Korean media: "A crisis combining oil shortages and the Ukraine war is upon us"
This week, the South Korean government implemented intensive supply-demand measures, banning exports of domestically produced naphtha. Fears that the petroleum chemical industry would be forced to halt operations—essentially "shut down" due to raw material shortages—have become reality, prompting emergency government intervention. Just days ago, the government had claimed "supply is not an issue," but quickly reversed its own assessment. The Executive Director of the International Energy Agency (IEA) stated that current conditions are "equivalent to the combined impact of two previous oil crises plus the effects of the Ukraine war," warning that the most severe energy crisis in history may be on the horizon.
If the supply chain for "industrial rice"—naphtha—collapses, major industries across South Korea, including petrochemicals, shipbuilding, steel, and automobiles, will face cascading disruptions. Coatings used for rust protection in shipbuilding and steel production, as well as specialty protective oils, are all derived from naphtha. If rubber for tires and fibers for car seats become difficult to produce, entire automotive manufacturing lines could come to a standstill. Meanwhile, hoarding behavior has emerged in retail markets, with people stockpiling garbage bags, fueling widespread anxiety.
The government must recognize that this energy crisis could turn long-term and activate appropriate response mechanisms. Qatar has indicated that repairs to LNG facilities will take three years and has declared force majeure on supply contracts. This means even if the war ends tomorrow, it will still take considerable time for factories to resume operations at previous levels. Adding to this, shipping insurance premiums and war risk surcharges—based on past precedents—will not immediately drop after the end of hostilities. The fundamental cost structure for imported energy has already risen significantly. Moreover, once naphtha cracking units (NCCs) shut down, restarting them and restoring full operation can take weeks and involve substantial costs.
The government and ruling party must clarify the nature of the KRW 25 trillion (approximately RMB 114.5 billion) supplementary budget currently under consideration. As an "energy crisis remediation budget," funds should be prioritized toward supporting measures that strengthen energy security and secure alternative raw materials for naphtha, rather than broad welfare subsidies. Investment should also focus on energy-saving projects. Additionally, proactive steps must be taken to counter potential price instability driven by rising costs. Nuclear power plant operational rates should be restored as soon as possible, and dependence on LNG should be reduced. At the same time, policies encouraging public transportation use and electricity conservation should be actively explored.
Source: Chosun Ilbo
Original article: toutiao.com/article/1860696643950604/
Disclaimer: The views expressed in this article are those of the author alone.