Korea’s resource developers should boost investment and productivity to ensure stable energy supplies and better cope with price swings, a think tank warned.

Despite a recent upsurge in investment by state-run utilities and trading firms, their competitiveness remains weak compared to with their international peers due to a lack of technological knowhow and experience and passive risk taking, Samsung Economic Research Institute said in a report released last week.

“Korea is in urgent need of its own resources giant to propel its continual economic development and notch up energy security,” said Park Hwan-il, lead author of the report.

“Local steel, electronics, heavy-machinery and chemical companies with an edge in the international markets also need to concentrate their capabilities on energy exploration projects.”

Robust industrial developments in emerging markets in recent years triggered an imbalance between supply and demand for commodities, resulting in price spikes and trade protectionism. Strategically important minerals such as rare earths have also become a source of diplomatic spats.

The volatility of commodity prices increased nearly fourfold in the past 10 years, according to the International Monetary Fund.

Korea’s lack of a major resource developer thus adds to its vulnerability to the volatility of commodity prices, the Seoul-based think tank pointed out.

“Nurturing resource powerhouses is costly but in the long term it will offset the expenses by reducing raw material budgets and better handling price volatility,” Park said in the report.

Spurred by growing financial firepower, Asian countries led by China are rushing to access untapped reserves at home and abroad, seeking a slice of the market long occupied by global powerhouses such as Exxon Mobil, BHP Billiton, Chevron and Rio Tinto.

Since the mid-2000s, Korea’s state-run enterprises have been striving to shake off heavy dependence on imports of resources-deficient Asia’s fourth-largest economy. Korea National Oil Corp., Korea Gas Corp., Korea Resources Corp. and others are launching mining ventures, buying stakes in overseas energy firms and participating in drilling projects in Africa, South America, Australia and other regions.

Meanwhile, private companies including POSCO, STX and Daewoo International have also embraced resource development as a promising income source and means to curb raw material costs.

Korea is the world’s fifth-largest crude buyer and the second-largest importer of liquefied natural gas. It imports nearly all of its oil needs.

“Korea’s growing technological clout, industry-wide search for fresh long-term revenue sources and a rising number of cash-strapped European resource firms combined to provide an optimal set of conditions under which the country can more aggressively participate in the merger and acquisition market,” the report said.

To breach the high-entry-barrier market, Korean companies should incorporate their exploration and development capabilities and secure a foothold primarily in Korea-friendly countries with government diplomatic support, the think tank suggested.

They also reinforce related technologies, devise risk-taking strategies and nurture a workforce of at least 10,000 specialists, it added. 

By Shin Hyon-hee (heeshin@heraldcorp.com)