The Stock Market Was Volatile All Day
"Mining Costs Are Not Cheap" Reaction
Participation of Domestic Companies Also Uncertain
The stock market was noisy all day following the government's announcement to push forward with deep-sea oil and gas drilling exploration in the East Sea. However, the energy industry, which stands to benefit the most, remains quiet. The prevailing interpretation is that it is not yet the stage to make economic feasibility judgments.
According to related industries on the 4th, the expected oil and gas reserves in the sea off Yeongilman, Pohang, announced by the government and the Korea National Oil Corporation, total 14 billion barrels, which is 15 times the crude oil (934.03 million barrels) imported last year by five domestic refiners including SK Energy.
Image showing promising structural derivation areas revealed at the national briefing on the 3rd. [Photo by the Presidential Office]
The energy industry is not stirred by the possibility of becoming an oil-producing country because the remaining hurdles are formidable. An industry insider said, "The East Sea is very deep, so the cost of extraction will be enormous," adding, "Even if domestic production eliminates transportation costs that directly affect refiners' profits, if extraction costs are high, it is not competitive."
At one time, when the cost of extracting oil fell below $40 per barrel, many U.S. shale gas companies went bankrupt. The break-even point (BEP) for shale gas companies with high extraction costs is around $40 to $50, but they could not survive the international oil price crash.
The shipbuilding industry, which produces drilling-related vessels and facilities, is also cautious. A representative said, "Finding an oil well is like catching a star in the sky," and added, "Even if commercial viability is confirmed, it is still unknown whether existing drilling equipment will be used or new orders will be placed."
The fact that it may take up to 10 years from the start of full-scale exploration to production is also a distant future from the industry's perspective. Even if oil and gas are found as estimated, the economic feasibility debate needs further examination. Economic feasibility can only be calculated once specific details such as the actual drilling scale, costs, and Korea National Oil Corporation's selling price are determined.
Offshore drilling rig Photo by Bloomberg·Yonhap News
Although the stock price of steel pipe companies soared to the upper limit the day before, the oil drilling industry believes the impact will not be significant. An industry insider said, "If anything, petrochemical plant and offshore plant companies are more likely to be affected than steel pipe companies."
It is uncertain whether domestic companies will participate in drilling or production. The government and the Korea National Oil Corporation plan to attract overseas oil majors with deep-sea drilling experience. A Korea National Oil Corporation official said, "If we strategically determine that domestic companies are necessary, we will discuss it later," adding, "We plan to drill the first well by the end of this year and, after confirming the presence of reserves in the first half of next year, we will set detailed drilling schedules for the remaining four wells, so the exact timing of commercial viability cannot be known."
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