[Why&Next] "First Deep-Sea Exploration, Failure Also Has Meaning"... Why Oil Development Is Necessary

Energy Experts' View on Yeongilman Oil Controversy
"Drilling with 20% Success Probability... Securing Maritime Sovereignty"
Even Failure Yields Deep-Sea Data Accumulation and Workforce Development
US Actgeo Advisor is a Stratigraphic Trap Specialist
Physical Survey Data Interpretation Requires Few Personnel
Oil Demand Remains as a 'Raw Material' in the Carbon Neutral Era

There has been a heated debate for days over oil exploration in Yeongil Bay, East Sea. The controversies range from the reliability of the US company Act-Geo, which was consulted, to the risks associated with the 20% probability of success, and concerns about going against the 2050 carbon neutrality goals.

In response, many domestic energy experts agree that pursuing this East Coast oil exploration is desirable and beneficial to national interests. While it would be ideal if actual oil deposits are confirmed through exploration, even if it fails, the intangible and tangible values such as acquiring various data on the deep sea and accumulating exploration know-how are considered sufficient. It is expected that oil's status as an 'industrial raw material' will remain unchanged even in the carbon-neutral era.

According to the Ministry of Trade, Industry and Energy and the Korea National Oil Corporation on the 10th, the Gyeongbuk Pohang Yeongil Bay Blocks 8 and 6-1 (Northern/Mid-Eastern parts), estimated to contain up to 14 billion barrels of oil and natural gas, represent Korea's first attempt at a deep-sea oil development project. Deep-sea areas generally have larger oil reserves than shallow seas, but only a few global oil companies such as ExxonMobil, BP, and Shell possess the actual exploration and development capabilities. The East Sea gas field, which began producing natural gas and condensate in July 2004 and made Korea the 95th oil-producing country, is located in shallow waters and had a production volume equivalent to 45 million barrels of crude oil.

The Korea National Oil Corporation began deep-sea exploration in 2005. Australian company Woodside joined in 2007 but withdrew in January 2023. The Oil Corporation has discovered three promising structures and completed exploratory drilling on them, known as 'Jujak', 'Hongge', and 'Bangeo'. A promising structure refers to a geological formation presumed to contain oil.

Among these, the Hongge area revealed a gas layer, but the carbon dioxide (CO2) content was too high to be economically viable, and the Bangeo area had high pressure, making development risky. However, through three exploratory drillings, the four key conditions for oil deposits (source rock, reservoir rock, cap rock, and trap) were confirmed. After Woodside's withdrawal, the Oil Corporation gathered exploration data and commissioned Act-Geo for consultation, which identified seven additional promising structures. One of these seven is named 'Daewanggoerae' (Great Whale).

Is Act-Geo a Reliable Company?

The most controversial issue currently is the reliability of Act-Geo. Act-Geo was founded by Dr. Vitor Abreu, who participated in oil development at ExxonMobil and other companies for about 30 years, effectively making it a one-person company. The Oil Corporation stated that Act-Geo was selected through price and technical evaluations among three companies that responded to the public bid.

Some question why such a small company was entrusted with a national project. However, domestic petroleum engineering experts unanimously agree that there is no doubt about Dr. Abreu's expertise. They also agree that interpreting exploration data requires only a small number of personnel with high expertise and know-how.

Professor Choi Jong-geun of Seoul National University's Department of Energy Resources Engineering (President of the Korean Society of Petroleum Engineers) explained, "The interpretation phase, the last of the three physical exploration stages, is conducted by a few experts with knowledge and experience in the field. The scale does not matter."

On the 5th, Dr. Vitor Abreu of Act-Geo from the United States, who arrived through Incheon International Airport, is answering reporters' questions. He is expected to explain the analysis of the possibility of oil deposits during his visit to Korea. Photo by Yongjun Cho jun21@

In particular, the blocks explored this time are 'Stratigraphic Traps,' which fundamentally differ from the 'Structural Traps' previously explored in Korea. Dr. Abreu is said to be one of the few global experts in the field of stratigraphic traps.

Kwok Won-jun, Senior Advisor at Korea National Oil Corporation, said, "Stratigraphic traps are difficult to discover, and there are only a few masters worldwide." Dr. Abreu also taught sequential stratigraphy at Rice University, a prestigious institution known for petroleum development.

Is It Worth Challenging an 80% Failure Rate?

Dr. Abreu was in charge of developing the Guyana oil field, known as the 'largest deep-sea oil field of the century,' while working at ExxonMobil. The seven promising structures discovered this time are said to have similar formations to the Guyana oil field.

The government stated that the exploration success rate for the promising structures is 20%, which is higher than the pre-drilling success rate of 16% for the Guyana oil field. Professor Choi Jong-geun of Seoul National University explained, "A 20% chance is enough to consider drilling." The East Sea gas field also succeeded after the 11th drilling, generating cumulative profits of 1.4 trillion won.

Some focus on the 80% failure probability. Exploratory drilling to confirm oil deposits before full-scale development costs about 100 billion won. The government is considering drilling five out of the seven promising structures, taking the 20% probability into account. This would require an investment of 500 billion won. There are views questioning whether it is appropriate to invest such a large amount in a high-risk project.

However, experts emphasize that exploratory drilling must proceed despite the possibility of failure. They argue that if nothing is done out of fear of failure, nothing will happen. Professor Shin Hyun-don of Inha University's Department of Energy Resources Engineering said, "Deep-sea exploration should be pursued with a long-term plan from the perspective of securing energy security and maritime sovereignty," adding, "It also allows for technology accumulation and human resource development." He further noted, "Even if oil does not come out on the first drilling, a tremendous amount of data can be obtained, and development strategies can be revised."

Professor Kim Yoon-kyung of Ewha Womans University's Department of Economics explained, "There are not many places worldwide where deep-sea exploration has been conducted. Exploring the deep sea and obtaining drilling data is very meaningful."

Should Oil Development Proceed in the Carbon-Neutral Era?

Some argue that developing fossil fuel oil now, when the task of achieving carbon neutrality by 2050 is at hand, is not timely. They question the need to pursue oil development as demand is expected to decline with the advent of electric vehicles.

Experts respond that oil demand as an industrial raw material will remain even in the carbon-neutral era. Oil is used not only as fuel for transportation such as automobiles but also as a raw material for various industrial products including clothing, construction materials, packaging, and automotive components. In particular, about 60% of the oil imported by Korea is used for producing petrochemical products. Professor Kim Yoon-kyung of Ewha Womans University said, "There is currently nothing that can replace oil as an industrial raw material, so we cannot cut off oil."

Natural gas emits less carbon dioxide than coal and can also be reformed to produce hydrogen. Reforming hydrogen, combined with carbon capture technology, becomes clean hydrogen (blue hydrogen). Clean hydrogen is increasingly recognized worldwide as a 'carbon-free energy.' Depleted gas fields can also be used to store captured carbon dioxide (CCS).

Despite the electric vehicle era, global oil demand is not decreasing. The forecast for the so-called oil peak, when oil demand reaches its maximum, is being pushed further into the future. Recently, energy consulting firm Rystad projected that the oil peak may not be reached until the 2030s.

Experts believe that confirming oil deposits through development will have great significance from a resource security perspective, regardless of actual usage. One energy expert explained, "It is like keeping money in a safe that can be used anytime."

First Drilling Location to Be Decided Next Month... Block Reorganization to Attract Investment

The government plans to decide the location of the first promising structure to be drilled next month in December. Contracts for drillships and supply vessels have already been completed.

Drilling operations take three months, and data review takes another three months. Considering this, the first drilling results are expected by the first half of next year. At a briefing on the 10th, Choi Nam-ho, 2nd Vice Minister of the Ministry of Trade, Industry and Energy, said, "We plan to hold a strategic meeting on East Sea deep-sea gas field development next month to check preparations related to drilling and discuss directions for attracting overseas investment."

Choi Nam-ho, Vice Minister of the Ministry of Trade, Industry and Energy, is holding a briefing on the East Sea deep-sea oil and gas field at the Government Sejong Complex on the afternoon of the 10th. 2024.6.10
[Photo by Yonhap News]

The blocks currently divided into three areas?Block 8, Northern Block 6-1, and Mid-Eastern Block 6-1?will also be reorganized.

Vice Minister Choi said, "Regarding attracting overseas investment, negotiations are necessary, so I cannot provide specific details, but multiple companies are showing interest," adding, "We will promote phased investment attraction by reorganized blocks, differentiating by foreign equity participation, participation level, and timing."

How Is Oil Development Conducted?

Oil and natural gas development broadly goes through exploration, development, and production stages. In the exploration stage, physical exploration data collection, computer processing, and data interpretation are conducted to identify promising structures. Then, exploratory drilling confirms the presence of oil. Physical exploration uses elastic waves to understand underground structures. Acoustic waves are sent to suspected oil-bearing areas to map geological formations.

For oil to be deposited, there must be source rock where organic matter has been deposited and oil is generated. The generated oil accumulates in reservoir rock (reservoir layer). Cap rock acts as a seal to prevent oil from escaping. Such geological structures that tightly trap oil and natural gas are called traps.

The Oil Corporation and Act-Geo have discovered seven promising structures presumed to contain oil around Yeongil Bay, but the actual presence of oil can only be confirmed through exploratory drilling.