South Korean President Lee Myung-bak announced Sunday that his country has clinched its largest-ever oil field development deal, potentially valued at 110 trillion won (US$98 billion), with the United Arab Emirates (UAE).
"With the signing of a memorandum of understanding (MOU), South Korea has become able to participate in large oil production projects with a minimum of 1 billion barrels, by the size of oil that can be actually exploited," Lee said at a televised press conference in Abu Dhabi after summit talks with his UAE counterpart, Sheikh Khalifa bin Zayed Al Nahyan.
The potential volume is worth about 110 trillion won under current international oil prices.
Lee added a related contract will be formally signed next year.
South Korea, Asia's fourth-largest economy, is the world's fifth-largest crude oil consumer but imports all of its oil demands. The country used a total of 790 million barrels of oil last year alone.
Lee described the deal as South Korea's entry into a "dream area" that has been dominated by a handful of major oil companies in the United States, Britain, France and Japan.
The president added South Korea has signed a separate contract for the joint development of three untapped oil fields, which contain about 570 million barrels. A preliminary study showed that as many as 340 million of them can actually be exploited.
The two sides also agreed to keep 6 million barrels of Abu Dhabi's crude oil in South Korea's storage facilities. South Korea will be given priority to use the reserve, saving 700 billion won in its oil storage budget.
Lee said the contracts are expected to raise South Korea's energy self-sufficiency ratio for oil and gas to 15 percent from the current 10.9 percent. The figure represents the amount of oil and gas developed by South Korean firms to the country's total demands.
He pointed out that the ratio stood at only 4 percent at the time of his inauguration in early 2008.
Lee has vowed to lift the ratio to 20 percent, a level seen as a strategic buffer against possible energy shocks, during his term, which is set to expire in February 2013.
The MOU on oil development was signed by the heads of the Korea National Oil Corp. (KNOC) and Abu Dhabi National Oil Co. with the leaders of the two nations on hand, said South Korea's presidential office, Cheong Wa Dae.
It said the KNOC will soon form a consortium joined by South Korean companies for oil development projects in Abu Dhabi under the MOU.
Like foreign oil giants operating in the Middle Eastern nation, South Korea is expected to sign a 30-year contract, under which it will pay a certain amount of royalties for the development of oil fields and taxes for profits to the local government.
The South Korean president had a similar press conference in Abu Dhabi in December 2009 to announce a $20 billion contract to construct four nuclear power plants in the UAE
He is scheduled to attend the groundbreaking ceremony for initial work at the proposed nuclear power plant site in Braka, 300 kilometers west of the UAE capital, on Monday.
Lee will end his three-day official trip here later in the day.
Source: Yonhap News (March 13, 2011)