is forecast to record an annual average increase rate of between 11 and 12%

as increased propagation of CNG buses is expected.

Energy consumption in the residential/commercial and public/other sectors is

forecast to show gradual annual average growth in the high 2% range during the

forecast period.

- Electricity and town gas demand is projected to mark an increase rate of an annual

average 4.4% and 3.5%, respectively. Oil demand is forecast to post an annual

average decrease rate of 2.3%, owing to influence from fuel replacement.

Final energy consumption structure by sector

Demand in the industrial sector is forecast to go up relatively quickly during the

forecast period. The share of consumption accounted for by the industrial sector is

forecast to go up 1.3%p, while the share occupied by the transport sector is

Source: Korea Energy Economics Institute, 「KEEI Korea Energy Demand Outlook」, Volume 12, No. 3, December 2010



Company Facility Capacity (1,000 tons)

Launch ofoperation Notes

Dangjin Blast 4,200 April Construction completedFurnace 1 (Blowing-in in January)

Hyundai Steel Dangjin Hot Rolling Plant 3,500 April Expanded

Dangjin Blast 4,200 November Construction completed Furnace 2 (Blowing-in in November)

Dongkuk Steel Plate Plant 1,500 May New

Gwangyang New 2,800 July NewPOSCO Steelmaking Plant

Gwangyang Plate Plant 2,500 August New

SeAH Besteel Expansion of Bar 300 March ExpandedSteel Line in Gunsan

Total 19,000 - -

<TableⅡ-7> Expansion of facilities that consume great amounts of energy in 2010


projected to drop 1.2%p.

The share occupied by the residential/commercial and public/other sectors is

expected to maintain a certain level.

Final energy demand by energy source

Regarding final energy demand by energy source, demand for network based

energy, such as electricity and town gas, will likely indicate relatively fast growth.

Demand for oil and coal is projected to show comparatively gradual growth.

Oil consumption went up 2.1% in 2010 as a result of the economic rebound and

temperature effects. It is projected to record a low increase rate in the low 1% range

during the forecast period. The level of increase is forecast to slow down to less than

1% in 2015.

- Naphtha demand for raw material use (annual average 1.9%) is projected to lead a

rise in oil demand. When excluding naphtha, the rate of increase in oil demand will

likely go down further to record an annual average 0.5%.



[DiagramⅡ-9] Outlook on rate of increase in demand by final energy sector(Unit: %)


Coal demand is forecast to go up an annual average 2.7% from 2010 through 2015

and reach 47.0 million tons in 2015.

- The rate of increase in bituminous coal demand is expected to substantially slow

down after recording 16.2% in 2010 due to a soar in demand in the steel making

industry. It will likely record a stable increase rate of an annual average 3.0% during

the forecast period.

- Anthracite demand for industrial use and residential/commercial use is forecast to

post a low consumption increase rate of an annual average of 1 to 2%. Overall

anthracite demand is forecast to mark annual average growth of merely 1.4%.

Electricity demand is forecast to continue high growth, recording an annual average

in the high 4% range, even after 2010. High growth will mainly be witnessed in

demand for industrial use (5.4%).

Town gas is forecast to indicate fast growth, posting an annual average in the high

4% range, gaining strength from a sound rise in demand for industrial use.



[DiagramⅡ-10] Outlook on share of consumption taken up by each final energy sector


Final energy consumption structure

Regarding the share of consumption taken up by each energy source, the share of

consumption occupied by oil will likely continually drop while the share accounted for

by electricity and town gas is expected to continue an upward trend.

- The share of final energy taken up by oil continually went down after 1997 and

stood at 51.6% in 2010. The downward trend is projected to continue during the

forecast period, resulting in 47.2% in 2015.

- The share occupied by coal is forecast to go up from 14.2% in 2010 to 14.6% in

2012, but will likely drop afterwards. It is projected to be 14.1% in 2015 which is

around the current level.

- The share accounted for by electricity is forecast to continually go up during the

forecast period. It will likely increase from 19.2% in 2010 to 21.1% in 2015. The

share taken up by town gas is forecast to go up to 12.3% in 2015.

- The share of energy consumption occupied by thermal and other energy is low, but

continues to rise as a result of a rapid increase in consumption of new & renewable

energy. The share is projected to go up to 5.4% in 2015.



[DiagramⅡ-11] Outlook on rate of increase in demand by key final energy source(Unit: %)




[DiagramⅡ-12] Outlook on share of consumption of each final energy source


Primary petroleum product demand is forecast to record annual average growth of

0.9% during the forecast period (2010~2015) and reach 832.9 million barrels in 2015.

- As a result of steady economic growth and a rise in income levels, demand for

petroleum products will likely increase, mainly demand for industrial raw materials

and transport. The fuel replacement trend will likely continue in the future.

Notes) Values in parentheses refer to the share of primary oil consumption taken up by each sector

By sector, the industrial sector is expected to lead a rise in oil consumption, recording

an annual average of 1.5%. The transport sector is forecast to record annual average

growth of 1.2%. In contrast, the residential/commercial/public sector and the

transformation sector is projected to record an annual average decrease of 2.3% and

4.2%, respectively.

- Oil demand in the industrial sector is forecast to lead a rise in oil consumption,

posting annual average growth of 1.5% during the forecast period. The share of

total oil demand taken up by oil demand in the industrial sector is expected to



Petroleum product demand outlook4

(Unit: 1,000 barrels, %)

Year Primary oilconsumption Industry Transport Residential/com

mercial/public Transformation

2010 794,517 442,068 (55.6) 263,636 (33.2) 62,306 (7.8) 26,507 (3.3)

2011 801,688 449,932 (56.1) 264,583 (33.0) 61,406 (7.7) 25,767 (3.2)

2012 811,525 457,399 (56.4) 269,561 (33.2) 59,130 (7.3) 25,434 (3.1)

2013 821,451 466,098 (56.7) 273,707 (33.3) 57,745 (7.0) 23,900 (2.9)

2014 827,182 472,354 (57.1) 276,867 (33.5) 56,522 (6.8) 21,439 (2.6)

2015 832,857 476,204 (57.2) 279,859 (33.6) 55,392 (6.7) 21,401 (2.6)

Annual average (%)(2010~2015)

0.9 1.5 1.2 -2.3 -4.2

<TableⅡ-8> Outlook on oil demand (2010~2015)


gradually rise to reach 57.2% of total oil demand in 2015. Within the industrial

sector, petroleum products for non-energy are forecast to lead a rise in demand.

- The transport sector is forecast to mark an annual average increase rate of 1.2%

during the forecast period. It is projected that consumption of gasoline and jet fuel

will rise quickly in tandem with an increase in automobile sales and overseas travel,

triggered by a rise in income levels. Demand for LPG, which is relatively affordable

due to a rise in oil prices, is expected to witness steady growth. The share of

primary oil demand taken up by the transport sector during the forecast period is

projected to indicate an upward trend, and maintain the 33% range.

- The residential/commercial/public sector is projected to record an annual average

decrease of 2.3% owing to accelerated heating fuel replacement due to high oil prices.

- In the transformation sector, oil demand for power generation is forecast to record

an annual average decrease of 4.2% as a result of increased roles of LNG power

generation. The share of oil demand taken up by the transformation sector will likely

drop to 2.6%.



[DiagramⅡ-13] Outlook on demand by sector (2010~2015)

(Unit: 1,000 barrels. %)


Demand outlook per key product

- Gasoline will likely indicate a temporary drop in 2011 owing to high oil prices and

base effects but is expected to steadily rise. It is forecast to post annual average

growth of 1.1% during the forecast period.

- Diesel for transport is projected to post an annual average increase of a mere 0.9%,

attributable to a slowdown in the level of increase in freight and personal transport,

despite economic growth.

- Kerosene and diesel, excluding diesel for transport, is projected to witness an

annual average drop of 2.5% in tandem with decreased roles as energy sources for

heating. Heavy oil is forecast to mark an annual average decrease rate of 2.2%

during the forecast period, triggered by a continuous downward trend in demand,

mainly in the commercial sector, despite a rise in demand for transport.

- LPG is forecast to post an annual average increase of no more than 0.4% during



[DiagramⅡ-14] Outlook on share taken up by each sector (2010~2015)


the forecast period. Demand for naphtha replacement temporarily soared but will

likely recover to the previous level amid continued rise in demand for transport and

continued drop in demand for heating and cooking.

- Profit structure improvements and increased production are forecast for the

domestic petrochemical industry in tandem with a delay in the new construction

and expansion of facilities in the Middle East and China. However, China, which

accounts for more than half of Korea’s petrochemical industry exports, is changing

its economic policy to focus on stability rather than growth. In addition, recovery of

ethylene demand in Europe and the US is taking place at a slow pace. Such

uncertainties in relation to demand is leading to forecasts that the naphtha demand

increase rate will record an annual average 1.9% which is a substantial drop from

before.

Notes: Values in parentheses refer to the share of primary oil consumption occupied by each category (%)



(Unit: 1,000 barrels)

Year Gasoline Diesel fortransport

Keroseneand diesel Heavy oil LPG Naphtha

201068,925 104,848 59,215 65,548 105,170 331,674 (8.7) (13.2) (7.5) (8.3) (13.2) (41.7)

201168,794 105,384 56,592 62,411 104,439 340,675 (8.6) (13.1) (7.1) (7.8) (13.0) (42.5)

201270,512 106,750 54,829 62,084 105,346 348,802 (8.7) (13.2) (6.8) (7.7) (13.0) (43.0)

201371,579 108,032 53,866 60,544 106,098 356,494 (8.7) (13.2) (6.6) (7.4) (12.9) (43.4)

201472,297 108,695 52,990 58,353 106,796 361,715 (8.7) (13.1) (6.4) (7.1) (12.9) (43.7)

201572,661 109,535 52,046 58,530 107,365 364,980 (8.7) (13.2) (6.2) (7.0) (12.9) (43.8)

Annual average (%)(2010~2015)

1.1 0.9 -2.5 -2.2 0.4 1.9

<TableⅡ-9> Outlook on key petroleum product demand (2010~2015)




[DiagramⅡ-15] Consumption trends and outlook for each key petroleum product (2010-2015)



Based on the assumption that the potential economic growth is expected to preserve

after 2010, electricity consumption is forecast to indicate an annual average increase of

4.9% from 434 TWh in 2010 to 551 TWh in 2015.

In 2011, electricity demand is projected to record sound year-on-year growth of

5.3%, with consumption for industrial use leading the increase. This is despite a

slowdown in economic growth (6.1% → 4.5%) and base effects from a sharp rise in

consumption in the previous year (10.1%).

If economic growth is maintained at the potential growth rate level (low and mid 4%

range) after 2012, the rate of increase in electricity demand is projected to steadily

slow down from the 5~6% range to the low 4% range.


Electricity demand by sector

Electricity demand for industrial use is forecast to indicate the quickest growth of an

annual average 5.4% from 2010 through 2015. This is a result of an assumption

made that there will be steady growth in electricity intensive industries such as



Electricity demand outlook5

(Unit: TWh, %)

CategoryAnnual averagechange rate

(%)2010p 2011 2012 2013 2014 2015

Residential61.2 63.2 65.8 68.2 70.4 72.6

3.5 (6.2) (3.3) (4.1) (3.6) (3.3) (3.1)

Commercial149.8 156.2 164.6 172.5 180.4 188.2

4.7 (7.7) (4.3) (5.3) (4.8) (4.6) (4.3)

Industrial223.2 237.7 251.1 264.0 276.9 289.6

5.4(12.9) (6.5) (5.6) (5.1) (4.9) (4.6)

Total434.2 457.2 481.5 504.7 527.7 550.5

4.9(10.1) (5.3) (5.3) (4.8) (4.6) (4.3)

<TableⅡ-10> Mid-term outlook on electricity demand (2010~2015)


fabricated metal and steel making according to continued favorable conditions in the

economy.

Electricity demand for commercial use is projected to post comparatively high growth

of an annual average 4.7% during the forecast period, owing to a steady rise in both

electricity demand for cooling and heating.

- Late-night electricity for commercial use indicated high growth in the 2000s. The

enforcement of relevant regulations in 2006 made new entries impossible. This is

why it is difficult to expect an increase in the sector.

- However, continually high oil prices since the mid-2000s made electricity-based

heating costs more affordable than other heating methods. This, and the fact that

using electricity is convenient, result in forecasts of continuous growth.

Electricity demand for residential use is projected to record an annual average

increase rate of between 3 and 4% during the forecast period, attributable to a

steady rise in demand for cooling and heating as well as increased size and

propagation of home appliances, despite a small increase in population (annual

average of 0.2%).



[DiagramⅡ-16] Outlook on rate of increase in electricity demand by sector

(Unit: %)


Consumption structure by sector

The share occupied by electricity demand for industrial use was 51.4% in 2010 but is

forecast to go up to the 52% range in 2011 and indicate gradual growth up until

2015.

The share taken up by electricity demand for residential use is projected to steadily

drop from 14.1% in 2010 to 13.2% in 2015.

The share accounted for by electricity demand for commercial use stood at 34.5% in

2010. It is forecast to steadily maintain the low 34% range during the forecast period.

Electricity is an energy source that tends to expedite a rise in primary energy by

triggering transformation loss in the production process.

- First of all, to ensure efficiency in electricity demand, there is a need to make

electricity charge levels realistic. Current electricity charge levels trigger excessive

consumption (especially for heating purposes).

- A rise in electricity consumption for industrial activities is unavoidable since it is a

result of an increase in production activities. Consumption for residential use takes

up only a small percentage of primary electricity demand and its upward trend is



[DiagramⅡ-17] Outlook on share of electricity demand by sector

(Unit: %)


slowing down to a stable level.

- As such, a sector where there is much potential to bring down electricity demand is

buildings (buildings used for industrial purposes, large buildings used by the

commercial/service industries and by the public sector, etc.). There is a need to

regulate excessive cooling and heating, improve efficiency of lighting fixtures, and

continually adopt electricity-saving building management systems.




A. Outlook on LNG demand

LNG demand posted high year-on-year growth of 22.6% in 2010 together with the

economic recovery. It is forecast to continue stable growth of an annual average 5.6%

from 2010 through 2015 in tandem with a slowdown in the rate of increase in demand

for power generation.

Demand for town gas is projected to indicate a sound annual average increase rate

of 4.7% from 2010 through 2015.

- LNG demand for town gas is forecast to stably rise as a result of continued

increase in demand for industrial use, which indicated high growth in 2010, and a

policy on expanding supply of town gas to areas where it is currently not supplied. It

is projected to reach 22.1 million tons in 2015.

In 2010, LNG demand for power generation skyrocketed owing to a sharp rise in

electricity demand and zero expansion of base power generation facilities. Expansion

of base power generation facilities is planned for the forecast period. For this reason,

Notes: p refers to tentative figures. Values in parentheses are the year-on-year growth rate (%). The figures for powergeneration include the volume for district heating. LNG refers to the total volume of primary energy including internalconsumption.



LNG and town gas demand outlook6

(Unit: 1,000 tons)


2010p 2011 2012 2013 2014 2015

For town 17,611 18,505 19,308 20,303 21,253 22,116 4.7%

gas (12.6) (5.1%) (4.3%) (5.2%) (4.7%) (4.1%)

For power 14,150 16,624 18,417 20,011 21,172 19,580 6.7%

generation (38.3) (17.5%) (10.8%) (8.7%) (5.8%) (-7.5%)

LNG31,971 35,375 37,989 40.575 42,688 41,946

5.6%(22.6) (10.6%) (7.4%) (6.8%) (5.2%) (-1.7%)

<TableⅡ-11> Outlook on LNG demand


the rate of increase in LNG demand for power generation is projected to slow down.

The expansion of a large bituminous coal-based power generation facility will likely

lead to a drop in 2015.

- However, expansion of new base power generation facilities has its limits. LNG is

expected to continue to perform a critical role as a power generation source used

to handle peak load. LNG demand for power generation is forecast to record

annual average growth of 6.7% during the forecast period.

Notes: p refers to tentative figures; the LNG total includes internal consumption

In terms of an outlook on the share of LNG demand taken up by different uses, the

share occupied by demand for town gas is projected to slightly decrease, while that

accounted for by demand for power generation is forecast to rise.

Demand for power generation accounted for 44.3% in 2010 as a result of a sharp

rise in electricity demand. It is forecast to account for 46.7% of overall LNG demand

in 2015 as the rate of increase in the adoption of base power generation facilities

slows down.



[DiagramⅡ-18] Outlook on demand by LNG use

(Unit: 1,000 tons)


The share occupied by LNG for town gas is forecast to drop from 55.1% in 2010 to

52.7% in 2015 as propagation of town gas reaches the state of saturation, despite

the implementation of a policy to supply town gas to areas where it is currently not

supplied.

B. Outlook on town gas demand

In 2010, town gas demand recorded high year-on-year growth of 11.6%, attributable

to the economic recovery and abnormal temperatures. Town gas demand is forecast

to continue stable growth of an annual average 4.6% during the forecast period to

reach 26,260,000m3 in 2015, as a result of a continuous rise in demand for industrial

use and the government’s policy on expanding supply of town gas to areas to which it

is currently not supplied.

Town gas demand for industrial use is forecast to lead an overall rise in town gas

demand as a result of a rise in the number of customers in the industrial sector. This,



[DiagramⅡ-19] Outlook on share of LNG demand taken up by different uses


in turn, is a result of the steady replacement of B-C oil, which was used to a great

degree in industrial processes, by town gas, triggered by skyrocketing oil prices.

- Town gas consumption for industrial use presumably reached 6.9 million m3 in

2010. It is projected to record an annual average increase rate of 5.9% to reach 9.2

million m3 in 2015 as economic growth is expected.

Notes: p refers to tentative figures. The town gas total includes the volume for transport and co-generation.

Town gas demand for residential use and commercial use reached a state of

saturation in terms of the number of customers, mainly in large cities. Town gas

demand for residential use and commercial use is forecast to indicate continuous

growth of an annual average 2.9% and 4.1%, respectively, owing to the government’s

plan on supplying town gas to new areas.

- Town gas demand for residential use is projected to reach 10,719 thousand m3 and

town gas demand for commercial use is forecast to stand at 4,525 thousand m3 in 2015.

- According to the ‘10th Long-term Natural Gas Supply Plan’, the government plans

to extend pipelines, by 2016, to reach areas that were previously excluded from

town gas supply due to insufficient economic feasibility. The goal is to enhance

fairness in terms of energy and to stabilize the lives of the vulnerable class in

regional areas.



(Unit: 1,000 m3)


2010p 2011 2012 2013 2014 2015

Residential9,302 9,461 9,737 10,105 10,435 10,719

(2.9)(4.8) (1.7) (2.9) (3.8) (3.3) (2.7)

Commercial3,693 3,788 3,920 4,134 4,339 4,525

(4.1)(8.5) (2.6) (3.5) (5.5) (5.0) (4.3)

Industry6,905 7,456 7,973 8,428 8,848 9,218

(5.9)(23.6) (8.0) (6.9) (5.7) (5.0) (4.2)

Total20,960 21,908 22,980 24,162 25,267 26,260

(4.6)(11.6) (4.5) (4.9) (5.1) (4.6) (3.9)

<TableⅡ-12> Outlook on town gas demand


Notes: The outlook on the rate of increase in the number of customers is based on data released by the Korea City GasAssociation (2010 City Gas Business Guide)



Category Year 2011~2013 Year 2014~2016 Construction of newtransmission lines

Yeongdong, Danyang, Goesan, Geumsan, Central Okcheon, Boeun, Buyeo, Sokcho, Goseong, Goseong, Jeongseon, region Gangneung, Taebaek, Yangyang, Donghae, Pyeongchang 299km

Samcheok

Yeongnam Sangju, Mungyeong, Yecheon, Yeongdeok Seongju, Goryeong,

region Geoje, Geochang, Cheongdo, Hamyang, Uiryeong, Bonghwa, 274kmHadong, Changnyeong, Andong, Yeongju, Uljin Uiseong, Gunwi

Jangseong, Namwon, Buan, Muju, Hampyeong, Imsil,Honam Yeonggwang, Damyang, Haenam, Gochang, Moseong, Jangheung, 285kmregion Gokseong, Sunchang Gangjin, Gurye,

Goheung, Jinan

Sub-total 37 areas 17 areas 858km

<TableⅡ-13> Areas planned to be supplied with town gas

[DiagramⅡ-20] Outlook on town gas demand by use

(Unit: 1,000 m3)


Accordingly, supply pipelines that spanned 2,853km in 2010 will be extended to

4,200km by 2016, resulting in the supply of town gas to an additional 54 areas.

In terms of the demand structure of each town gas use, the share taken up by

demand for residential use is projected to slightly go down, while that by demand for

industrial use and demand for transport is forecast to increase.

Demand for residential use accounted for the highest share at 44.4% in 2010. It is

forecast to somewhat go down to 40.8% in 2015, but will likely continue to take up

the highest share of town gas demand.

The share accounted for by demand for industrial use, which is expected to indicate

the highest growth during the forecast period, is forecast to go up from 32.9% in

2010 to 35.1% in 2015.

The share occupied by demand for transport is forecast to slightly go up from 5.1%

in 2010 to 6.8% in 2015 as a result of continuous implementation of CNG bus

propagation projects by local governments.



[DiagramⅡ-21] Outlook on town gas demand occupied by different uses


A. Outlook on coal demand

Coal demand is forecast to indicate annual average growth of 3.1% during the forecast

period to reach 139.4 million tons in 2015.

The rate of increase in coal demand for industrial use is projected to slow down to a

certain degree as it is assumed that economic growth will be witnessed during the

forecast period. However, it is projected that coal demand for industrial use will go

up, mainly for power generation, as a result of a new coal power plant that will launch

operation in 2014.

Anthracite demand will likely record a low annual average increase rate of 1.5%

during the forecast period. It is forecast that 10,883,000 tons will be consumed in




Coal and other energy demand outlook7

(Unit: 1,000 tons)


2010p 2011 2012 2013 2014 2015

Anthracite10,105 10,464 10,729 10,886 10,976 10,883

(1.5)(3.4) (3.6) (2.5) (1.5) (0.8) (-0.8)

Bituminous 109,413 111,932 113,088 114,043 117,258 128,557(3.3)coal (11.0) (2.3) (1.0) (0.8) (2.8) (9.6)

Total119,517 122,396 123,817 124,929 128,235 139,441

(3.1)(10.3) (2.4) (1.2) (0.9) (2.6) (8.7)

For power 78,291 78,671 78,696 78,704 81,389 92,422(3.4)generation (12.3) (0.5) (0.0) (0.0) (3.4) (13.6)

For industrial 39,366 41,816 43,191 44,268 44,864 45,009 (2.7)use (15.8) (6.2) (3.3) (2.5) (1.3) (0.3)

For residential/ 1,860 1,909 1,930 1,957 1,982 2,010 (1.6)commercial use (-4.2) (2.6) (1.1) (1.4) (1.3) (1.4)

<TableⅡ-14> Outlook on coal demand by source and by use


2015. Bituminous coal consumption, mainly for power generation, is forecast to

record annual average growth of 3.3% to reach 128.6 million tons in 2015.

It is projected that there won’t be great change in the share of coal demand taken up

by different uses during the forecast period.

The share occupied by consumption for power generation is forecast to slightly go

down in tandem with a rise in consumption for industrial use until 2013. However, the

share accounted for by demand for power generation will likely go up once a new

power generation facility is adopted in 2014. The percentage recorded in 2010 will

likely be recovered in 2015.

Regarding anthracite demand per use during the forecast period, the

residential/commercial sector is forecast to record annual average growth of 1.6%.

Demand for industrial use is projected to post an annual average increase rate of

1.4%. Demand for power generation will likely post annual average growth of 2.2%.

According to the government’s ‘long-term coal industry plan (2011~2015)’, prices of



[DiagramⅡ-22] Outlook on coal demand by source(Unit: 1,000 tons)


briquettes for civilian demand are forecast to go up while subsidies will likely go

down. Accordingly, anthracite demand for residential/commercial use is projected to

shrink to remain at 2,010 thousand tons in 2015.

The rate of increase in anthracite demand for industrial use is forecast to continually

slow down to record 7,939 thousand tons in 2015, a year-on-year drop of 1.6%.




[DiagramⅡ-23] Outlook on coal demand by different uses

(Unit: 1,000 tons)


2010p 2011 2012 2013 2014 2015

Residential/ 1,860 1,909 1,930 1,957 1,982 2,010 (1.6)commercial (4.2) (2.6) (1.1) (1.4) (1.3) (1.4)

Industry7,406 7,678 7,900 8,015 8,069 7,939

(1.4)(14.4) (3.7) (2.9) (1.5) (0.7) (-1.6)

Power 839 877 899 914 925 934 (2.2)generation (-53.4) (4.5) (2.5) (1.7) (1.2) (1.0)

Anthracite10,105 10,464 10,729 10,886 10,976 10,883

(1.5)(-1.1) (3.6) (2.5) (1.5) (0.8) (-0.8)

<TableⅡ-15> Outlook on anthracite demand per use


According to the ‘long-term coal industry plan’, anthracite consumption for power

generation will be restrained and anthracite will be reserved for civilian demand. As

such, the rate of increase in demand for power generation will substantially slow

down. Demand will remain at 934,000 tons in 2015.

Regarding bituminous coal demand by use during the forecast period, bituminous coal

demand in the steel making industry is projected to record annual average growth of

3.9%. Demand in the cement industry is forecast to post a drop of an annual average

3.3%. Bituminous coal demand in other industries will likely go up by an annual

average 3.4%. Bituminous coal demand for power generation is projected to mark an

annual average increase rate of 2.7%.

Bituminous coal consumption for steel making indicated year-on-year growth of

22.6% in 2010, together with the economic recovery and new facility expansion.



[DiagramⅡ-24] Outlook on anthracite demand per use(Unit: 1,000 tons)


Starting from 2011, it is forecast to record an annual average increase of 3.9% to

reach 30.7 million tons in 2015, as favorable conditions in the steel demand

industries, including the shipbuilding industry, and an increase in production facilities

are expected.

- Operation of blast furnace No. 1 and No. 2 of Hyundai Steel will be fully launched in

2010 and 2011. In 2011, a new steelmaking plant of POSCO (annual production of

3 million tons) and blast furnace No. 3 of Hyundai Steel (annual production of 4

million tons) will be completely built in 2011. It is projected that electric steel

production will reach approximately 39.7 million tons in 20116).

Bituminous coal demand in the cement industry is forecast to post an annual average

decrease of 3.3% to go down from 4,059,000 tons in 2010 to 3.4 million tons in 2015.

- Plans have been drawn up to build an innovative city and Sejong City during the

forecast period, but sluggishness in the cement industry is projected to continue as

a result of continued stagnation in the overall construction and civil engineering

industries and the saturation of cement inventory.

Bituminous coal demand for other industries is projected to continue sound growth

of an annual average 3.4% as economic growth is expected. It will likely go up from

2,477 thousand tons in 2010 to 2,924 thousand tons in 2015.

Bituminous coal demand for power generation is forecast to remain stagnant up until

2013 since no new facilities will be built. However, it is forecast to recover an upward

trend in 2014, when coal-fired steam power plants are built.

- Despite forecasts of increased electricity demand from 2011 through 2013,

bituminous coal demand for power generation is projected to maintain a certain level

since there are no plans to expand bituminous coal-based power generation facilities.

- It is forecast to recover an upward trend after 2014 as a result of the planned

construction of new coal-fired steam power plants such as Yeongheung Thermal

Power Generation Plant and a privately financed power plant in Donghae (STX).



6) ‘Outlook on supply and demand for 2011’, Korea Iron & Steel Association (http://steeldata.kosa.or.kr)





(Unit: 1,000 tons)


2010p 2011 2012 2013 2014 2015

Steel 25,424 27,595 28,703 29,562 30,338 30,716(3.9)making (22.6) (8.5) (4.0) (3.0) (2.6) (1.2)

Cement4,059 3,909 3,859 3,776 3,580 3,430

(-3.3)(2.6) (-3.7) (-1.3) (-2.2) (-5.2) (-4.2)

Other 2,477 2,634 2,729 2,915 2,877 2,924(3.4)industries (0.7) (6.3) (3.6) (6.8) (-1.3) (1.6)

Power 77,452 77,794 77,797 77,790 80,463 91,487 (3.4)generation (8.8) (0.4) (0.0) (0.0) (3.4) (13.7)

Bituminous 109,413 111,932 113,088 114,043 117,258 128,557 (3.3)coal (11.0) (2.3) (1.0) (0.8) (2.8) (9.6)

<TableⅡ-16> Outlook on bituminous coal demand per use

[DiagramⅡ-25] Outlook on bituminous coal demand per use(Unit: 1,000 tons)


B. Outlook on thermal energy and new & renewable/other energy demand

Thermal energy is forecast to continue annual average growth of 2.4% during the

forecast period owing to increased demand for district heating by public organizations

as well as new collective housing areas. A total of 1,931 thousand TOE is projected to

be consumed in 2015.

New & renewable energy and other energy will likely indicate high growth, mainly in the

public sector, as a result of the government’s active policy on increased propagation

of new & renewable energy.

Consumption of new & renewable energy and other energy stood at 5,835,000 TOE

in 2010. It is forecast to post an annual average rise of 11.6% to reach 10.1 million

TOE in 2015.




(Unit: 1,000 TOE)


2010p 2011 2012 2013 2014 2015

Thermal 1,718 1,748 1,792 1,821 1,876 1,931 (2.4)energy (10.8) (1.8) (2.5) (1.6) (3.0) (2.9)

New & renewable 5,835 6,419 7,291 8,166 9,101 10,119energy and (12.0) (10.0) (13.6) (12.0) (11.4) (11.2) (11.6)other energy

<TableⅡ-17> Outlook on thermal energy, new & renewable energy, and other energy demand




[DiagramⅡ-26] Outlook on thermal energy, new & renewable energy, and other energy demand(Unit: 1,000 TOE)


ChapterⅢEnergy Demand Outlook

Based on Scenarios

1. Economic growth scenarios

2. Primary energy demand by scenario

3. Final energy demand by scenario


Need for scenario-based outlook

Energy consumption has sensitively responded to unexpected changes in economic

conditions such as the Asian financial crisis in 1998 and great fluctuations in

international oil prices since the mid-2000s.

- Korea especially has an economic structure that is highly dependent on overseas

countries. For this reason, the country is relatively highly influenced by global

business fluctuations.

- As such, there is a growing need to provide more diverse energy demand forecasts

that consider uncertainties in future economic conditions.

In consideration of uncertainties in the energy market such as changes in international

oil prices and the global economic environment, this report sets a baseline scenario

as well as a high and a low economic growth scenarios and provides an energy

demand outlook for each scenario.

Setting of economic growth scenarios

The 2011 growth rate (4.5%) of the baseline is based on a forecast made by the

Bank of Korea (in December 2010). The growth rates starting from 2012 are based

on the assumptions made in the 「(Draft) 2nd Basic National Energy Plan」.

The high and low growth scenarios for 2011 were set within the ±0.5p% range of

the baseline scenario. They are based on forecasts made by the government and

economic forecast organizations in Korea and abroad.

Regarding the economic growth scenarios for 2012 and onwards, ±1.0%p was

applied to the growth rate of the baseline in consideration of the fact that there is

greater economic uncertainty.

In case of baseline, the economic growth rate is expected to record an annual

average 4.3% from 2010 through 2015. This figure is 5.2% in case of the high

growth scenario and 3.4% in case of the low growth scenario.

ChapterⅢ Energy Demand Outlook Based on Scenarios


Economic growth scenarios1


Notes: p refers to tentative figures; values in parentheses refer to the year-on-year growth rate (%)



(Unit: Trillion won)


2010p 1,040 (6.1) 1,040 (6.1) 1,040 (6.1)

2011 1,086 (4.5) 1,091 (5.0) 1,081 (4.0)

2012 1,134 (4.4) 1,150 (5.4) 1,118 (3.4)

2013 1,183 (4.3) 1,211 (5.3) 1,155 (3.3)

2014 1,232 (4.2) 1,274 (5.2) 1,191 (3.2)

2015 1,284 (4.2) 1,340 (5.2) 1,230 (3.2)


<TableⅢ-1> Economic growth scenarios

[DiagramⅢ-1] Outlook on GDP per scenario

(Unit: 1 trillion won)


Outlook on primary energy demand for each scenario

Primary energy demand of baseline is forecast to record an annual average rise of

3.3% during the forecast period (2010~2015) and reach 307.1 million TOE in 2015.

In case of the high growth scenario, primary energy demand is forecast to post an

annual average increase rate of 4.1%, which is 0.8%p higher than the baseline. In

case of the low growth scenario, the rate of increase in demand is projected to be an

annual average of 2.5%.

- Primary energy demand in 2015 is 1.18 times the 2010 level in case of 1.22 times

in case of the high growth scenario, and 1.13 times in case of the low growth

scenario.




Primary energy demand by scenario2



2010p 261.2 (7.3) 261.2 (7.3) 261.2 (7.3)

2011 270.8 (3.7) 271.6 (4.0) 269.7 (3.3)

2012 280.1 (3.4) 283.0 (4.2) 277.3 (2.8)

2013 289.0 (3.2) 294.6 (4.1) 283.6 (2.3)

2014 298.0 (3.1) 306.5 (4.0) 290.1 (2.3)

2015 307.1 (3.0) 318.9 (4.0) 295.9 (2.0)

Annual averageimprovement rate (%) 3.3 4.1 2.5

(2010~2015)

<TableⅢ-2> Outlook on primary energy demand by scenario


Outlook on energy intensity

In case of energy intensity is projected to indicate an improvement of an annual

average 1.0% during the forecast period. It will likely improve from 0.251 (1 million

won/TOE) in 2010 to 0.239 in 2011.

The energy intensity improvement rate is forecast to be an annual average 1.1% in

case of the high growth scenario and -0.9% in case of the low growth scenario. It is



[DiagramⅢ-2] Comparison among scenarios in terms of primary energy demand outlook


(Unit: TOE/1 million won)


2010p 0.251 0.251 0.251

2011 0.249 0.249 0.250

2012 0.247 0.246 0.248

2013 0.244 0.243 0.246

2014 0.242 0.241 0.243

2015 0.239 0.238 0.241

Annual averageimprovement rate (%) -0.98 -1.08 -0.85

(2010~2015)

<TableⅢ-3> Outlook on energy intensity by scenario


forecast that energy intensity will further drop as economic growth takes place more

quickly.

In general, energy intensity improves relatively quickly in a high growth scenario and

improves slowly in a low growth scenario.

- Unless unusual economic conditions such as those witnessed in 1998 occur again,

demand for energy needed for basic national economic activities does not

decrease in proportion to a low rise in national income.

- Major manufacturing industries that consume great amounts of energy such as the

oil/chemical, steel making, and assembled metal industries are continuing relatively

stable growth. They take up a high share of the Korean economy.

- For this reason, there is a high possibility that changes in the rate of increase in

energy demand will show an inflexible response to a drop in the economic growth

rate in case of the low growth scenario.

- Even if the economy were to achieve high growth, basic energy demand will not

grow proportionately, and there is a high possibility that low energy consuming

industries such as the service industry will take up a higher share of the economy.

As such, the energy demand increase rate is projected to be lower than the

economic growth rate.

Consumption structure of each primary energy source by scenario

The share of primary energy taken up by LNG and new & renewable energy is

forecast to grow in case of the high growth scenario, and drop in case of the low

growth scenario.

- Base power generation facilities such as those for bituminous coal and nuclear

power require a long construction period. It is therefore assumed that there will be

no change during the five-year mid-term forecast period, irrespective of the

economic growth scenario.

- LNG, which handles peak load, indicates an increase in the facility usage rate to

satisfy rising electricity demand in the high growth scenario since there will be no

change in the base power generation capacity. In contrast, it indicates a decrease




in the facility usage ratio in the low growth scenario.

- In the high growth scenario, replacement of oil for fuel by town gas takes place

more quickly. This is forecast to influence a rise in the share taken up by LNG.

- The share taken up by new & renewable energy is projected to slightly go up in the

high growth scenario since relevant investments will more actively take place as

economic growth quickly progresses. In contrast, the share accounted for by new

& renewable energy will likely drop due to poor investments in case of a decrease in

the economic growth rate.

On the contrary, the share occupied by oil, coal, and nuclear energy is projected to

go down in case of the high growth scenario, and go up in case of the low growth

scenario.

- The LNG share substantially changes among the economic growth scenarios. This

influences the share taken up by oil. In the high growth scenario, the share

accounted for by oil is projected to stand at 35.1%, which is 0.3%p lower than the

standard scenario. In the low growth scenario, it is forecast to record 35.6%, which

is 0.2%p higher than the standard scenario.

- The share accounted for by coal is projected to stand at 28.4%, which is 0.5%p

lower than the standard scenario, in case of the high growth scenario, and at

29.5%, which is 0.6%p higher than the standard scenario, in case of the low

growth scenario. This is because of relative influence from changes in LNG share as

well as the fact that demand for bituminous coal, a base power generation source,

is not much influenced by fluctuations in electricity demand among the growth

scenarios.

- Nuclear energy also makes up base load, and therefore its demand does not

sensitively respond to changes in the economic growth rate. The share taken up by

nuclear energy drops 0.5%p in the high growth scenario and increases 0.4%p in

the low growth scenario.




Key energy demand outlook per scenario

There is not much difference in the demand forecasts among scenarios in terms of

coal and nuclear energy. However, there is a comparatively big difference in terms of

LNG and oil.

Bituminous coal demand for power generation comprises base load and takes up a

high percentage (65.6% as of 2015) of overall coal demand. For this reason, there

isn’t a big difference in coal demand among the scenarios.



Category Standard scenario High growth scenario Low growth scenario

Anthracite 2.2 2.2 2.2

Bituminous 26.8 26.2 27.4

Oil 35.4 35.1 35.6

LNG 17.8 19.0 16.4

Nuclear energy 14.0 13.5 14.4

Hydro 0.5 0.5 0.5

Other 3.50 3.51 3.49

Total 100.0 100.0 100.0

<TableⅢ-4> Comparison among scenarios in the share of consumption occupied by each energy source (Year 2015)

(Unit: %)

CategoryCoal Oil LNG Nuclear power

Highgrowth

Lowgrowth

Highgrowth

Lowgrowth

Highgrowth

Lowgrowth

Highgrowth

Lowgrowth

2011 0.2 -0.1 0.3 -0.3 0.8 -1.1 0.0 0.0

2012 0.7 -0.5 0.9 -1.0 2.2 -2.0 0.5 -0.5

2013 1.0 -0.9 1.6 -1.6 5.0 -4.7 0.5 -0.5

2014 1.4 -1.2 2.2 -2.2 7.7 -7.0 0.5 -0.5

2015 1.7 -1.5 2.9 -2.9 11.4 -10.8 0.5 -0.5

<TableⅢ-5> Change in demand for key energy sources among scenarios (compared to standard scenario)


- Coal demand is projected to record annual average growth of 3.1% during the

forecast period in case of the standard scenario, 3.5% in case of the high growth

scenario, and 2.8% in case of the low growth scenario.

In terms of oil demand, the share taken up by consumption for raw material use

(naphtha, etc.), which is fixed demand since replacement is not possible, is projected

to steadily increase. However, it sensitively responds to economic growth and

international oil prices in comparison to other energy sources. For this reason, there is

a relatively big difference in forecasts between the standard scenario and other

scenarios.

- The annual average increase rate of the standard scenario is 0.9%, the high growth

scenario, 1.5%, and the low growth scenario, 0.4%.

LNG demand for power generation, which handles peak load, accounts for about

half of total demand. This is why LNG is an energy source that most sensitively

responds to changes in economic growth.



[DiagramⅢ-3] Outlook on coal demand per scenario

(Unit: 1,000 tons)




[DiagramⅢ-4] Outlook on oil demand per scenario


[DiagramⅢ-5] Outlook on LNG demand per scenario

(Unit: 1,000 tons)


- In other words, there are substantial fluctuations in LNG power generation

according to a difference in electricity demand resulting from the speed of

economic growth.

- The rate of increase in LNG demand for the standard scenario is 5.6%, the high

growth scenario, 7.9%, and the low growth scenario, 3.2%. It is projected that

there will be a considerable difference in demand between an upward trend and a

slowdown trend in energy demand.

Nuclear energy, which handles base load, is not greatly influenced by changes in

primary energy demand. The level of power generation is forecast to change slightly

as a result of adjustments to regular maintenance schedules or adjustments to power

generation facility output according to electricity supply/demand.



[DiagramⅢ-6] Outlook on the amount of nuclear power generation by scenario

(Unit: GWh)


Outlook on final energy demand per scenario

Changes in final energy consumption levels among scenarios are similar to primary

energy.

In case of the final energy demand is forecast to mark annual average growth of

2.9% during the forecast period to reach 224.7 million TOE in 2015, which is 1.15

times more than the level recorded in 2010.

The annual average increase rate of final energy demand is projected to be 3.6% in

case of the high growth scenario which is 0.7%p higher than the standard scenario.

Final energy demand in 2015 is forecast to reach 232.9 million TOE, which is around

1.2 times the 2010 level.

In the low growth scenario, the rate of increase in final energy demand is forecast to

record an annual average 2.2%. Demand in 2015 is projected to reach 216.8 million

TOE, which is 1.11 times higher than the 2010 level.




Final energy demand by scenario3



2010p 194.9 (7.0) 194.9 (7.0) 194.9 (7.0)

2011 201.4 (3.4) 202.2 (3.7) 200.7 (3.0)

2012 207.8 (3.2) 209.9 (3.8) 205.6 (2.5)

2013 214.2 (3.1) 218.1 (3.9) 210.2 (2.2)

2014 219.8 (2.6) 225.7 (3.5) 214.0 (1.8)

2015 224.7 (2.2) 232.9 (3.2) 216.8 (1.3)


<TableⅢ-6> Outlook on final energy demand per scenario


Outlook on final energy demand of each sector by scenario

The transport sector indicates the greatest difference among the demand forecasts

of the different scenarios. The residential/commercial and public/other sectors show

the smallest difference.

- The reason for the great difference in demand of the transport sector is because

most of the energy used in this sector is petroleum products. Oil consumption

sensitively responds to changes in economic growth and international oil prices.

- With regards to the residential/commercial and public/other sectors, an essential

energy requirement exists, including basic energy demand in the residential sector,

and the provision of public services such as national defense and administration.

This is why these sectors indicate comparatively small changes in demand based

on economic growth changes.

- There is also a fixed requirement in terms of energy demand in the industrial sector

unless special economic conditions occur. However, industrial activities are

basically sensitive to business fluctuations. As such, energy demand also flexibly

responds to changes in economic growth.



[DiagramⅢ-7] Comparison among scenarios in terms of final energy demand outlook

(Unit: 1 Million TOE)


In terms of the standard scenario, energy demand in the industrial sector is forecast

to indicate annual average growth of 3.3% during the forecast period. Consumption

is projected to reach 135.9 million TOE in 2015. The annual average increase rate is

forecast to be 4.1% in case of the high growth scenario and 2.5% in case of the low

growth scenario.



(Unit: %)

CategoryIndustrial Transportation Residential/commercial/public

High growthscenario

Low growthscenario

High growthscenario

Low growthscenario

High growthscenario

Low growthscenario

2011 0.4 -0.4 0.4 -0.4 0.1 -0.1

2012 1.2 -1.1 1.2 -1.2 0.6 -0.6

2013 2.1 -2.0 2.2 -2.1 0.9 -1.1

2014 3.0 -2.9 3.1 -3.0 1.7 -1.6

2015 3.9 -3.8 4.1 -3.8 2.4 -2.4

<TableⅢ-7> Changes in demand among scenarios in the final consumption sector (compared with the standard scenario)

[DiagramⅢ-8] Outlook on energy demand in the industrial sector by scenario



In case of baseline, demand in the transport sector is forecast to post an annual

average rise of 1.5% during the forecast period. Energy consumption is forecast to

reach 39.5 million TOE in 2015. The annual average increase rate for the high growth

scenario is forecast to be 2.3% and for the low growth scenario 0.7%.

In case of baseline, final energy demand of the residential/commercial and

public/other sectors is forecast to post an annual average rise of 2.8% during the

forecast period. Consumption in 2015 is projected to reach 49.3 million TOE.

- The annual average growth in demand for the high growth scenario is projected to

be 3.3% and for the low growth scenario 2.3%.



[DiagramⅢ-9] Outlook on energy demand in the transport sector by scenario



Outlook on changes in the final energy share occupied by each sector by scenario

Regarding changes in the final energy share accounted for by each sector, the share

of consumption taken up by the industrial sector is projected to rise from the 2010

level in all scenarios.

In contrast, the share of consumption accounted for by the transport sector is

forecast to go down from the 2010 level in all scenarios.

The share occupied by the residential/commercial and public/other sectors maintains

a certain level in the standard scenario. It is projected to go down in the high growth

scenario and go up in the low growth scenario.



[DiagramⅢ-10] Outlook on energy demand in the residential/commercial/public and other sectors by scenario





(Unit: %)

Category

Baseline High growth scenario Low growth scenario

Industry TransportResidential/commercial/

publicIndustry Transport

Residential/commercial/

publicIndustry Transport

Residential/commercial/

public

2010 59.2 18.8 22.0 59.2 18.8 22.0 59.2 18.8 22.0

2011 59.8 18.3 21.9 59.9 18.3 21.8 59.8 18.3 21.9

2012 60.1 18.1 21.8 60.2 18.2 21.7 60.0 18.1 21.9

2013 60.3 17.9 21.8 60.4 18.0 21.6 60.2 17.9 21.9

2014 60.4 17.7 21.8 60.6 17.8 21.6 60.3 17.7 22.1

2015 60.5 17.6 21.9 60.7 17.7 21.7 60.3 17.5 22.2

<TableⅢ-8> Changes in the share of final energy occupied by each sector by scenario

[DiagramⅢ-11] Changes in the share of energy demand accounted for by the industrial sector by scenario




[DiagramⅢ-13] Changes in share of energy demand occupied by the residential/commercial/public sector by scenario

[DiagramⅢ-12] Changes in share of energy demand taken up by the transport sector by scenario


ChapterⅣOutlook Characteristics

and Implications

1. Key characteristics

2. Policy implications


Gradual growth in primary energy demand

The annual average increase rate of primary energy demand is projected to be 3.3%

during the forecast period (2010~2015). This is lower than the assumption made for

the annual average economic growth rate (4.3%).

This is because the Korean economy is entering a phase of stable growth, breaking

away from the high growth trend of the past, and because of a slowdown in the rate

of increase in energy consumption by industries that consume great amounts of

ChapterⅣ Outlook Characteristics and Implications


Key characteristics1

(Unit: Trillion won, constant price of 2005)

Annual averagegrowth rate

(%)Category 2000 2005 2006 2007 2008 2009

Added value of threekey high-consuming 62.6 80.0 81.9 85.5 82.3 79.2 2.6

industries

GDP 694.6 865.2 910.0 956.5 978.5 980.4 3.9

<TableⅣ-1> Trends in GDP and the added value of three key high-consuming industries

[DiagramⅣ-1] Share of GDP taken up by the three energy-intensive industries (%)

Source: Statistics Korea, national statistics portal (KOSIS)


energy and that led a rise in energy demand.

- The share of added value of the three key high-consuming industries, from among

GDP, has been going down since the mid-2000s (8.1% as of 2009).

Notes: 1) Considering that the K-factor changed in 2007, data before 2007 was converted to the changed K-factor forconsistency in energy consumption by business type

2) In terms of anthracite and new & renewable energy/other energy, only overall statistics for the manufacturingindustry are tallied. There are no statistics per business type. For this reason, they have been exempted fromanalysis of consumption.

A rise in domestic energy prices as a result of high oil prices that continued since the

mid-2000s and improvements in energy efficiency are forecast to contribute to the

stabilization of energy demand.

- Dubai oil, which continued to soar since the mid-2000s, recorded a year-on-year

drop of 34% in 2009 but has been sharply going up again afterwards.

- Energy intensity, which indicates the energy efficiency level of the entire economy,

has been steadily improving since the late 1990s.




Businesstype

Annual averageincrease rate

(%)2000 2005 2006 2007 2008 2009 2010

Petro and 35.9 42.9 44.7 49.0 49.2 51.0 52.7 3.9 chemical

Non-metallic 5.4 5.2 5.4 5.5 5.6 4.9 4.8 -1.2mineral

Basic 17.4 18.7 18.8 19.9 21.4 19.2 23.4 3.0metal

Total 58.8 66.8 68.9 74.4 76.2 75.1 80.9 2.8

<TableⅣ-2> Trends in energy consumption by the three energy-intensive industries


Notes: The price for 2011 is an estimate made by the Korea Energy Economics InstituteSource: Oil information network of the Korea National Oil Corporation (www.petronet.co.kr)

Korea Energy Economics Institute, 2011 International Crude Oil Market Condition and Oil Price Outlook, January2011



[DiagramⅣ-2] Trends in Dubai crude oil prices

(Unit: $/bbl)

[DiagramⅣ-3] Energy intensity and GDP elasticity

(Elasticity)(TOE/1 million won)


Continued improvements in energy intensity

Energy intensity (TOE/1 million won) temporarily worsened in 2009 and 2010, but is

forecast to turn around and indicate improvements starting from 2011.

- Year 2009: Primary energy consumption went up 1.1% as a result of completed

construction of facilities that consume great amounts of energy, while economic

growth remained stagnant (0.2%) because of the financial crisis.

- Year 2010: There was a soar in demand for cooling and heating as a result of

abnormal weather and a sharp rise in consumption for industrial use (8.8%)

triggered by favorable conditions in the economy and base effects.

The annual GDP elasticity of primary energy demand posted 1.21 in 2010. It is

forecast to continually go down during the forecast period and stand at around 0.73

in 2015.

Notes: 1) Values in parentheses refer to the rate of increase from the previous year (%); p refers to tentative figures2) Primary energy consumption in 2010 includes the estimated directly-adopted and consumed volume of POSCOand K-POWER


Continued decrease in level of oil dependence

Oil dependence on primary energy reached its peak at 63% in 1994, and then

continued to drop. It was below 50% in 2002, and is projected to decrease even



Annual averageincrease rate

(%)Category 2010p 2011 2012 2013 2014 2015

GDP (Trillion won) 1,040 1,086 1,134 1,183 1,232 1,284 4.3

Primary energy demand(Million TOE) 261.2 270.8 280.1 289.0 298.0 307.1 3.3

Energy intensity(TOE/Million won) 0.251 0.249 0.247 0.244 0.242 0.239 -1.0

GDP elasticity ofenergy consumption 1.21 0.82 0.78 0.74 0.74 0.73 0.763)

<TableⅣ-3> Outlook on key indicators related to energy efficiency


more to between 35 and 36% in 2015.

- The share of primary energy occupied by naphtha, a raw material in the

petrochemical industry, rose from 15.2% in 2005 to 17.0% in 2009. However, it is

forecast to gradually decrease during the forecast period to record the low 15%

range in 2015.

- When excluding naphtha, oil dependence is projected to remain at 20.2% in 2015.

The decrease in the share of consumption accounted for by oil is assessed to be the

result of the government’s continuous oil dependence reduction policies aimed at

achieving energy security.

- Such policies include strengthening of environmental regulations and a project to

build metropolitan area town gas pipelines to bring down oil dependence.

- International oil prices have been soaring since the mid-2000s. This has resulted in

a decrease in oil consumption and further acceleration in replacement of oil for fuel

by other energy sources.

In the final demand sector, including the industrial sector and residential/commercial



[DiagramⅣ-4] Oil dependence trends and outlook

(Unit: %)


and public/other sectors, replacement of oil for energy by town gas and electricity

continued. This trend will likely continue in the future.

- As a result of recent changes in the economic feasibility of energy sources as a

result of high oil prices, oil is being quickly substituted by electricity in the heating

energy market.

A rise in share accounted for by LNG and nuclear energy

LNG is comparatively clean and convenient as a network energy. The share of

primary energy occupied by LNG rose from 13.3% in 2005 to 15.9% in 2010. It is

forecast to go up further to reach approximately 17.8% in 2015.

- The increased share occupied by LNG is a result of a rapid increase in demand for

power generation rather than demand for town gas. The annual average increase

rate of demand for power generation and for town gas is projected to be 6.7% and

4.7%, respectively, from 2010 through 2015.

- Considering the power generation facility expansion plan of the 「5th Electricity

Supply and Demand Plan」, dependence on LNG power generation, which handles



[DiagramⅣ-5] Trends and outlook on the share taken up by LNG and nuclear energy

(Uni: %)


peak load, is projected to rise up until 2014 and drop in 2015 owing to the

operation of a new coal power plant.

The share of primary energy accounted for by nuclear energy, a key base power

generation source, went down from 16.1% in 2005 to 12.1% in 2010 due to sluggish

expansion of facilities. However, it is projected to gradually go up during the forecast

period to reach around 14% in 2015.

- Nuclear power is forecast to post annual average growth in the low 6% range

during the forecast period as new facility expansion is concentrated in the years

2011 through 2014 according to the electricity supply/demand plan.

- Nuclear power plants that will be built during the forecast period will total 6,800MW.

It is projected that there will be a rise from 17,716MW in 2010 to 24,516MW in

2015.

Increased share of final energy accounted for by electricity

The share of final energy taken up by electricity is forecast to rise from 16.7% in 2005

to between 21 and 22% in 2015.

- Electricity consumption recorded annual average growth of 9.8% in the 1990s. It

continued sound growth of an annual average 6.1% in the 2000s as well.

Consumption of electricity, a high-class energy source, is continuing comparatively

high growth even in the 2000s. This is due to several factors.

- The main reason is because the fabricated metal industry (machinery and

equipment, electricity and electronics, semiconductor, automobile, etc.), an industry

that consumes great amounts of electricity, recorded the highest degree of growth

among manufacturing industries.

Average added value increase rate from 2000 through 2010: (Manufacturing industry)

2.8%, (Assembled metal) 5.6%

- Recently, the steel making industry (Hyundai Steel, POSCO, Dongkuk Steel)

launched the operation of facilities that consume great amounts of electricity,

contributing to a rise in electricity consumption.

- Another important factor is the rapid replacement of previous key energy sources -




oil and town gas - by electricity in the energy market for heating, attributable to the

maintenance of an electricity charge that does not reflect production costs and

continued high oil prices.

Electricity is projected to continue to perform leading roles in energy use due to



- Electricity demand is forecast to continue high growth, recording an annual average

in the high 4% range, even after 2010. Growth will be mainly led by demand in the

industrial sector (annual average increase of 5.4%).

An increase in final energy consumption led by the industrial sector

Energy demand in the industrial sector is forecast to indicate sound growth of an

annual average 3.3% if the economic growth rate (assumption of an annual average

4.3%) reaches the potential growth rate level from 2010 through 2015.

- It is projected that energy demand in the industrial sector will show the highest

increase rate during the forecast period. This is because energy demand in the

industrial sector sensitively responds to favorable conditions in the economy.



[DiagramⅣ-6] Trends and outlook on share taken up by each key final energy source

(Unit: %)


The share occupied by the industrial sector maintained the 55 to 56% range up until

the mid-2000s, but gradually went up afterwards and reached 59.2% in 2010. It is

projected to go up further to 60.5% in 2015.

A rise in energy consumption in the industrial sector is the result of production

activities in the economy. This is why it is unavoidable. As such, there is a need to

promote high added-value industries that do not consume much energy in the long

term to ensure efficiency in the nation’s energy consumption.

Primary energy demand in consideration of uncertainties in economic growth

(scenario-based outlook)

Considering uncertainties on the economic environment from 2010 through 2015,

the annual average increase rate of primary energy demand is projected to be in the

2.5 to 4.1% range (annual average economic growth rate of 3.4 to 5.2%).

The energy intensity improvement rate is an annual average 1.1% in case of the high

growth scenario and -0.9% in case of the low growth scenario. It is projected that

energy intensity will further decrease as economic growth progresses quickly.

- In general, energy intensity relatively quickly improves when the economic growth

rate is high. Improvement in energy intensity tends to slow down when the growth



[DiagramⅣ-7] Trend and outlook on share of consumption taken up by the industrial sector

(Unit: %)


rate is low.

The primary energy share taken up by LNG and new & renewable energy goes up in

case of the high growth scenario, while it decreases in the low growth scenario.

- Base power generation facilities such as those for bituminous coal and nuclear

power require a long construction period. It is therefore assumed that there will be

no change during the five-year mid-term forecast period, irrespective of the

economic growth scenario.

- LNG, which handles peak load, indicates an increase in the facility usage rate to

satisfy rising electricity demand in the high growth scenario since there will be no

change in the base power generation capacity. On the other hand, it indicates a

decrease in the facility usage ratio in the low growth scenario.

- The share taken up by new & renewable energy is projected to slightly go up in the

high growth scenario since relevant investments will more actively take place as

economic growth quickly progresses. In contrast, the share accounted for by new

& renewable energy will likely drop due to poor investments in case of a decrease in

the economic growth rate.

On the contrary, the share occupied by oil, coal, and nuclear energy is projected to

go down in case of the high growth scenario, and go up in case of the low growth

scenario.




Urgent need for LNG supply/demand stabilization measures in tandem with increased

uncertainties in the international LNG market

As a result of the earthquake in Japan, operation of most nuclear power plants in

eastern Japan has stopped. Supply of electricity is not expected for a considerable

period.7)

- It is forecast that the damaged nuclear power plants either can’t be operated again

or will require much time to repair. As such, there is a need to maximize use of

existing power plants and build natural gas power plants, whose construction

period is short.

- If the Japanese government covers 40% of the amount of nuclear power

generation that has come to a halt with natural gas power generation, there will be

a need for an additional 4~5 million tons/year of natural gas. This is equivalent to

12.5~15.6% of Korea’s natural gas consumption level in 2010.

There is greater uncertainty in the international LNG market due to a rise in natural

gas demand of Japan. As such, there is a need to carry out a mid-term examination

of the LNG supply/demand status and formulate supply/demand stabilization

measures.

- There probably won’t be any issues in short-term LNG supply/demand. However,

if LNG demand goes up as projected, there is a need to acquire 10.72 million tons

more than the consumed level of 2010 (32 million tons) in 2014.

- There is also the possibility of additional demand for LNG if controversy arises on

whether to continue operation of Wolseong Power Plant Unit No. 1, whose planned

lifespan comes to an end in 2012, and after a re-examination of the nuclear power

plant construction plan.



Policy implications2

7) Korea Energy Economics Institute, Weekly Global Energy Market Insight, Volume 11-3 (March 18, 2011)


- Unstable factors related to international LNG supply/demand may cause additional

burden on the Korean economy, including an increase in energy prices, by raising

import prices in the long term.

If Japan’s nuclear power incident continues to have a long-term effect and major

countries, including Japan, choose LNG power generation as an alternative to

increasing nuclear power generation, there may be substantial changes in the global

natural gas market.

- Germany decided to stop the operation of seven old nuclear power plants that

were built before 1980, and examine their safety for three months. It has not been

decided if the plants will be re-operated after they are examined.

- Switzerland and China are putting off approvals for new power plants.

Need to strengthen electricity demand management and boost efficiency in electricity

use

According to the baseline of this outlook, electricity demand will indicate an annual

average increase rate of 4.9%. Consumption in 2015 is projected to reach 550.5

TWh, which is 1.27 times the level posted in 2010 (434.2 TWh).

- According to the base power generation facility construction plan of the 5th

Electricity Supply and Demand Plan, LNG power generation is projected to perform

important roles in satisfying increasing electricity demand.

Electricity triggers energy loss in transformation sector during the production process,

thus expediting a rise in primary energy demand.

- If the same final energy requirement were to be covered by electricity and not oil or

town gas, this would trigger an additional increase in demand for primary energy

sources (especially LNG for peak load).

- For this reason, even if the final energy demand increase rate is stabilized, there is

increased energy loss for electricity production if the rate of increase in electricity

demand is high, resulting in primary energy rising more quickly than final energy.

- The increased share of final energy taken up by electricity consumption is a result of

electrification of energy consumption, triggered by a rise in income levels and




convenience in use. This tendency is also witnessed in major advanced countries.

- According to data released by OECD/IEA, the share of primary energy

consumption occupied by energy loss is rising most quickly in Korea compared to

other countries. As of 2008, it reached the level recorded by Japan.

Notes: energy loss = Primary energy consumption - Final energy consumptionSource: OECD/IEA, Energy Balances of OECD Countries (2010ed)

It is critical to engage in electricity demand management and to boost efficiency in the

use of electricity to ensure mid-term (2011~2015) stability in energy supply/demand.

- There is a need to actively review the adoption of the EERS (Energy Efficiency

Resource Standard) to strengthen electricity demand management.

- As such, there is a need to encourage an appropriate level of cooling and heating in

buildings (buildings used for industrial purposes, large buildings used by the service

industry and by the public sector, etc.), where there is much potential to reduce

electricity demand. There is also a need to improve efficiency of lighting fixtures by

promoting the ESCO project, and facilitate the adoption of electricity-saving building



[DiagramⅣ-8] Share of primary energy occupied by energy loss in transformation sector

(Unit: %)


management systems.

A rise in electricity used for industrial activities results from a rise in production

activities in the economy, and therefore is unavoidable. Consumption for residential

use only takes up a small share of primary electricity demand. In addition, the upward

trend is slowing down to a stable level.

- In particular, there is a need to adjust the electricity charge to a realistic level to

restrain excessive consumption (especially for heating purposes) in order to

enhance efficiency in electricity consumption.




KKEEEEII Mid-Term Korea EnergyDemand Outlook (Volume 12)

Printed on March 29, 2011

Issued on March 31, 2011

CEO of publisher: Kim Jin-woo

Registration: No. 8 on December 7, 1992

Printed by: Beomshinsa (02)503-8737

ⓒ Korea Energy Economic Institute 2011

437-713, 132 Naeson Beltway, Uiwang City, Gyeonggi Province

Phone: (031)420-2114, Fax: (031)422-4958

Publisher: Korea Energy Economics Institute


KEEI

KEEI


ISSN 1599-9009

March 2011

Volume 12QUARTERLY ENERGY OUTLOOK

Korea Energy Economic Institute132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do

Phone: (031)420-2114

Fax: (031)422-4958

E-mail : [email protected]

Hompage : http://www.keei.re.kr

Korea

Energy

Econom

icInstitute

KE

EI

Mid-Term

KoreaEnergy

Dem

andO

utlook(2010~2015)M

arch2011

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