The fluctuating dynamics of global oil markets, impacted by various geopolitical events, have cast a spotlight on South Korea’s energy trade with Russia. In light of this, a closer analysis of the shifts in this trade relationship becomes essential, particularly given the evolving international sanctions against Russia.

Before Feb. 2022, South Korea’s energy imports from Russia encompassed crude oil, light oils and preparations, liquified natural gas, anthracite and bituminous coal, uranium and wood pellets, totaling $13.2 billion. This figure accounted for less than 10% of South Korea’s overall energy imports, which reached $190 billion by the end of 2022, excluding wood pellets.

As global sanctions against Russia intensified, South Korea adapted its trade policies, aligning with its Western partners. The sanctions included a price cap on Russian oil, a ban on insuring and shipping Russian oil and oil products and restrictions on financial transactions with Russian entities.

Specifically, South Korea prohibited purchasing, importing, or transferring Russian seaborne crude oil and certain petroleum products. However, South Korea is not part of the Price Cap Coalition, which includes Australia, Canada, the European Union, Japan, the U.K. and the U.S. This coalition aims to enforce price caps on Russian oil, set at $60 per barrel for crude oil, $45 for discounted products and $100 for premium petroleum products.

Despite these measures, South Korea’s energy trade with Russia continues, albeit more selectively, with variations depending on the type of energy product.

SHIFTING ENERGY IMPORTS

In 2023, statistics from the Korea International Trade Association indicate South Korea ceased direct oil and oil product imports from Russia.

“It is highly improbable that South Korean businesses would have attempted to circumvent sanctions on Russian oil due to high costs and also because of the potential reputational damage they would incur if they chose to do so,” Robin Park, an experienced oil trader, told Korea Pro.

In contrast, gas imports from Russia displayed a different trend. Despite a reduction in import volumes — from $1.7 billion in 2021 to around $1.5 billion in 2022 and down to $700 million by Sept. 2023 — the fluctuation cannot solely be attributed to sanctions.

An analysis of longer term trends reveals an alternating pattern of high and low import volumes since the ROK began importing Russian gas in 2009. For instance, between 2016 and 2018, a decrease in import value, despite stable physical quantities, indicated price fluctuations as a key factor.

It is projected that South Korea’s total volume of gas imports for 2023 will be the lowest since 2009 — likely influenced by financial complications arising from the inability to use the SWIFT system for transactions with Russia. However, the Korea Gas Corporation (KOGAS) — South Korea’s primary Russian gas importer, has not indicated a reduction in import volumes.

An illustration of gas pipelines | Image: Korea Pro

Coal, another significant component of the ROK’s energy imports from Russia, presented a mixed picture. While Russia remains a key supplier, providing 20 to 30% of South Korea’s total coal imports, the dynamics of this trade have evolved. In 2022, South Korea imported record amounts of anthracite and bituminous coal by value, though not by volume.

The surge in coal prices, driven by global shortages and a reduction in coal mining investments, particularly in China, influenced this trend. In 2023, despite some moderation in prices, South Korea continued to import high volumes of Russian coal, reflecting ongoing demand amid global market conditions.

In 2022, South Korea’s imports of Russian uranium declined, only to rebound significantly in the first nine months of 2023, surpassing the total volume imported throughout the previous year. This shift can be largely attributed to Russia’s prominent role in the uranium market, where its capacity for uranium conversion is unmatched, representing 38% of the global capacity.

The increasing trend in 2023 aligns with the Yoon administration’s decision to boost the contribution of nuclear power to South Korea’s energy mix, targeting a minimum of 30% in the coming years.

On the other end of the spectrum, South Korea’s import of Russian wood pellets has experienced significant growth in 2022 and 2023. The record import levels in the first nine months of 2023 mark a notable shift in trade dynamics. Historically, the EU was the primary market for Russian wood pellets, leaving South Korea as a secondary option due to limited supply capacities and less competitive pricing.

However, the landscape changed drastically after EU sanctions curtailed the import of Russian wood products, leading Russian manufacturers to lose a substantial portion of their market. Consequently, South Korean demand for wood pellets, often viewed as a component of carbon-neutral energy solutions, became more attractive to Russian suppliers.

ROK-RUSSIA ENERGY TRADE PROSPECTS

The persistent nature of sanctions against Russia raises critical questions about the future trajectory of energy cooperation between South Korea and Russia. Under President Yoon Suk-yeol’s administration, the ROK has taken a firm stance against Russian oil and oil products, aligning closely with Western-imposed trade restrictions. This policy reflects Yoon’s value-driven foreign policy approach and seems likely to continue in the foreseeable future.

However, the ROK’s approach to other Russian energy resources is less straightforward and subject to shifts in geopolitical and domestic landscapes.

Although the South Korean government advised local energy companies to curb their reliance on Russian coal and pivot toward Australian and Indonesian sources in September, this transition faces practical challenges. Russian coal remains more competitively priced, and amid fluctuating global energy prices and inflationary pressures, a complete shift away from Russian coal may not be immediately feasible for South Korean companies.

However, a gradual decrease in coal imports is plausible in the longer term as South Korea aims to increase its renewable energy share to at least 30% from the current 7.5%, thereby reducing its coal-generated energy by nearly half.

An illustration of renewable energy sources | Image: Korea Pro

The dynamics are different for gas, particularly from the Sakhalin project. KOGAS, which holds a stake in this project, has shown an unwillingness to divest from the project despite Russian pressure to sell its stake in 2022. This stance, framed as a matter of national energy security by South Korea, indicates that LNG imports from the Sakhalin project, which were renegotiated earlier this year, will likely continue.

Further, South Korea will find it challenging to move away from Russian uranium. With the country’s plans to expand its nuclear energy sector with new reactors scheduled to become operational in the 2030s, a gradual increase in uranium imports from Russia seems likely, despite global calls for diversification.

The wood pellet market, characterized by its volatility and susceptibility to various external factors like weather conditions and global pricing trends, shows a current preference for Russian pellets. Their superior quality and competitive pricing have led to increased imports by South Korea. However, this trend appears more transient than permanent, suggesting a potential shift in future sourcing strategies.

STRATEGIC ENERGY BALANCE

The future of South Korea’s energy trade with Russia will depend greatly on geopolitical trends and economic pragmatism. While South Korea’s adherence to sanctions on Russian oil strongly aligns with Western policies under the Yoon administration, the continued trade in other energy commodities highlights a more nuanced approach.

South Korea’s energy strategy will continue to evolve. The drive toward renewable energy and the potential diversification of energy sources will play a critical role in determining the trajectory of South Korea’s future energy imports. This evolving dynamic reflects the ROK’s strategic balancing act and exemplifies the broader global conundrum where nations must continuously adjust their energy policies.

Edited by John Lee