Korea Energy Demand Outlook - KEEI · Spring / 2016 KEEI Korea Energy Demand Outlook. Published by the Korea Energy Economics Institute (KEEI), Energy Demand Outlook takes a closer

Volume 18, No. 1

ISSN 2093-7199

KOREA ENERGY ECONOMICS INSTITUTE

Spring / 2016

KEEI Korea Energy Demand Outlook

Published by the Korea Energy Economics Institute (KEEI), Energy Demand Outlook takes a

closer look at the global energy market and supply and demand trends in domestic energy

and examines the outlook for short-term energy demand.

This report outlines the recent changes in the supply and demand of energy and provides

important data and policy implications in an effort to contribute to the establishment and

adjustment of a series of energy policies by the government.

This report is written by the Energy Demand and Supply Division of the Center for Energy

Information and Statistics in cooperation with the Energy Statistics Research Division of

KEEI and other related research divisions.

Dr.Kim, Cheol-hyeon (Electricity and Transformation) wrote the report with the participation

and support of Dr.Lee, Seung-moon(Oil and Economy), Mr.Lee, Sang-youl (Coal, Gas, and

Heat), Ms.Kim, Sung-eun, and Ms.Nam, Bo-ra. Also, the report was reviewed carefully by

Dr.Park, Gwang-su (Total Primary Energy and Electricity), Dr.Kim, Soo-il (Economy and

Total Primary Energy), and Dr.Kang, Yoon-young (Total Primary Energy).

If you have any further inquiries, please send an email to [email protected] or

call +82-52-714-2102.

1. Trends in Energy Consumption

Energy Demand Outlook, Spring Issue, 2016 3

Table of Contents

1. Trends of Energy Consumption........................................................................................................ 4

2. Energy Demand Outlook .................................................................................................................. 8

3. Major Features and Significance .................................................................................................... 13

Table

<Table 1> Change in Major Assumptions for Energy Demand Outlook ............................................. 15

Figure

Figure 1. GDP growth, TPED growth, and change in industrial production index ................................ 4

Figure 2. Trends in Growth Rates of TPED ........................................................................................... 5

Figure 3. Trends in Growth Rates of TFC by Sector.............................................................................. 6

Figure 4. Trends and Prospects of GDP, TPED, and TFC Growth .......................................................... 8

Figure 5. Increase in Volume and Rate of Increase in 2015 and 2016 by Total Primary Energy Source ...... 9

Figure 6. Total Primary Energy Sources in 2015 and 2016................................................................. 11

Figure 7. Increase in Volume and Rate of Increase in 2015 and 2016 by Final Total

Consumption and Sector .................................................................................................... 12

Figure 8. Changes in Generation Efficiency and Generation Loss Rate ............................................. 13

Figure 9. Share of TFC Occupied by Electricity and the Difference in Total Primary

Energy and TFC ................................................................................................................... 14

Figure 10. Total Primary Energy Growth Rate and Contribution by Major Energy Source ................ 16

Figure 11. TFC Growth Rate and Contribution by Sector ................................................................... 17


4 KOREA ENERGY ECONOMICS INSTITUTE

1. Trends in Energy Consumption1

□ Total primary energy demand (TPED) in 2015 recorded 285 million toe, increasing by 0.7% year-on-year.

o Although oil consumption increased due to low oil prices, increase in TPED was constrained by stagnant industrial production. - The GDP has shown a moderate increase since the second quarter of 2015, but the index of

industrial production in mining and manufacturing has declined for five consecutive quarters year-on-year, causing TPED in 2015 to remain stagnant.2

- Also, along with the sharp drop in gas-fired electricity generation, the share of new, high-efficiency power plants rose, resulting in an increase in overall efficiency3. Accordingly, the further decline in the energy input for generation is considered to be one of the main factors in the stagnation of TPED in 2015.

- Stagnant industrial production, the amendment of the conversion factors for energy (2012), the strengthened policies for power demand control prompted by the suspension of operations of some nuclear power plants (2011-2013), and the sharp decline in both cooling and heating degree days (2014) have all been found to be major factors behind the slowdown in TPED over the past several years.

- Unlike the continued slowdown in the manufacturing industry since 2012, the service industry, which is relatively less dependent on energy consumption, displayed comparatively moderate growth4, creating a gap between TPED growth and economic growth, compared to the pre-2012 period.

Figure 1. GDP growth, TPED growth, and change in industrial production index

* A year-on-year difference (index) 1 The growth rate of total primary energy and final total consumption by energy source and sector is based on toe. The

following report’s energy trends by source and forecasted growth rate are based on its own inherent unit; thus, a difference with the growth rate of total primary energy and final total consumption can be observed.

2 Growth of TPED has remained at around the zero-percent range for four consecutive years since 2012, with the index of industrial production in mining and manufacturing remaining stagnant.

3 In 2015, gas power generation efficiency recorded 49.0%, increasing by 2.1%p year-on-year. 4 The growth rate of the annual average added value of the manufacturing industry decreased from 6.2% during the period

from 2000 to 2012 to 2.8% during the period from 2012 to 2015, recording a drop of 3.4%p. On the other hand, that of the service industry decreased by 0.9%p, declining from 3.9% to 3.0% during the same period.



o Even with the consistent increase in the consumption of naphtha, the consumption of feedstock energy showed a mere 0.8% increase year-on-year due to a decline in the consumption of coal for iron-making.

- If feedstock energy (non-energy oil and coal for iron-making) is excluded, TPED in 2015 is estimated to have increased by 0.7% year-on-year.

- As feedstock energy and total primary energy show similar upward trends, the share of feedstock energy of total primary energy has stayed at 28.3%, maintaining a level similar to that of last year.

□ Consumption of oil and nuclear power generation has increased rapidly, but the growth of TPED slowed due to decreasing gas consumption.

o In terms of the consumption of petroleum products in 2015, falling oil prices led to a significant increase in consumption in the transport sector and following an accident at a Chinese PX factory, the export of paraxylene (PX) to China increased, thereby steadily increasing the consumption of naphtha to the 4% range.

o Coal consumption for power generation increased with the establishment of Yeongheung Reactor Units 5 and 6 in the second half of 2014, but coal for industrial uses declined based on the consumption of coking coal for iron-making, leading the total coal consumption to maintain the same level as last year.

o Natural gas consumption for power generation decreased dramatically due to the expansion of base load power plants and the consumption of city gas declined drastically due mainly to weakening price competitiveness triggered by low oil prices, resulting in an abrupt drop in terms of natural gas demand in 2015, following 2014.

o With the resumption of operations of Wolsung Reactor Unit 1—which was suspended due to the expiration of its operating license in November 2012 but later granted a 10-year extension—at the end of June 2015, in addition to the establishment of Shin-Wolsung Reactor Unit 2 in July, the amount of energy produced through nuclear power generation increased by about 5%.

o In terms of the share of TPED by source in 2015, oil (38.4%) was the highest, followed by coal (29.6%), gas (15.3%), and nuclear power generation (12.2%).

Figure 2. Trends in Growth Rates of TPED



□ In 2015, total final consumption (TFC) recorded 217.5 million toe, an increase of approximately 1.7% year-on-year, thanks to growing consumption in the transport sector.

o In terms of energy consumption in industry, feedstock energy increased year-on-year, but with the decline of fuel energy, it only increased by a mere 0.1%.

- Consumption of feedstock energy declined year-on-year as the consumption of coal for iron-making has been subsiding due to the diminishing effect of facilities expansions in 2013 and the deteriorating steel economy, but it increased along with the 3% rise in the consumption of naphtha over the past two years.

- On the contrary, consumption of fuel energy decreased by 1.0% due to the stagnation of electricity consumption resulting from the slump in industrial production and drop in gas consumption with low oil prices.

o Energy consumption in the transport sector increased by 6.1% year-on-year as a result of plummeting oil prices, leading to an increase in TFC.

- Because of the Middle East Respiratory Syndrome (MERS) outbreak, consumption in the second quarter remained low, but thanks to increases in vehicle use and the number of registered cars, which was prompted by low oil prices, the consumption of diesel and gasoline increased dramatically. Also, the consumption of jet oil and B-C for navigation skyrocketed due to an increase in the number of domestic flights.

- However, the consumption of LPG in the transport sector showed a declining trend, despite of a drop in LPG price, as the number of LPG vehicles has been on the decline.

o Energy consumption in buildings increased by 3.0%, driven by electricity and oil, due to an increase in cooling degree days (CDD) and low oil prices.

- Consumption of electricity and petroleum in buildings increased by 2.3% and 10.4%, respectively, due to a rise in CDD (4.7%) and low oil prices year-on-year, but gas consumption remained at the same level as the previous year due to low oil prices and the drop in heating degree days (HDD) in the fourth quarter.

Figure 3. Trends in Growth Rates of TFC by Sector

* Buildings include private houses, commercial, and public buildings.



o The declining trend in energy consumption in buildings last year was reversed, experiencing an upward trend due to an increase in air conditioning cooling load. However, the consumption of electricity for industrial uses came to a near standstill, due mainly to the steel industry, showing an only 1.3% increase.

- The growth rate of consumption across the manufacturing industry as a whole remained stagnant. In particular, the suspension of operations of Dongbu Steel’s electric furnace and Dongkuk Steel’s steel plate factory made significant contributions to the decline in electricity consumption in the primary metal industry.

o The share of TFC by energy source in 2015 was led by oil (49.3%), followed by electricity (19.1%), coal (16.0%), and gas (10.2%).

- The electricity share of TFC has been hovering at around the low 19% range since 2010, as the growth rate of electricity consumption has remained stagnant.

- If feedstock energy (non-energy oil and coal for iron-making) is excluded, the share of TFC by energy source is oil (38.3%), electricity (30.5%), gas (16.0%), and coal (6.7%).



2. Energy Demand Outlook

□ In 2016, it is forecasted that the growth of TPED will rise above the zero-percent range with the establishment of new base load power plants.

o Growth of TPED is expected to rise above the zero-percent range, where it has been for four consecutive years, reaching 289.4 million toe—an increase of 1.5% year-on-year—due to a rise in power generation driven by the establishment of new bituminous coal and nuclear power plants and low oil prices

o The domestic demand of TFC is expected to record 221.3 million toe—an increase of about 1.8% year-on-year—thanks to a gradual recovery of the Korean economy and continued low energy prices.

o The recovery of TPED is expected to outpace that of TFC because of the drastic expansion of base load power plants with relatively low power generation efficiency.

- In terms of power generation efficiency in 2015, gas generation (49%) was the highest, followed by nuclear power generation (41%) and bituminous coal (36%).

- As the share of generators with low generation efficiency goes up, the amount of energy used to generate the same amount of electricity is increasing, resulting in the additional growth of TPED.

- If the number of generation facilities remains unchanged from the end of 2015, without the establishment of any new bituminous coal or nuclear power plants, the energy input for generation in 2016 is estimated to decline about 1.9 million toe, resulting in a 0.6%p drop in the growth of TPED.

Figure 4. Trends and Prospects of GDP, TPED, and TFC Growth

□ As energy intensity in 2016 will remain stagnant, per capita energy consumption is projected to increase rapidly.

o The speed of improvement in energy intensity (toe/million KRW) is projected to slow down in line with the narrowing gap between TPED growth and economic growth.



o Per capita energy consumption is expected to reach 5.7 toe—an increase of 1.2% year-on-year—recovering from the nearly zero-percent growth it has experienced since 2011.

□ Oil, coal, and nuclear power generation will spur the growth of energy demand, while the consumption of natural gas will continue to decline.

o In 2016, the growth rate of oil demand will slow year-on-year as the plunging oil prices begin to slow down, but it is expected to remain high with continued low oil prices.

- Due to the prolonged low oil prices, the competitiveness of naphtha cracking centers (NCC), which drives the growing demand for naphtha, along with a rise in the consumption of fuel oil for transport because of increasing road and air traffic are projected to drive a rise in oil demand.

- In particular, the consumption of kerosene for buildings, which has shown a continuous declining trend, and petroleum for power generation is expected to increase year-on-year in 2016, following 2015, due to low oil prices and a rise in power generation merit order.

o Despite the stagnation of coal for industrial uses, demand for coal is projected to increase with a rise in the consumption of coal for power generation.

- By the end of 2016, coal-fired power plants, including Dangjin Units 9 and 10, Bukpyeong Units 1 and 2, and Taean Unit 9—providing a total capacity of 6.7GW—will begin operations, increasing the number of bituminous coal generation facilities by 25%, compared to the end of 2015.

- However, demand for coal for power generation will not increase in share to the growing number of power plants, due to constraints caused by a delay in the installation of transmission lines, a drop in coal generation resulting from the downward adjustment of the maximum output of coal-fired power plants (January 2016),5 and improved efficiency of total coal generation.

Figure 5. Increase in Volume and Rate of Increase in 2015 and 2016 by Total Primary Energy Source

5 As a means of preventing the failure of any fuel-fired generators, the maximum generation capacity of coal-fired

generators was adjusted downward from the previous normal continuous rating (NR) to the maximum allowed continuous rating (MAR). A calculation of the changes in coal-fired generation (as of 2015) show that it has decreased by 4% from the pre-adjustment period.



o Nuclear power generation is expected to maintain a relatively rapid growth rate of approximately 4% due to the resumption of operations of several nuclear power plants and introduction of Shingori Reactor Unit 3.

- Hanbit Reactor Unit 3 and Wolsung Unit 1 resumed operations in June 20156, and Shinwolsung Reactor Unit 2 was completed at the end of July 2015.

- If Shingori Reactor Unit 37 (scheduled for a test-run in May 2016) enters operations as scheduled, the amount of nuclear power generated will increase considerably in 2016.

o Demand for natural gas is expected to tumble in 2016, due primarily to the decreasing demand for power generation.

- In 2016, because of the slump in electricity demand and expansion of large-scale base load power plants (coal and nuclear power generation), the drop in the usage rate of gas generation facilities, which are responsible for handling peak load,8 is expected to continue.

- Also, due to the decline in gas generation, the share of new, high-efficiency gas power plants is expected to increase. Thus, the decline in total demand for gas generation is projected to exceed the decline in the amount of generation.

o New and renewable energy consumption is anticipated to increase significantly in line with the anticipated recovery of hydroelectric power generation, which is expected to return to usual levels this year, according to the Korea Meteorological Administration, after experiencing a sharp drop (-24.2%) triggered by the severe drought last year.

□ In terms of consumption by energy source in 2016, the share of gas is expected to decline, while the share of other energy sources is forecasted to increase.

o The share of oil had declined continuously to 37.3% in 2014, but it increased by 1.3%p year-on-year due to plummeting oil prices in 2015. Oil prices are expected to stay low in 2016, increasing its share of total primary energy year-on-year.

6 Hanbit Reactor Unit 3 resumed operations in mid-June of 2015, after having been shut down for repair work following an

incident at the nuclear reactor in October 2014. Wolsung Reactor Unit 1, after having been shut down temporarily due to the expiration of its operating license in November 2012, resumed operations at the end of June 2015 upon its receipt of a 10-year license extension.

7 Network synchronization, which enables electricity generated from power plants to be transmitted to general houses and construction sites via transmission lines, was made possible in January 2016.

8 The usage rate of LNG combined cycle power has declined continuously from the 60-percent range (2013) to upper 40-percent (2014) to mid-30-percent (2015) range due to the slow growth of electricity consumption. Thus, it is forecasted to decrease to less than 30% in 2016.



Figure 6. Total Primary Energy Sources in 2015 and 2016

□ Energy consumption in the industrial sector is projected to recover slightly, but the transport sector is expected to show a moderate recovery from last year.

o In terms of energy consumption in the industrial sector in 2015, due to the slowdown in industrial production, particularly in the iron and steel industry, an increase of only 0.1% was observed, but in 2016, thanks to the base effect, the decline of the iron and steel industry will slow, bouncing back to the mid-1% range.

- Consumption of feedstock energy is expected to increase at a pace higher than that of last year, as the consumption of naphtha has been showing a moderate increase from last year, and the consumption of coal for iron-making, which declined considerably last year, will make a turnaround.

- Consumption of fuel energy in the industrial sector is forecasted to recover from its 1.0% decrease in 2015, achieving a 1% increase with the recovery of electricity demand for industrial uses.

o In terms of the transport sector, with the slowing decline in oil prices, the growth rate of energy demand has been stagnant year-on-year, but is expected to show a high growth rate of close to 3% due to prolonged low oil prices.

- In 2015, the annual average crude oil price (based on Dubai Crude Oil) tumbled by 47.5% year-on-year to USD 50.8 per barrel, but following the moderate recovery of oil prices after hitting the bottom in the first quarter of 2016, the crude oil price is projected to drop down to USD 40.1 per barrel, a decrease of 21.0% year-on-year.

o The growth rate of energy consumption in buildings is expected to slow down year-on-year, driven by electricity.

- The growth rate of electricity, which makes up the majority of energy consumption in buildings, is forecasted to slow down year-on-year, as the factors that drove its rise in consumption last year will weaken.

- In 2015, city gas demand in buildings remained largely unchanged from last year due to plummeting oil prices and the decline in HDD, but as its substitution effect is expected to ameliorate along with a rise in HDD (7.8%) in 2016, city gas demand will increase.

o In terms of electricity consumption, the consumption for industrial uses will rise slightly, whereas the growth rate of electricity for buildings is expected to remain stagnant, continuing to maintain the same level as last year.



- Electricity consumption for industrial uses will increase year-on-year with the recovery of the domestic economy and improved exports in the latter half of this year, but its level of improvement will not show a steep rise.

- Electricity consumption in buildings is expected to remain sluggish due to the weakening of the base effect and temporary decline in the summer electricity rates for houses along with a drop in CDD (11.3%) year-on-year.

Figure 7. Increase in Volume and Rate of Increase in 2015 and 2016 by Final Total Consumption and Sector

3. Major Characteristics and Policy Implications



□ In 2015, the sluggish growth rate of TPED was driven mainly by the weakening manufacturing industry and the stagnation of energy consumption for generation.

o In 2015, following 2014, increase in TPED will slow down due to economic growth focused on the service industry, which is less energy-intensive.

- Since 2012, the manufacturing industry has deteriorated, while the service industry has been recovering.

- In 2015, the index of industrial production in manufacturing declined by 0.6% year-on-year, but the index of industrial production in services increased by 2.8%. The growth rate of added value in the manufacturing industry rose a mere 1.4%, while that of the service industry increased by 2.8%.

o Energy consumption for generation declined 1.1% year-on-year due to sluggish electricity consumption, rising power generation efficiency, and the drop in power generation loss rates.

- In 2015, the growth rate of electricity consumption increased by 1.3% year-on-year, bouncing back from the zero-percent range in 2014, but it remained far lower than the economic growth rate of 2.6%.

- With a noticeable drop in the amount of gas generation, the share of new, high-efficiency gas generation increased. However, in line with this trend, gas generation efficiency rose significantly year-on-year, resulting in a hike in the total average generation efficiency.

- Assuming that gas generation efficiency remains at the same level as in 2014, the amount of energy used for generation in 2015 is estimated to increase by about 0.8 million toe, putting the growth rate of total primary energy at 0.3%p.

- Also, the fact that the generation loss rates, which increased last year, have dropped by a large margin (1.5%p) with the improvement in transmission and distribution efficiencies, is driving a decline in the amount of energy for generation.

- On the other hand, the sluggish electricity consumption (sales) is believed to have been influenced by the increase in the share of self-generation in line with the drop in energy prices.

Figure 8. Changes in Generation Efficiency and Generation Loss Rate

* Loss rate (=100* (total amount of generation-electricity sales volume)/total amount of generation) includes service consumption

and transmission and distribution loss.



□ The share of TFC occupied by electricity has remained stagnant since 2010, worsening the slump in total primary energy growth.

o Provided that the share of electricity maintained its increasing trend, achieving the same TFC, total primary energy is expected to have increased at an annual average rate of 2% from 2012 to 2015.

- Total primary energy is TFC plus the losses inevitably generated in the process of energy transformation. Therefore, total primary energy is always higher than TFC. In terms of its growth rate, as the share of energy (mostly for power generation) transformed from total primary energy goes up, the growth rate of total primary energy generally exceeds that of TFC.

- The share of TFC occupied by electricity consumption has increased continuously, going as high as 19.1% in 2010, and from 2001 to 2010, the growth rate of total primary energy was 0.5%p higher than that of TFC.

- As the share of electricity has remained at the low 19% range since 2010, the growth rate of total primary energy declined against that of TFC by an average of 0.6%p annually from 2010 to 2015.

- From 2012 to 2015, TFC increased at an annual average rate of 1.4%, thus, if electricity maintained the same upward trend as in the past, total primary energy in the same period is believed to have increased at an annual average rate of 1.9%.

o The stagnation in the share of electricity is closely related to the slowdown in electricity consumption since 2010.

- According to a recent study (Kim Cherl-Hyun and Park, Kwang-Su, 2015)9, this slowdown is found to have been influenced by both temporary and structural factors.

- If the stagnation continues to prevail, the growth rate of total primary energy is expected to slow considerably, dropping below past levels.

Figure 9. Share of TFC Occupied by Electricity and the Difference in Total Primary Energy and TFC

9 Kim, Cherl-Hyun and Park, Kwang-Su (2015), “Study on Structural Change in Domestic Electricity Demand,” KEEI



□ In 2016, the growth rate of TPED is expected to drop, in contrast to the forecast made in the winter issue of 2015, driven mainly by energy demand for power generation.

o Unlike the previous forecast, in consideration of the low electricity demand, decline in the use of base load power plants, and rise in power generation efficiency, the amount of energy used for power generation will be adjusted downward by a considerable margin.

- Considering the realized data as of February 2016 and the slower-than-expected economic recovery, the electricity demand forecast will be adjusted downward.

- Coal demand for power generation will be adjusted downward in 2016 due to the delay in the operation of new bituminous coal power plants, caused by constraints related to a delay in the installation of transmission lines and decrease in the amount of coal generation resulting from the downward adjustment of the maximum output of coal-fired power plants (January 2016).

- With the expansion in the share of new, high-efficiency gas power station, gas generation efficiency and the efficiency of bituminous coal-fired generation, following the establishment of new bituminous coal power plants, are expected to rise, leading to a decline in the amount of energy used for generation in comparison to the amount generated.

- The amount of nuclear power generation will be adjusted downward due to the suspension of Hanbit Reactor Unit 1 and Hanul Reactor Unit 110.

- However, in contrast to the previous forecast, the use of oil for generation was adjusted upward in consideration of the modification of merit order in response to low oil prices.

° The previous forecast regarding TFC is expected to remain unchanged due to lower-than-expected oil prices and a rise in heating degree days, despite the downward adjustment of the economic growth rate.

- In 2016, the forecasted economic growth rate is estimated to decline by 0.2%p, compared to the previous forecast, and the annual average crude oil price (based on Dubai Crude Oil) is projected to decline by USD 2.6 per barrel.

- In 2016, the number of HDD, in consideration of the realized data of March 2016, will increase, in contrast to the previous forecast.

<Table 1> Change in Major Assumptions for Energy Demand Outlook

2016 Difference

2015/Fall Issue 2015/Winter Issue

Economic growth rate, % 3.0 2.8 0.2 ▼ Crude oil price, USD/bbl 50.0 47.4 2.6 ▼ Heating degree days (HDD) 2 638 2 650.3 11.9 ▲ Cooling degree days (CDD) 764.06 764.06 -

10 Hanbit Reactor Unit 1 was suspended from February 27 to March 30, 2016, due to a glitch found in the steam condenser’s

expansion joint pipe, and Hanul Reactor Unit 1 was suspended from January 19 to 30, 2016, because of a failure that occurred in the protective relay of the nuclear reactor during a functional test on the emergency trip system.



□ In 2016, energy demand will increase based on the recovery of coal consumption and the industrial sector.

o A sharp rise in coal demand with the establishment of new coal-fired power plants year-on-year is expected to accelerate the recovery of total primary energy consumption.

- In 2015, coal was indicated as a major factor in the slowdown in total primary energy consumption, due to the abrupt drop in the consumption of coal for iron-making, but in 2016, the initiative to establish new, large-scale bituminous coal power plants11 appears to be driving the recovery of total primary energy consumption thanks to the resulting increase in demand for power generation.

- Oil’s contribution to the increase in total primary energy seems to have declined year-on-year with the diminishing effect of plunging oil prices, but with continued low oil prices, it is projected to comprise the highest contribution among all energy sources in 2016.

- In terms of the contributors to the growth rate of total primary energy (1.5%) in 2016 by energy source, oil (1.1%p) was the highest, followed by coal (0.7%p), nuclear power generation (0.5%p), others (0.3%p), and gas (-1.0%p).

Figure 10. Total Primary Energy Growth Rate and Contribution by Major Energy Source

Ref.: Rate of increase of total primary energy (%) = total of contribution by energy source (%p)

o In terms of TFC by sector, energy demand in the industrial sector will recover, while the transport sector will play a critical role in the rise of consumption, driven by low oil prices.

- In 2015, the industrial sector was found to be a major factor influencing the slump in TFC, due to the sluggish economy of the manufacturing industry, based mainly on the iron and steel industry. However, in 2016, with the recovery of the domestic market, industrial production is anticipated to increase year-on-year, contributing to a moderate rise in energy demand.

11 The capacity of coal-fired power plants is projected to increase by 25.4%, from 26.2GW as the end of 2015 to 32.5GW as

the end of 2016.



- The transport sector and buildings are expected to contribute slightly in driving energy demand year-on-year due to falling oil prices and the diminishing base effect, but their energy demand will drive the increase in TFC in 2016.

Figure 11. TFC Growth Rate and Contribution by Sector

Ref.: TFC growth rate (%)= total of contribution by sector (%p)

□ In 2016, growth of TPED is projected to rise above the zero-percent range in which it has maintained for four consecutive years, but is expected to be lower than the economic growth rate due to the sluggish recovery of the manufacturing industry.

o With the considerable expansion of base load power plants (coal and nuclear power generation), the amount of energy used for power generation will increase dramatically, leading the growth of TPED to bounce back from its zero-percent range.

- With the addition of new bituminous coal and nuclear power plants, as of the end of 2016, the share of base load power plants generation capacity is forecasted to reach 53.4%, representing an increase of 3.2%p. The share of power generation by base load power plants will increase from the 71% recorded last year to somewhere in the mid-70% range in 2016.

- As the power generation efficiency of base load power plants is far lower than that of gas12, as the share of power generation by base load power plants increases, the amount of energy used for generation may increase as well.

- If the base load power plants generation maintain the same level as of the end of 2015, the growth rate of energy used for generation in 2016 is expected to decline by 1.8%p, leading the growth rate of TPED to drop to the zero-percent range.

- On the other hand, with the establishment of new bituminous coal power plants, the efficiency of total bituminous coal generation seems to be increasing, but the effect of the expansion of facilities

12 As of 2015, the efficiencies of coal and nuclear power generation were 13%p and 8%p lower, respectively, than that of

gas generation.



will outpace that of the increasing efficiency, resulting in the rapid growth of coal demand for energy generation.

o The driving force of energy demand in the industrial sector will recover to some extent, but with the relative growth of less energy-intensive industries, the growth rate of energy demand is anticipated to be low compared to the economic growth rate.

- The economy of the manufacturing industry will bounce back, year-on-year, as the second half of this year approaches, but its recovery will be insufficient to allow it to serve as a strong driving force for economic growth. However, the service industry is expected to maintain its moderate growth over the last two years in tandem with the revitalization of domestic consumption.

- In line with the current trend in the manufacturing industry, the metal fabrication industry is anticipated to grow faster than the primary metal and petrochemical industries, which are relatively energy-intensive.

KEEI Korea Energy Demand Outlook (Volume 18 No. 1)

Printed in Spring 2016

Issued in Spring 2016

CEO of publisher: Park Joo-heon

Publisher: Korea Energy Economics Institute

405-11, Jongga-ro, Jung-gu, Ulsan, Korea, 44543

Phone: (052)714-2270, Fax: (052)714-2025

Registration: No. 8 on December 7, 1992

Printed by: Bumshinsa (052)245-8737

ⓒ Korea Energy Economic Institute 2015


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ISSN 2093-7199

Korea Energy Demand Outlook

405-11, Jongga-ro, Jung-gu, Ulsan, Korea, 44543

Phone: (052)714-2270

Fax: (052)714-2025

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

Korea Energy Demand Outlook - KEEI · Spring / 2016 KEEI Korea Energy Demand Outlook. Published by the Korea Energy Economics Institute (KEEI), Energy Demand Outlook takes a closer

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