korea energy demand outlook - keei · issn 1599-9009 march 2011 7pmvnf /p keei korea energy demand...

KEEI

KEEI

KE

EI

Korea Energy Demand Outlook

ISSN 1599-9009

KoreaEnergy

Dem

andO

utlook March 2011

March

2011

Volume 13, No. 1QUARTERLY ENERGY OUTLOOK

Korea Energy Economic Institute132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do

Phone: (031)420-2114

Fax: (031)422-4958

E-mail : [email protected]

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

Korea

Energy

Econom

icInstitute

에너지수요전망 문13-1 2011.5.20 3:27 PM 페이지1 매일3 MAC2PDF_IN 300DPI 175LPI T

ISSN 1599-9009

March 2011

Volume 13, No. 1

KEEIKorea Energy Demand Outlook

수요전망 내지13-1 문 2011.5.20 3:26 PM 페이지1 매일3 MAC2PDF_IN 300DPI 125LPI T

·In charge of overall research Choi, Do-young ([email protected])

·Petroleum Kim, Soo-il ([email protected])

·Electricity/Transformation Choi, Do-young ([email protected])

·Town gas/Coal Lee, Sang-youl ([email protected])

·Research support Lee, Bo-hye ([email protected])

·Research support Hwang, In-wook ([email protected])

·Statistical support Chung, Chang-bong ([email protected])

Phone: +82-31-420-2148, +82-31-420-2234

Fax: +82-31-420-2164

KEEI Korea Energy Demand Outlook

The 「KEEI Korea Energy Demand Outlook」is a report that analyzes trends in theinternational energy market and energy supply/demand trends in Korea, and makesshort-term forecasts on energy demand.

This report quickly identifies recent changes in energy supply and demand, thusproviding various energy supply/demand forecast indexes and information forgovernment policies. It is intended to contribute to government efforts in setting andadjusting an overall policy direction regarding energy supply and demand.

This report was written and edited by the Energy Demand and Supply ForecastTeam under the Center for Energy Information and Statistics of KEEI.


Summary ………………………………………………………………………………………… 7

Ⅰ. International Energy Market Trends…………………………………………………… 33

1. Trends in the international oil market and oil exports/imports ……………………… 35

2. Trends in international natural gas and coal prices ………………………………… 37

Ⅱ. Economic and Energy Consumption Trends in Korea …………………………… 39

1. Economic trends in Korea ……………………………………………………………… 41

2. Trends in primary energy consumption ……………………………………………… 45

3. Trends in final energy consumption …………………………………………………… 56

4. Trends in petroleum product consumption…………………………………………… 65

5. Trends in electricity consumption ……………………………………………………… 72

6. Trends in LNG and town gas consumption ………………………………………… 79

7. Trends in coal and other energy consumption ……………………………………… 84

Ⅲ. Energy Demand Outlook for 2011 …………………………………………………… 89

1. Outlook on the international oil market………………………………………………… 91

2. Domestic economic outlook and outlook assumptions …………………………… 93

3. Outlook on primary energy demand…………………………………………………… 96

4. Outlook on final energy demand……………………………………………………… 103

5. Outlook on petroleum product demand …………………………………………… 109

6. Outlook on electricity demand………………………………………………………… 111

7. Outlook on LNG and town gas demand …………………………………………… 116

8. Outlook on coal and other energy demand ………………………………………… 119

9. Demand forecast characteristics and implications ………………………………… 125

Contents

3http://www.keei.re.kr

Summary

Table of Contents for Titles



4 KOREA ENERGY ECONOMICS INSTITUTE

<TableⅠ-1> Changes in international crude oil prices ……………………………………………… 35<TableⅠ-2> Changes in consumer prices of petroleum products in Korea ……………………… 36

<TableⅡ-1> Recent economic trends ………………………………………………………………… 42<TableⅡ-2> Composite index…………………………………………………………………………… 44<TableⅡ-3> Primary energy consumption trends …………………………………………………… 47<TableⅡ-4> Level of contribution of each factor that led to a rise in primary energy consumption … 52<TableⅡ-5> Temperature effect regarding an increase in primary energy consumption………… 54<TableⅡ-6> Trends in final energy consumption……………………………………………………… 57<TableⅡ-7> Expansion of facilities that consume a great amount of electric power in 2010…… 62<TableⅡ-8> Trends in petroleum product consumption by sector ………………………………… 66<TableⅡ-9> Trends in key petroleum product consumption ……………………………………… 68<TableⅡ-10> Trends in electricity consumption ……………………………………………………… 72<TableⅡ-11> Expansion of plant capacity for each source in 2010 ……………………………… 76<TableⅡ-12> Changes in peak demand in the winter ……………………………………………… 78<TableⅡ-13> Heating load in the winter ……………………………………………………………… 78<TableⅡ-14> Trends in LNG consumption …………………………………………………………… 80<TableⅡ-15> Trends in town gas consumption ……………………………………………………… 82<TableⅡ-16> Pig iron production, shipment, and inventory,

and bituminous coal consumption for steel making ………………………………… 85<TableⅡ-17> Trends in coal consumption …………………………………………………………… 86<TableⅡ-18> Trends in consumption of thermal energy, new & renewable energy, and other energy … 88

<TableⅢ-1> IEA’s global oil consumption figures and forecasts …………………………………… 91<TableⅢ-2> Oil price outlook for 2010 and 2011 (Dubai oil)………………………………………… 92<TableⅢ-3> Oil price outlook of key overseas organizations in March …………………………… 92<TableⅢ-4> Economic outlook for 2011 ……………………………………………………………… 94<TableⅢ-5> Assumptions on temperature variables ………………………………………………… 95<TableⅢ-6> Outlook on primary energy demand …………………………………………………… 96<TableⅢ-7> Key indices related to energy consumption …………………………………………… 98<TableⅢ-8> Outlook on final energy demand ……………………………………………………… 104<TableⅢ-9> Outlook on petroleum product demand by sector…………………………………… 109<TableⅢ-10> Outlook on demand of key petroleum products …………………………………… 110<TableⅢ-11> Outlook on electricity demand………………………………………………………… 111

Table of Contents for Tables


SummaryContents


<TableⅢ-12> Trends in GDP elasticity of electricity demand ……………………………………… 112<TableⅢ-13> Outlook on electricity supply/demand in the summer of 2011 …………………… 116<TableⅢ-14> Outlook on LNG demand……………………………………………………………… 117<TableⅢ-15> Outlook on town gas demand………………………………………………………… 118<TableⅢ-16> Outlook on steel production…………………………………………………………… 120<TableⅢ-17> Outlook on coal demand ……………………………………………………………… 121<TableⅢ-18> Outlook on thermal energy, new & renewable energy, and other energy demand… 123<TableⅢ-19> Outlook on energy intensity …………………………………………………………… 125<TableⅢ-20> Outlook on energy transformation loss in transformation sector ………………… 128<TableⅢ-21> Trends in winter peak demand and heating load…………………………………… 131<TableⅢ-22> Forecasts on electricity supply/demand for the summer of 2011………………… 135<TableⅢ-23> Temperature effect on primary energy consumption increase …………………… 136<TableⅢ-24> Energy consumption and import and outlook ……………………………………… 138

[DiagramⅠ-1] Changes in petroleum product import prices and consumer prices ……………… 36[DiagramⅠ-2] Changes in international coal and LNG prices ……………………………………… 38

[DiagramⅡ-1] Business Cycle Clock (BCC) …………………………………………………………… 44[DiagramⅡ-2] Recent economic and primary energy consumption trends ……………………… 46[DiagramⅡ-3] Trends in primary energy consumption increase rate ……………………………… 49[DiagramⅡ-4] Level of contribution to the primary energy increase rate by each factor in 2010 ………… 52[DiagramⅡ-5] Level of contribution of each factor towards the annual primary energy increase rate …… 53[DiagramⅡ-6] Assumed changes in primary energy consumption caused by the temperature effect …… 54[DiagramⅡ-7] Changes in HDD ………………………………………………………………………… 55[DiagramⅡ-8] Changes in CDD ………………………………………………………………………… 55[DiagramⅡ-9] Level of contribution of each energy source to primary energy increase in 2010 ………… 56[DiagramⅡ-10] Final energy consumption by energy source and use……………………………… 58[DiagramⅡ-11] Business trends in the manufacturing industry and changes in electricity

consumption for industrial use ……………………………………………………… 59[DiagramⅡ-12] Trends in the rate of final energy consumption increase by sector ……………… 60[DiagramⅡ-13] Changes in the petroleum product consumption increase rate by sector ……… 67[DiagramⅡ-14] Changes in gasoline consumption and increase rate ……………………………… 69[DiagramⅡ-15] Changes in consumption of diesel for transport and increase rate ……………… 69

Table of Contents for Diagrams




[DiagramⅡ-16] Changes in consumption of kerosene and diesel, and increase rate …………… 70[DiagramⅡ-17] Changes in consumption of heavy oil and increase rate ………………………… 70[DiagramⅡ-18] Changes in consumption of naphtha and increase rate…………………………… 71[DiagramⅡ-19] Changes in LPG consumption and increase rate ………………………………… 71[DiagramⅡ-20] Recent manufacturing business trends and electricity consumption for industrial use…… 74[DiagramⅡ-21] Rate of increase in industrial activity indexes and electricity consumption

for industrial use (First quarter of 2009 - Fourth quarter of 2010)………………… 75[DiagramⅡ-22] Changes in the electricity consumption increase rate……………………………… 76[DiagramⅡ-23] Changes in peak demand and supplied reserve margin ………………………… 77[DiagramⅡ-24] Changes in heating load by use ……………………………………………………… 79[DiagramⅡ-25] Trends in LNG consumption increase rate per use………………………………… 81[DiagramⅡ-26] Trends in town gas consumption increase rate per use…………………………… 83[DiagramⅡ-27] Changes in the rate of increase in pig iron and bituminous coal for steel making ……… 84

[DiagramⅢ-1] Changes in CDD and HDD and assumptions for 2011 …………………………… 95[DiagramⅢ-2] Forecasts on the economic growth rate and primary energy increase rate ……… 97[DiagramⅢ-3] Trends in primary energy consumption and assumptions on

consumption changes triggered by temperature effects …………………………… 97[DiagramⅢ-4] Forecasts on energy intensity and per capita consumption………………………… 99[DiagramⅢ-5] Share of primary energy demand taken up by each energy source …………… 102[DiagramⅢ-6] Forecasts on level of contribution of each energy source to increase in primary energy … 103[DiagramⅢ-7] Share of final energy demand occupied by each energy sector ………………… 107[DiagramⅢ-8] Share of final energy demand taken up by each energy source ………………… 108[DiagramⅢ-9] Outlook on economic growth rate and electricity demand increase rate ……… 113[DiagramⅢ-10] Outlook on electricity demand by sector…………………………………………… 113[DiagramⅢ-11] Trends in electricity consumption share of each sector and forecasts ………… 114[DiagramⅢ-12] Town gas trends and outlook by use ……………………………………………… 119[DiagramⅢ-13] Coal trends and forecasts …………………………………………………………… 122[DiagramⅢ-14] Thermal energy trends and outlook ………………………………………………… 123[DiagramⅢ-15] Trends and outlook on new & renewable energy and other energy …………… 124[DiagramⅢ-16] Level of contribution of electricity to primary energy increase …………………… 127[DiagramⅢ-17] Trends in electricity consumption increase and energy loss factor increase … 129[DiagramⅢ-18] Changes in peak demand and supplied reserve margin ………………………… 130[DiagramⅢ-19] Changes in share of winter peak demand taken up by heating load…………… 131[DiagramⅢ-20] Trends in oil dependence and forecasts…………………………………………… 132[DiagramⅢ-21] Comparison between economic growth rate and summer peak demand increase rate …… 133[DiagramⅢ-22] Trends in monthly peak demand and forecasts ………………………………… 134


Summary


Primary energy consumption for 2010 has been tentatively tallied at 261.2 million TOE,

a year-on-year rise of 7.3%.

Primary energy consumption went up by 10.5% in the first quarter and 7.5% in the

second quarter according to changes in the economic growth rate by quarter. The

rate of increase stood at 5.3% in the third quarter and 6.1% in the fourth quarter,

indicating a slight slowdown in the level of increase in the second half of the year.

* Economic growth rate: (First quarter) 8.1% → (Second quarter) 7.2% → (Third

quarter) 4.4% → (Fourth quarter) 4.8%

The rise in primary energy consumption in 2010 is attributable to the economic

recover(including base effects from the economic downturn of the previous year) and

the climate (abnormally low temperatures in the winter and high temperatures and

high humidity in the summer).

In 2010, primary energy consumption, excluding energy for raw materials (naphtha

and coking coal), reached 200.9 million TOE, year-on-year growth of 7.2%.

- Energy for raw materials accounted for 23.1% of primary energy consumption (as of 2010).

Trends in energy consumption

Summary▶

[Recent economic and primary energy consumption trends]


Notes: 1) Values in parentheses refer to the rate of increase from the same period the previous year; p refers to tentativefigures

2) LNG consumption includes the estimated directly-adopted and consumed volume of POSCO and K-POWER

Trends in consumption of each energy source in 2010

In 2010, coal consumption witnessed a year-on-year rise of 10.3%. The level of



Category2009 2010p 2011p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual January

Coal 25.0 25.1 29.2 29.2 108.4 30.7 27.7 30.1 31.0 119.5 10.6

(Million ton) (-0.3) (-0.1) (7.3) (8.6) (4.0) (22.9) (10.6) (3.3) (6.3) (10.3) (-8.5)

-Excluding 20.4 20.3 23.6 23.3 87.6 23.3 21.6 24.3 24.9 94.1 8.5

coking coal (6.2) (5.6) (10.9) (11.6) (8.7) (14.2) (6.2) (3.0) (6.8) (7.4) (5.7)

Oil 199.1 192.5 183.6 203.2 778.5 198.8 193.5 192.1 210.1 794.5 73.3

(Million bbl) (-2.8) (5.3) (0.4) (6.9) (2.3) (-0.1) (0.5) (4.6) (3.4) (2.1) (5.7)

-Excluding 117.7 122.4 104.7 121.0 455.9 117.7 111.3 109.1 124.7 462.8 42.7

naphtha (-3.6) (4.9) (1.1) (3.9) (1.5) (0.0) (-1.0) (4.2) (3.1) (1.5) (4.1)

LNG 8.5 4.6 4.6 8.4 26.1 10.7 6.5 5.5 9.4 32.0 4.9

(Million ton) (-14.7) (-11.8) (-2.0) (11.0) (-4.9) (25.0) (39.8) (20.2) (11.8) (22.6) (20.2)

Hydro 0.8 1.4 2.5 0.9 5.6 1.2 1.6 2.1 1.5 6.3 0.3

(TWh) (-12.3) (9.1) (4.8) (-4.2) (1.4) (48.0) (10.5) (-18.6) (66.5) (11.6) (-35.0)

Nuclear power 36.6 37.3 37.2 36.6 147.8 36.0 36.5 37.2 37.8 147.5 12.4

(TWh) (-8.2) (3.1) (-0.8) (-1.9) (-2.1) (-1.6) (-2.3) (0.0) (3.2) (-0.2) (-6.3)

Other 1.3 1.3 1.3 1.6 5.5 1.5 1.5 1.4 1.8 6.2 0.5

(Million TOE) (8.5) (6.6) (5.6) (1.9) (5.4) (12.1) (13.2) (14.2) (14.0) (13.4) (10.8)

Primary energy 62.5 56.9 58.2 65.7 243.3 69.1 61.2 61.3 69.7 261.2 25.9

(Million TOE) (-5.1) (1.3) (2.0) (6.5) (1.1) (10.5) (7.5) (5.3) (6.1) (7.3) (2.6)

Primary energy 48.9 43.3 44.2 51.1 187.5 53.5 46.3 46.6 54.5 200.9 20.6

-Excluding for raw (-4.5) (2.2) (3.4) (6.2) (1.7) (9.4) (7.0) (5.4) (6.6) (7.2) (7.2)materials

<Primary energy consumption trends>


increase was high in the first half of the year and low in the second half of the year.

- In the first half of the year, coal consumption recorded 16.7%, the highest figure in

the 2000s, resulting from a rise in coking coal consumption in the steel making

industry as well as base effects. The rate of increase in consumption slowed down

in the second half of the year to record a year-on-year comparison of 4.8%, owing

to decreased base effects.

In 2010, oil consumption recorded sound growth of 2.1%.

- Oil consumption remained weak in the first half of the year. However, there was a

substantial increase in consumption of transport fuel and oil for industrial raw

materials in the second half of the year, in addition to a sharp rise in consumption in

the transformation (power generation) sector.

In 2010, natural gas (LNG) consumption witnessed a year-on-year rise of 22.6%.

- Owing to influence from the economic recovery and climate, consumption for

production of town gas and consumption for power generation both indicated high

growth of 12.6% and 38.3%, respectively.

The level of nuclear power generation went down 0.2% in 2010, maintaining a level

similar to that recorded in the previous year.

- There was a year-on-year decrease in nuclear power generation of 1.3% from the

first through the third quarter, resulting from no additional installation of power

generation facilities and concentration of planned facility inspections. There was a

3.2% increase in the fourth quarter, when a substantial number of planned facility

inspections was completed, owing to pilot operation of Singori Nuclear Power Plant

Unit 1.

Level of contribution of each factor that led to an increase in primary energy

consumption in 2010 compared to the previous year

The economic growth factor and climate conditions explain for 84.6% (15.1 million

TOE) and 27.4% (4.9 million TOE) of the increase in primary energy consumption.

On the other hand, improvements in energy efficiency have resulted in energy

consumption reduction effects of 12.0% (17.9 million TOE).


Summary


Notes: The energy efficiency effect includes all factors excluding the temperature effect and economic growth such aschanges in the industrial structure.

Level of contribution of each final energy source towards a rise in primary energy

consumption in 2010

The level of contribution of electric power (triggering energy consumption for power

generation) and energy for industrial raw materials (naphtha and coking coal) stood at

43.4% and 25.3%, respectively, accounting for 68.7% of the primary energy increase.

The level of contribution of town gas, oil, anthracite, and new & renewable energy in

the final sector stood at 15.3%, 5.4%, 3.3%, and 5.5%, respectively.



Category

Level of contribution tothe primary energy

consumption increaserate (%)

Contribution to a rise in consumption byeach factor in 2010

Contribution to change inconsumption (1,000 TOE)

Level of contribution (%)

Energy efficiency effect -2,147 -12.0 -0.9

Growth effect 15,123 84.6 6.2

Temperature effect 4,902 27.4 2.0

Change in primary energy 17,879 100.0 7.3

<Level of contribution of each factor that led to a rise in primary energy consumption>

[Level of contribution of each energy source to primary energy increase in 2010]


In 2010, final energy consumption rose by 7.0% from the previous year to stand at

194.9 million TOE.

Consumption in the industrial sector and residential/commercial sector indicated a

year-on-year rise of 8.8% and 7.1%, respectively, thus leading a rise in final energy

consumption.

- Consumption in the industrial sector increased by 14.6% in the first quarter and

9.4% in the second quarter, but the rate of increase slowed down to 5.8% in the

second half of the year, owing to reduced base effects and a slowdown in the level

of increase in coking coal consumption.

- Consumption in the transport sector rose by 2.0% from the previous year owing to

an upswing in consumption of gasoline and jet fuel.

- Consumption in the residential/commercial sector recorded high growth of 7.1%

due to influence from the economic recovery, and abnormally low temperatures in

the winter and high temperatures and high humidity in the summer.

- Consumption in the public/other sector marked a year-on-year rise of 6.8%.

Final energy consumption in 2010 marked year-on-year growth of 6.6% to post

134.6 million TOE, excluding energy for raw materials.


Summary


Notes: Values in parentheses are the year-on-year growth rate (%); p refers to tentative figures





Industry 25.4 26.1 26.6 28.0 106.1 29.1 28.5 27.8 29.9 115.4 10.2(Million TOE) (-6.1) (-1.3) (0.2) (6.1) (-0.3) (14.6) (9.4) (4.7) (6.8) (8.8) (-4.9)

-Excluding for 11.8 12.5 12.6 13.4 50.3 13.6 13.7 13.2 14.7 55.2 4.8raw materials (-4.9) (-1.1) (2.8) (4.8) (0.4) (15.0) (9.7) (4.4) (9.9) (9.7) (4.1)

Transport 8.5 9.1 9.1 9.3 35.9 8.5 9.2 9.4 9.5 36.6 2.9(Million TOE) (-2.9) (0.8) (2.3) (1.3) (0.4) (0.3) (1.4) (3.7) (2.4) (2.0) (4.7)

Residential12.7 7.0 5.8 10.3 35.7 13.6 7.8 6.2 10.6 38.3 5.6/commercial

(Million TOE) (-8.2) (0.9) (1.2) (5.1) (-1.4) (7.7) (12.3) (6.0) (3.4) (7.1) (5.2)

Public/other 1.1 1.0 1.0 1.2 4.3 1.2 1.0 1.1 1.2 4.6 0.4(Million TOE) (-0.5) (11.9) (5.9) (3.6) (4.8) (6.7) (3.5) (12.6) (4.9) (6.8) (-1.5)

Total 47.7 43.1 42.5 48.7 182.1 52.5 46.6 44.5 51.3 194.9 19.1(Million TOE) (-6.0) (-0.3) (0.9) (4.9) (-0.3) (10.0) (8.0) (4.8) (5.2) (7.0) (-0.7)

Total 34.1 29.5 28.5 34.1 126.3 37.0 31.7 29.8 36.1 134.6 13.7-Excluding for

(-5.5) (0.3) (2.4) (3.8) (0.0) (8.4) (7.5) (4.8) (5.7) (6.6) (4.5)raw materials

Town gas 6.9 3.6 2.7 5.3 18.4 7.9 4.3 2.8 5.7 20.8 3.2(Billion m3) (-6.1) (-1.1) (-2.5) (5.4) (-1.5) (14.5) (20.9) (6.1) (7.8) (12.6) (2.9)

Oil 187.2 186.1 181.0 197.9 752.2 189.0 187.8 187.0 204.2 768.0 68.5(Million bbl) (-4.9) (3.6) (1.0) (6.8) (1.5) (1.0) (0.9) (3.3) (3.2) (2.1) (4.3)

-Excluding 105.8 106.0 102.1 115.7 429.6 107.9 105.7 104.0 118.7 436.3 38.0naphtha (-7.2) (2.1) (2.2) (3.5) (0.0) (1.9) (-0.3) (1.9) (2.6) (1.6) (1.5)

Electricity 100.3 94.0 99.0 101.2 394.5 112.5 103.6 109.1 109.0 434.2 43.1(TWh) (-2.3) (2.0) (2.7) (7.7) (2.4) (12.2) (10.3) (10.2) (7.7) (10.1) (8.6)

Coal 8.2 8.2 9.5 10.0 35.9 11.3 10.2 9.4 10.4 41.2 3.4(Million ton) (-15.4) (-16.4) (-0.5) (-3.3) (-8.9) (37.0) (24.1) (-1.2) (3.9) (14.7) (-27.7)

-Excluding 3.7 3.4 3.9 4.2 15.2 3.9 4.0 3.5 4.3 15.8 1.3coking coal (-7.5) (-11.5) (8.6) (-5.6) (-4.3) (6.5) (17.1) (-9.1) (3.3) (4.0) (11.8)

Thermal and1,870 1,391 1,223 1,933 6,418 2,180 1,683 1,455 2,234 7,553 879other

(Thousand TOE) (1.5) (1.7) (1.9) (4.6) (2.5) (16.6) (21.0) (19.0) (15.5) (17.7) (9.8)

<Trends in final energy consumption>


With regards to trends in final energy consumption by energy source in 2010, town

gas, electricity, and coal consumption recorded a year-on-year rise of 12.6%, 10.1%,

and 14.7%, respectively, thus indicating noticeable growth.

Final petroleum product consumption rose 2.1% in 2010 which is a relatively high

figure, attributable to the economic recovery and the climate.

Electricity power consumption posted a rise of 10.1%, owing to base effects from the

sluggish consumption in 2009 and an increase in consumption for heating purposes

owing to abnormally low temperatures as well as a rise in industrial activities.

Consumption of town gas recorded the highest increase - 12.6% - since 2001, amid

high consumption (24.4%) in the industrial sector.

Coal consumption went up 30.5% in the first half of the year as a result of a soar in

coking coal consumption for steel making. However, consumption by key demand

industries slowed down in the second half of the year, resulting in a rise of merely

1.4%.

Thermal energy posted a high increase rate of 10.8% owing to the dissemination of

district heating and temperature effects.

New & renewable energy consumption in the final consumption sector rose 19.9%

from the previous year, gaining strength from the government’s active implementation

of propagation policies.

In January 2011, final energy consumption recorded a year-on-year drop of 0.7% to

stand at 19.1 million TOE.

Energy consumption in the industrial sector, which takes up a high share of final

energy consumption, dropped 4.9%, thus contributing to a decrease in overall final

energy consumption.

With regard to consumption trends by energy source, there was a sharp rise in

electricity consumption, attributable to a favorable turn in industrial activities and the

cold wave.


Summary


Primary energy demand in 2011 is expected to reach 270.8 million TOE, a year-on-

year rise of 3.7%.

The level of increase in primary energy demand will likely go down this year due to

several factors: a decrease in the economic growth rate, removal of temperature

effects resulting from an assumption that average year temperatures will be

recovered, and base effects from high growth in consumption in 2010.

Primary energy demand in 2011, excluding energy for raw material use (naphtha,

coking coal), is expected to go up by a mere 3.4% from the previous year.



Outlook on primary energy demand

[Forecasts on the economic growth rate and primary energy increase rate]


Notes: 1) Values in parentheses refer to the rate of increase from the same period the previous year; p refers to tentativefigures; e refers to estimates

2) LNG consumption includes the estimated directly-adopted volume of POSCO and K-POWER

Forecast on key energy indicators

The energy intensity (TOE/million won) deteriorated to 0.251 in 2010, continuing the

trend witnessed in 2009. However, it will likely improve to 0.249 in 2011.

Per-capita energy consumption rose from 4.99TOE in 2009 to 5.34TOE in 2010, and

is expected to reach 5.53TOE in 2011.


Summary

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Coal 30.7 27.7 30.1 31.0 119.5 31.3 28.4 30.7 32.0 122.4(Million ton) (22.9) (10.6) (3.3) (6.3) (10.3) (2.1) (2.3) (2.0) (3.2) (2.4)

-Excluding 23.3 21.6 24.3 24.9 94.1 23.5 21.9 24.2 25.2 94.8coking coal (14.2) (6.2) (3.0) (6.8) (7.4) (1.0) (1.4) (-0.7) (1.3) (0.8)

Oil 198.8 193.5 192.1 210.1 794.5 204.8 193.6 193.4 209.8 801.6(Million bbl) (-0.1) (0.5) (4.6) (3.4) (2.1) (3.0) (0.0) (0.7) (-0.1) (0.9)

-Excluding 117.7 111.3 109.1 124.7 462.8 119.0 109.7 108.7 123.5 460.9naphtha (0.0) (-1.0) (4.2) (3.1) (1.5) (1.1) (-1.5) (-0.4) (-1.0) (-0.4)

LNG 10.7 6.5 5.5 9.4 32.0 11.5 7.1 6.4 10.4 35.4(Million ton) (25.0) (39.8) (20.2) (11.8) (22.6) (7.6) (9.3) (16.5) (11.6) (10.6)

Hydro 1.2 1.6 2.1 1.5 6.3 1.2 1.5 2.2 1.6 6.5(TWh) (48.0) (10.5) (-18.6) (66.5) (11.6) (-2.7) (-1.9) (6.2) (11.8) (3.7)

Nuclear power 36.0 36.5 37.2 37.8 147.5 37.9 38.4 39.1 39.6 155.1(TWh) (-1.6) (-2.3) (0.0) (3.2) (-0.2) (5.3) (5.3) (5.2) (4.9) (5.2)

Other 1.5 1.5 1.4 1.8 6.2 1.6 1.7 1.5 2.0 6.8(Million TOE) (12.1) (13.2) (14.2) (14.0) (13.4) (11.2) (11.9) (6.0) (11.3) (10.2)

Primary energy 69.1 61.2 61.3 69.7 261.2 71.8 63.0 63.6 72.3 270.8(Million TOE) (10.5) (7.5) (5.3) (6.1) (7.3) (4.0) (3.0) (3.7) (3.8) (3.7)

Primary energy 53.5 46.3 46.6 54.5 200.9 55.4 47.7 48.1 56.6 207.8-Excluding for raw (9.4) (7.0) (5.4) (6.6) (7.2) (3.6) (2.9) (3.3) (3.8) (3.4)materials

<Outlook on primary energy demand>


Notes: p refers to tentative figures; e refers to forecasts

Forecasts on primary energy demand by energy source

In 2011, coal demand is expected to show gradual growth of 2.4%, attributable to

increased demand in the steel industry, despite a slowdown in coal consumption for

power generation (no new facilities), sluggishness in the cement industry, and base

effects from a high increase in consumption in the previous year.

- Coal demand, excluding coking coal, is expected to record a year-on-year rise of

merely 0.8%, attributable to sluggish consumption (0.4%) of bituminous coal for

power generation.



Category 2005 2006 2007 2008 2009 2010p 2011e

Economic growth rate (%) 4.0 5.2 5.1 2.3 0.2 6.1 4.5

Per capita consumption (TOE) 4.75 4.83 4.88 4.95 4.99 5.34 5.53

Primary energy consumption 3.8 2.1 1.3 1.8 1.1 7.3 3.7increase rate (%)

Energy intensity (TOE/Million won) 0.264 0.256 0.247 0.246 0.248 0.251 0.249

<Key indices related to energy consumption>

[Forecasts on energy intensity and per capita consumption]


In 2011, oil demand is expected to record a year-on-year rise of 0.9% to reach 801.6

million bbl.

- Oil demand for industrial use is expected to indicate relatively high growth (1.8%) as

a result of increased consumption for raw material use, but the level of increase is

expected to decrease in comparison to 2010 owing to a decrease in oil demand for

heating purposes (-1.4%) based on the assumption that average year temperatures

will be recovered.

- Petroleum product demand, excluding naphtha, will likely post a year-on-year drop

of 0.4%.

- A rise in naphtha demand (2.7%), attributable to favorable conditions in the

petrochemical industry, is expected to lead an increase in total oil consumption in 2011.

* Naphtha accounts for 41.7% of total oil consumption (as of 2010).

In 2011, LNG demand will likely record high growth of 10.6% compared to the

previous year. LNG demand for power generation, which accounted for 44% of

overall consumption in 2010, is expected to lead a rise in demand.

- Demand for LNG for power generation, which is used to handle peak load, is

forecast to record relatively high growth as it is expected that there will be

restrictions on the expansion of base power generation facilities such as those for

nuclear energy and bituminous coal and a high rise in electricity demand.

The amount of nuclear power generation will record a year-on-year rise of 5.2% as

new facilities are planned for operation in 2011, the first after 2005.

- There will likely be a rate of increase in the low 5% range as a result of effects of

facility expansion (approximately 5.5% increase)1) from the operation of Singori Units

1 and 2.


Summary

1) The total facility capacity of Singori Units 1 and 2 is 2,000MW. This accounts for 11.3% of the nuclear powerplant capacity (17,716MW) recorded at the end of 2010. However, completion of construction of Singori Unit 2is scheduled for the end of December. Production of electricity through actual pilot operations will likely bepossible in the second half of the year. Singori Units 1 and 2 are Korea’s 21st and 22nd nuclear power plants.Singori Unit 1 commenced commercial operation on February 28, 2011. Singori Unit 2 is now in a pilotoperation test phase before fuel loading.


Regarding the level of contribution of each final energy source to the increase in

primary energy consumption, the level of contribution made by demand for use as

electricity and industrial raw material is expected to rise from 68.7% in 2010 to 80.6%

in 2011.

Final energy demand is forecast to record a year-on-year increase of 3.4% in 2011 to

reach 201.4 million TOE.

Consumption soared in the industrial sector and residential/commercial/public sector

in 2010, but the level of consumption increase is expected to slow down in 2011.

The transport sector will likely indicate a low increase rate of 0.6%.

In 2011, consumption in the industrial sector is expected to record sound growth of

4.4% despite base effects from a substantial rise in consumption in 2010.

In 2011, energy demand in the transport sector is expected to go up by a mere

0.6%, attributable to a rise in international oil prices, despite a rise in new car sales

and overseas traveling, a result of continued economic recovery, and an increase in

demand for international freight transport.



[Forecasts on level of contribution of each energy source to increase in primary energy]

Outlook on final energy demand


The residential/commercial/public sector will likely indicate a substantial slowdown in

the demand increase rate at 2.8% in 2011. This is mainly attributable to base effects

from 2010 as it is assumed that average year temperatures will be recovered.

Notes: Values in parentheses are the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts


Summary

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Industry 29.1 28.5 27.8 29.9 115.4 30.6 29.6 29.1 31.2 120.5(Million TOE) (14.6) (9.4) (4.7) (6.8) (8.8) (5.0) (3.8) (4.4) (4.4) (4.4)

-Excluding for 13.6 13.7 13.2 14.7 55.2 14.2 14.4 13.6 15.4 57.6raw materials (15.0) (9.7) (4.4) (9.9) (9.7) (4.3) (4.7) (3.5) (4.9) (4.3)

Transport 8.5 9.2 9.4 9.5 36.6 8.6 9.2 9.5 9.5 36.9(Million TOE) (0.3) (1.4) (3.7) (2.4) (2.0) (1.1) (0.6) (1.4) (-0.4) (0.6)

Residential/commercial 14.9 8.8 7.3 11.9 42.8 15.6 8.9 7.6 12.0 44.1/public

(Million TOE) (7.6) (11.2) (7.0) (3.6) (7.1) (4.6) (0.6) (4.0) (1.6) (2.8)

Total 52.5 46.6 44.5 51.3 194.9 54.7 47.8 46.2 52.7 201.4Million TOE (10.0) (8.0) (4.8) (5.2) (7.0) (4.3) (2.6) (3.7) (2.8) (3.4)

Total 37.0 31.7 29.8 36.1 134.6 38.3 32.5 30.7 37.0 138.5-Excluding forraw materials

(8.4) (7.5) (4.8) (5.7) (6.6) (3.7) (2.4) (2.9) (2.4) (2.9)

Town gas 7.9 4.3 2.8 5.7 20.8 8.3 4.6 3.1 5.9 21.9(Billion m3) (14.5) (20.9) (6.1) (7.8) (12.6) (5.3) (6.2) (9.9) (3.0) (5.5)

Oil 189.0 187.8 187.0 204.2 768.0 195.4 188.0 188.3 204.1 775.9(Million bbl) (1.0) (0.9) (3.3) (3.2) (2.1) (3.4) (0.1) (0.7) (0.0) (1.0)


Electricity 112.5 103.6 109.1 109.0 434.2 117.9 109.3 114.9 115.1 457.2(TWh) (12.2) (10.3) (10.2) (7.7) (10.1) (4.8) (5.5) (5.4) (5.7) (5.3)

Coal 11.3 10.2 9.4 10.4 41.2 11.8 10.5 10.2 11.2 43.7(Million ton) (37.0) (24.1) (-1.2) (3.9) (14.7) (4.4) (3.2) (9.0) (8.1) (6.1)

-Excluding 3.9 4.0 3.5 4.3 15.8 4.0 4.0 3.6 4.5 16.1coking coal (6.5) (17.1) (-9.1) (3.3) (4.0) (2.5) (-0.4) (2.2) (3.9) (2.1)

Thermal and2,180 1,683 1,455 2,234 7,553 2,350 1,854 1,538 2,425 8,167other

(Thousand TOE) (16.6) (21.0) (19.0) (15.5) (17.7) (7.8) (10.1) (5.7) (8.6) (8.1)

<Outlook on final energy demand>


Outlook on final energy demand by energy source

Most energy sources will post a relatively low level of consumption increase in 2011

compared to the previous year due to a slowdown in economic growth and base

effects from the assumption that average year climate conditions will be recovered.

Town gas consumption went up 12.6% in 2010, owing to a surge in demand for

industrial use resulting from economic recovery and abnormally low temperatures.

However, the level of increase is expected to slow down to 5.5% in 2011.

Oil consumption for raw material use in the industrial sector is estimated to lead a rise

in oil demand.

- Oil demand for raw material use, including naphtha, solvent, and asphalt, is

expected to indicate a year-on-year rise of 3.0% owing to an upswing in the

economy.

Electricity will likely indicate relatively high growth in demand of 5.3% in 2011 resulting

from several factors: continued, sound economic growth, relatively low charge,

continued dissemination of equipment that use electricity, and convenience in use.

- In 2011, peak demand in the summer is expected to be 73,601MW (August), a

5.3% rise from the 69,886MW recorded in (August) 2010, assuming that average

year temperatures will be recovered.

- Installed reserve margin in the event of peak demand in the summer is estimated at

7.4%.

Coal consumption is forecast to see an increase of 6.1% owing to a rise in

bituminous coal demand for steel making, despite forecasts of decreased demand

for cement production.

- When excluding coking coal, final consumption of coal will likely post a year-on-year

increase of a mere 2.1%.

New & renewable energy is expected to record a demand increase rate of around

10%, thanks to the government’s active implementation of propagation policies.




Forecasts on energy intensity improvements in 2011

Energy intensity (TOE/million won) deteriorated in 2009 and 2010, but is expected to

slightly improve to 0.248 in 2011.

- The worsened energy intensity of 2009 resulted from a 1.1% rise in primary energy

consumption, triggered by favorable conditions in industrial activities of industries

that consume great amounts of energy, against the backdrop of a substantial

slowdown in the economic growth rate (0.2%) due to the financial crisis.

- The worsened energy intensity of 2010 resulted from a soar in energy demand for

heating and cooling purposes, a result of abnormal climate conditions (abnormally

low temperatures in the winter and high temperature and humidity levels in the

summer), an increase in the number of steel facilities (Hyundai Steel and Dongkuk

Steel), and an increase in industrial activities owing to the economic recovery.

The worsened energy intensity in 2009 and 2010 seems to be temporary, caused by

unusual factors, amid improvements in energy efficiency in the mid- to long-term.

Continued rapid increase in electricity consumption

Electricity consumption went up 10.1% in 2010, indicating two-digit growth for the

first time after 2000 (11.8%). It is expected to post a 5.3% increase rate, which is

higher than the final energy increase rate (3.4%), in 2011 as well.

Consumption of electricity, a high-quality energy source2), continues to mark relatively

high growth even in the 2000s because of several factors.

- The fabricated metal industry (machinery and equipment, electricity and electronics,

semiconductor, automobile, etc.), an industry that consumes great amounts of

electricity, recorded the highest degree of growth among manufacturing industries.


Summary

Outlook characteristics

2) 2.74 TOE of primary energy is needed to produce 1 TOE of electricity (as of 2010).


- From 2009 to 2010, operation of new facilities that consume great amounts of

electricity was launched in the steel making industry (Hyundai Steel, POSCO,

Dongkuk Steel, etc.).

- Petroleum product prices continue to remain high. Against this backdrop, an

electricity charge that fails to reflect production costs is maintained. For this reason,

electricity is replacing oil and town gas, main energy sources for heating.

Electricity is expected to continue to perform leading roles in Korea’s energy

consumption activities due to several factors: increased added value of key

manufacturing industry products, which consume great amounts of electricity,

convenience in use, and changes in lifestyles resulting from a rise in income levels

and technological development.

LNG demand soaring as a result of a rapid increase in electricity consumption

LNG consumption rose 22.6% (tentative) in 2010 owing to a rise in demand for

power generation. It is expected to mark high growth of 10.6% in 2011 as well.

* Rate of increase in consumption for power generation: (’09) -13.2% → (’10)

38.3% → (’11) 17.5%

* Rate of increase in consumption for town gas: (’09) 0.9% → (’10) 12.6% → (’11)

5.1%

- The increase in LNG demand for power generation, which is used to handle peak

load, is a result of a rise in electricity demand and restricted expansion of base-load

power facilities (nuclear energy, bituminous coal).

* Base-load power facilities increase rate (as of the end of the year)3): (’09) 1.2% →

(’10) 2.5% → (’11) 2.4%

* Electricity demand increase rate: (’09) 2.4% → (’10) 10.1% → (’11) 5.3%



3) Construction of Hadong bituminous coal-based thermal power plant (500MW) in 2009, Singori Power PlantUnit 1 (1,000MW) in 2010, and Singori Power Plant Unit 2 (1,000MW) in 2011


Continued expansion of conversion loss of primary energy

A rapid increase in electricity consumption expands the amount of transformation

loss of energy for power generation, triggering additional supply of primary energy.

- The level of contribution of electricity consumption towards the rise in primary

energy supply (demand) was 43.4% in 2010 and is expected to expand to 53.3%

in 2011.

The rate of energy transformation loss for electricity production stands at 64%

(tentatively for 2010). For this reason, if the electricity consumption increase rate is

higher than the average increase rate of final energy, primary energy supply rises

faster than final energy consumption.

- The amount of energy that is lost in the transformation sector for production of

secondary energy such as electricity is expected to record an annual average rise

of 6.0% from 55.0 million TOE in 2007 to 69.3 million TOE in 2011.

- The share of primary energy consumption that is taken up by the amount of energy

loss in the transformation sector is forecast to go up from 23.3% in 2007 to 25.6%

in 2011.

Notes: p refers to tentative figures, e refers to forecasts


Summary

Category Final energyincrease rate

Electricity consumptionincrease rate

Energy loss (Million TOE)(primary energy - Final energy)

Loss factor (%)(Amount of loss/primary energy

consumption)2007 4.5 5.7 55.0 23.3

2008 0.6 4.5 58.2 24.2

2009 -0.3 2.4 61.2 25.2

2010p 7.0 10.1 66.3 25.4

2011e 3.4 5.3 69.3 25.6

Annual average2.6 5.5 6.0 -increase rate (%)

<Outlook on energy transformation loss in transformation sector>


Supplied reserve margin continues a downward trend due to a rapid increase in peak

demand.

Peak demand indicated an annual average rise of 5.7% from 2000 through 2010,

while power generation capacity and supply capability recorded annual average

growth of merely 4.7% and 5.1%, respectively. The installed and supplied reserve

margins are continually dropping.

- Supplied reserve margin in 2010 was 6.2%, the lowest level in the 2000s.

A recent important characteristic to note is that Peak demand was reached in winter

(December) for two consecutive years in 2009 and 2010.

- The main cause is the abnormal cold wave in the winter for two consecutive years,

but another reason is a noticeable, recent rise in electric power consumption for

heating purposes in the winter.

Share of winter peak demand taken up by heating load is on the rise

Last winter (December 2010 - February 2011), peak demand indicated a year-on-

year rise of 6.1% to reach 73,137MW, attributable to economy recover, continued

cold wave, and relatively affordable charge.



[Trends in Peak demand and supplied reserve margin]


The amount of electricity used for heating presumably accounted for at least 25% of

peak load at the point of time of peak demand in the winter of 2010 to 2011 (Korea

Power Exchange data).

- It is presumed that the heating load for commercial use indicated noticeable

growth. Heating load for commercial use accounted for 37.8% of total heating load

(18,576MW) on the day of peak demand in the winter of 2010 to 2011.

Notes: Values in parentheses refer to the share of each useSource: Press release of the Korea Power Exchange (Results of analyzing peak demand in the winter of 2010 to 2011),

March 7, 2011


Summary

Category 2008~2009 2009~2010 2010~2011

peak demand (MW) 62,645 68,963 73,137- Year-on-year increase (%) 2.8 10.1 6.1

Heating load (MW) 14,150 16,640 18,576

- Residential3,931 4,252 4,754(27.8%) (25.6%) (25.6%)

- Commercial4,468 6,178 7,021(31.6%) (37.1%) (37.8%)

- Industrial5,751 6,210 6,801(40.6%) (37.3%) (36.6%)

<Trends in winter peak demand and heating load>

[Changes in share of winter peak demand taken up by heating load]


It is forecast that oil dependence regarding primary energy consumption will decrease

to between 30 and 40%.

The share of oil reached its peak at 63% in 1994 and continued to decrease

afterwards. It stood at 39.9% in 2010 and is expected to further drop to 38.9% in

2011.

- The primary energy share taken up by naphtha, which is mainly used for industrial

raw materials, reached 16.3% in 2010, higher than LNG (15.9%) and nuclear

energy (12.9%).

- The primary energy share of naphtha was greatly influenced by fluctuations in the

petrochemical industry. It has been indicating a steady downward trend since 2009

and is expected to record 16.1% in 2011.

- When excluding naphtha, the share of primary energy taken up by oil is expected to

be a mere 22.7% in 2011.



[Trends in oil dependence and forecasts]


Installed reserve margin is expected to be 7.4% in the summer of 2011.

Peak demand in the summer of 2011 is expected to be 73,601MW, a 5.3% rise from

the 69,886MW recorded in 2010. Monthly average temperature information for 20

years was used to come up with this estimate.

- Maximum Forecast No. 1, which uses monthly average temperature information of

the last five years, estimates that summer peak demand will reach 73,886MW, a

year-on-year rise of 5.7%.

- Maximum Forecast No. 2, which assumes that summer climate conditions in 2011

will be the same as they were in 2010, estimates that summer peak demand will

reach 74,846MW, a year-on-year increase of 7.1%.

If an assumption is made that average year climate conditions will be recovered in the

summer of 2011, installed reserve margin should have more room than the previous

year’s level (6.5%).

- Installed reserve margin in the event of peak demand in the summer of 2011 is

estimated at 7.4% in case of the base forecast, 7.0% in case of Maximum Forecast

No. 1, and 5.6% in case of Maximum Forecast No. 2.

- Because installed reserve level is expected to be 5,469MW for the base forecast and

5,184MW for Maximum Forecast No. 1, stable electricity supply/demand is expected.

Notes: 1) Installed reserve margin (%) = [(total capacity - peak demand)/peak demand]×1002) Total capacity excludes small hydro power facilities and isolated facilities that are not connected to systems


Summary

Policy implications

Category 2008 2009 20102011

Base forecast Maximum ForecastNo. 1

Maximum ForecastNo. 2

Peak demand (MW) 62,794 63,212 69,886 73,601 73,886 74,846- Increase rate (%) 0.8 0.7 10.6 5.3 5.7 7.1

Total capacity (MW) 70,353 73,373 74,407 79,070 79,070 79,070- installed reserve margin (%) 12.0 16.1 6.5 7.4 7.0 5.6

<Forecasts on electricity supply/demand for the summer of 2011>


There is a need to overhaul measures on stabilizing electricity supply/demand in

preparation for abnormal climate conditions in the summer.

- If the weather in the summer is similar to that witnessed in the summer of 2010,

there is a possibility of installed reserve margin going down from the previous year

(6.5%). In this case, installed reserve level is estimated at 4,200MW.

- In preparation for a rise in peak demand in the summer as a result of abnormal

climate conditions, there is a need to revisit relevant measures, such as adjusting

the regular repair period of base-load power plants and raising the output of power

plants.

Measures for abnormal climate conditions in the winter of 2011 will become more

significant.

- During the last two years (2009-2010), peak load was reached for the first time in

winter. Heating load is taking up a higher proportion of peak demand in the winter.

- In this case, there will be a sharp rise in consumption of LNG for power generation,

which is used to handle peak load, as well as town gas for heating. For this reason,

there is a possibility that ensuring stability in the supply and demand for LNG in the

winter will become more important.



[Comparison between economic growth rate and summer peak demand increase rate]


There is a need to strengthen electricity demand side management and enhance

efficiency in electricity use.

Consumption of electricity continues to increase rapidly due to its low charge;

diversification, increased size, and propagation of electrical equipments; a rise in the

number of facilities that consume a great amount of electricity due to increased

industrial activities; increased demand for heating in the winter; and convenience in use.

- A two-digit (10.1%) consumption increase rate was recorded in 2010, attributable

to the economic recovery and temperature effects. It is expected that sound

growth of 5.3% will be witnessed in 2011.

There is a need to promote the stable supply/demand of electricity by strengthening

demand side management in consideration of the continuous downward trend of the

supplied reserve margin at the point of time of peak demand.

- There are various constraints in building enough power generation facilities to cover

electricity demand. For this reason, there is a need for the government to place

more focus on electricity demand side management policies.

- There is a need to actively move forward with the adoption of EERS (Energy

Efficiency Resource Standard) as soon as possible to strengthen electricity demand

side management.

- There is also a need to encourage an appropriate level of use of cooling and

heating devices in large buildings, where there is much potential to bring down

electricity demand. There is also a need to improve efficiency of lighting fixtures by

promoting the ESCO (Energy Service Company) program, and facilitate the

adoption of electricity-saving building management systems.

There is a need to adjust the electricity charge to a realistic level so as to reduce

excessive consumption (especially for heating purposes) of electricity in order to

boost efficiency in electricity consumption.

- Large shopping malls, financial institutes, and other organizations in the service

industry tend to provide excessive heating and cooling in Korea.

- To remove such practices that lead to the waste of resources, there is an urgent

need to strengthen the market functions of energy prices.


Summary


In 2011, the value of energy imports is expected to go up by 20.2%.

The value of imported energy (oil, natural gas, coal, uranium) reached 121.7 billion

dollars in 2010, a year-on-year rise of 33.4%.

- The amount of energy imports (oil, natural gas, coal) indicated a year-on-year

increase of merely 8.8%, but the value of imports rose substantially owing to a

surge in energy prices such as international oil prices.

The value of energy imports in 2011 is estimated at 146.2 billion dollars.

- The level of increase in energy demand (imports) is expected to slow down this

year, but the value of energy imports is expected to indicate a year-on-year rise of

20.2%, owing to forecasted increase in international energy prices.

* Oil: (’09) $66.6 billion → (’10) $90.9 billion → (’11) $111.2 billion

* Natural gas: (’09) $13.9 billion → (’10) $17 billion → (’11) $20 billion

* Bituminous coal: (’09) $9 billion → (’10) $11.4 billion → (’11) $13.4 billion

Notes: 1. The values in parentheses are the year-on-year growth rate (%), p refers to tentative figures, e refers to forecasts2. The import price of each energy source is based on the unit price of import



Category 2006 2007 2008 2009 2010p 2011e

Primary energy 233.4 236.5 240.8 243.3 261.2 270.8

consumption(Million TOE) (2.1) (1.3) (1.8) (1.1) (7.3) (3.7)

Amount of imports 238.7 246.8 255.5 257.1 279.6 285.2(Million TOE) (4.5) (3.4) (3.5) (0.6) (8.8) (2.0)

Value of imports 856 950 1,415 912 1,217 1,462(100 million dollars) (28.3) (11.0) (49.0) (-35.6) (33.4) (20.2)

<Energy consumption and import and outlook>


Energy Demand Outlook for 2011


ChapterⅠInternational Energy

Market Trends

1. Trends in the international oil market and oil exports/imports

2. Trends in international natural gas and coal prices


A. Trends in international oil prices and domestic petroleum product prices

International oil prices continued an upward trend, triggered by a rise in demand for

heating oil as a result of a cold wave that hit the northern hemisphere and unstable

conditions in the Middle East including Egypt and Libya. International oil prices recorded

a year-on-year rise of 36.2% in February 2011 to reach $100.2/barrel (Dubai oil).

International petroleum product prices rapidly rose in tandem with the increase in

international crude oil prices. The price of gasoline stood at (92RON) $109.6/barrel,

while that of diesel recorded $117.5/barrel and naphtha $97.9/barrel.

Notes: The values in parentheses indicate the rate of increase from the same period (month) the previous year (%)

B. Trends in domestic prices of petroleum products

In February 2011, retail prices of gasoline and diesel in Korea recorded a year-on-year increase

of 11.2% and 14.5%, respectively. Retail price of butane for vehicles went up 12.3%.

ChapterⅠ International Energy Market Trends


Trends in the international oil market and oil exports/imports1

(Unit: $/Bbl, %)

Category WTI Brent Dubai

Year 2008 99.92 (27.21) 97.47 (24.85) 94.29 (25.86)

Year 2009 61.94 (-37.98) 61.73 (-35.74) 61.92 (-32.37)

Year 2010 79.49 (17.55) 79.66 (17.93) 78.13 (16.21)

January 2010 78.34 (87.33) 76.39 (75.09) 76.75 (73.96)

February 2010 76.45 (95.03) 73.82 (71.04) 73.60 (70.81)

January 2011 89.54 (14.30) 96.78 (26.69) 92.55 (20.59)

February 2011 89.66 (17.28) 103.90 (40.75) 100.24 (36.20)

<TableⅠ-1> Changes in international crude oil prices


The prices of diesel and butane recorded relatively rapid growth. The relative price of

diesel and butane for vehicles against gasoline was around 89.3% and 57.8%,

respectively.

Notes: The values in parentheses indicate the relative price against gasoline prices (%)

Retail prices of petroleum products in Korea are roughly 2.4 times (gasoline) and 2.0

times (diesel) higher than Singapore spot market prices of two weeks earlier.

Notes: Gasoline (92RON) and diesel (0.05%) prices were calculated by using the weekly average price of the Singaporespot market and the weekly average exchange rate



(Unit: Won/liter, Won/kg, %)

Category Gasoline Diesel Butane for transport

Year 2008 1,692.1 1,614.4 (95.4) 1,009.0 (59.6)

Year 2009 1,600.7 1,397.5 (87.3) 828.7 (51.8)

Year 2010 1,710.4 1,502.8 (87.9) 952.2 (55.7)

January 2010 1,661.2 1,449.7 (87.3) 956.6 (57.6)

February 2010 1,663.6 1,442.9 (86.7) 952.2 (57.2)

January 2011 1,724.5 1,507.2 (88.8) 966.4 (58.5)

February 2011 1,732.4 1,522.0 (89.3) 953.5 (57.8)

<TableⅠ-2> Changes in consumer prices of petroleum products in Korea

[DiagramⅠ-1] Changes in petroleum product import prices and consumer prices


C. Trends in crude oil and petroleum product exports/imports

In December 2010, the crude oil import volume stood at 77.7 million barrels, recording

a year-on-year rise of 10.1%. The import amount (based on CIF) rose 22.2% to reach

6.7 billion dollars.

The cumulative import volume for 2010 posted 872.4 million barrels, a year-on-year

rise of 4.4%, while the amount posted a rise of 35.4% to stand at 68.7 billion dollars.

Crude oil imports maintained high growth after March, attributable to a rise in

demand for petroleum products, resulting from the extremely cold winter, a rise in fuel

consumption of vehicles, and favorable conditions in the petrochemical industry.

In 2010, petroleum product imports recorded a year-on-year increase of 2.5% to

reach 276.8 million barrels. Petroleum product exports witnessed a year-on-year rise

of 1.7% to post 341.8 million barrels.

Both exports and imports of naphtha substantially rose. Together with naphtha, LPG

led a rise in product imports. Gasoline exports decreased, while diesel exports

considerably rose.

International LNG and coal prices plummeted after the global economic downturn at

the end of 2008, but steadily rose afterwards. They are going up, together with

international oil prices, owing to unstable conditions in the Middle East that began at

the end of 2010.

The movement for democracy in the Middle East that began in Tunisia at the end of

2010 is influencing not only international oil prices but is also contributing to the rise in

LNG and coal prices. In March 2011, international LNG prices recorded a year-on-

ChapterⅠ International Energy Market Trends


Trends in international natural gas and coal prices2


year increase of 10.4% to reach $209.4/.

In March 2011, international coal prices reached 137 dollars, a sharp rise of more

than 30% from the average price (99 dollars/ton) posted the previous year.

The rise in international coal and LNG prices is expected to continue for some time in

2011, owing to unstable conditions in the Middle East and the Japanese earthquake

in March.

Notes: The price of coal refers to that of Australian coal (left). The price of LNG is the price at which Japan importsIndonesian LNG (right).

Source: Datastream (IMF Primary Commodity Price)



[DiagramⅠ-2] Changes in international coal and LNG prices


ChapterⅡEconomic and Energy

Consumption Trends in Korea

1. Economic trends in Korea

2. Trends in primary energy consumption

3. Trends in final energy consumption

4. Trends in petroleum product consumption

5. Trends in electricity consumption

6. Trends in LNG and town gas consumption

7. Trends in coal and other energy consumption


Outline

According to Industrial Activity Trends announced by Statistics Korea in January

2011, the mining/manufacturing industry, service production, retail sales, and facility

investments went up from the previous month in January. On the other hand,

completed construction went down from the previous month. The cyclical

component of coincident index and composite leading index went up from the

previous month in terms of a comparison to the same month the previous year.

Production trends

Mining/manufacturing industry production went up 13.7% from the same month the

previous year, thanks to favorable conditions in semiconductors and parts (24.4%)

and in the automobile industry (23.1%), gaining strength from the release of new

vehicles. This is despite a slump in image/sound/communication equipment (4.9%)

and computers (-11.4%).

The average operating rate in the manufacturing sector rose 2.7%p from the previous

month. It reached 84.8%, which is the highest level since statistics were first collected

in 1980.

In terms of the service industry, there was a decrease in real estate/lease (-19.0%)

and lodging/restaurants (-0.7%), but a rise in transportation (9.4%), wholesale/retail

(8.0%), and business facilities management/business support (8.0%) led to an overall

increase of 4.6% from the same month the previous year.

ChapterⅡ Economic and Energy Consumption Trends in Korea


Economic trends in Korea4)1

4) Summary of Industrial Activity Trends (January 2011) of Statistics Korea


Source: Statistics Korea, Industrial Activity Trends (January 2011), March 2011 The Bank of Korea, Economic StatisticsSystem



(Unit: Year-on-year comparison (month-on-month comparison), %)

CategoryYear 2009 Year 2010 Year 2011Annual Annual (p) 3/4 4/4 (p) Jan Nov Dec (p) Jan (p)

Production

Consumption

Investment

Prices

Sales of consumer goods

Consumer prices

Producer prices

Mining/manu

facturingindustry

Production

(Automobiles)

Shipment

·Exports

Inventory

Average operating rate

Productioncapacity

Facility investmentindex

Domestic ordersfor machinery

Constructioncompleted in Korea

Construction orders in Korea

·Domesticdemand

·Manufacturingsector( I C T )

Manufacturingindustry

Facility

Construction

-0.1

-0.2

9.3

-6.4

-1.4

-1.6

-0.9

-7.8

74.4

3.5

2.7

-9.4

-10.3

1.6

5.0

2.8

-0.2

16.2

16.7

25.2

23.1

14.4

11.5

18.2

17.4

81.2

7.2

6.6

25.1

11.2

-3.3

-18.7

2.9

3.8

10.9

11.2

19.1

11.3

9.9

6.6

14.5

19.1

81.2

7.8

7.5

29.3

-0.2

-6.8

-3.6

2.9

3.6

11.7

11.9

15.2

10.1

11.9

8.3

16.9

17.4

80.8

7.4

5.1

13.5

11.3

-4.4

-40.2

3.6

5.0

37.0

38.7

63.5

81.5

31.4

29.0

34.6

-3.3

79.3

5.7

6.7

26.3

11.8

4.5

20.2

3.1

2.8

11.2

11.4

13.3

6.9

11.7

9.7

14.5

16.9

80.5

7.5

6.9

13.1

-9.2

-7.7

-48.7

3.3

4.9

10.6

10.8

19.0

8.3

10.5

4.4

19.3

17.4

82.1

7.3

4.3

7.3

34.9

-0.2

-22.5

3.5

5.3

13.7

14.1

17.3

23.1

14.4

9.5

21.3

12.9

84.8

7.0

10.8

22.3

20.2

-8.0

-33.9

4.1

6.2

<TableⅡ-1> Recent economic trends


Consumption trends

Retail sales witnessed a year-on-year rise of 10.8% owing to a rise in sales of

durables (14.1%) including computers, telecommunication equipment, and home

appliances, quasi-durables (11.9%) such as clothes, and nondurables (9.1%) such as

food and beverage.

- In terms of different retail business types, there was a rise in department stores

(20.6%), large discount stores (20.4%), and nonstore retailing (20.0%).

Investment trends

Facility investments saw a 4.5% rise from the previous month due to a rise in

investments in machinery such as machinery for special industries. They indicated a

year-on-year rise of 22.3%, attributable to an increase in investments in machinery,

despite decreased investments in transportation equipment.

The number of domestic orders for machinery went down in the public sector.

However, favorable conditions in orders made by the private sector led to an overall


- There was a decrease in the public sector due to base effects, but demand rose in

the private sector for electronics and image/sound/communication equipment.

Completed construction witnessed a month-on-month drop of 5.6% and a year-on-

year decrease of 8.0% owing to sluggish performance in construction and public

works.

Construction orders (at current prices) posted a year-on-year decrease of 33.9%,

owing to decreased orders in the private sector as well as a drop in orders for flood

control afforestation as well as roads and bridges in the public sector.

Business indices

The cyclical component of coincident index went up 1.1%p from the previous month,

attributable to a rise in all indices including the index of mining and manufacturing

industrial product, service industry activity, and wholesale and retail sales index.

The leading index’s year-on-year comparison recorded a 0.2%p rise from the




previous month, owing to a rise in the inventory cycle index, value of construction

orders, the ratio of those seeking to hire to those seeking jobs, and value of

machinery orders.

Source: Statistics Korea, Industrial Activity Trends (January 2011), March 2011

Notes: Statics Korea, Korean Statistical Information Service (http://kosis.kr). As of January 2011.



CategorySeptember

2010 October (p) November (p) December (p)January2011 (p)

-0.3 -0.3 0.2 0.8 1.5

100.4 99.6 99.5 99.8 100.9

-0.7 -0.8 -0.1 0.3 1.1

0.0 -0.3 0.2 0.5 0.7

4.5 3.3 2.8 2.8 3.0

-0.9 -1.2 -0.5 0.0 0.2

<TableⅡ-2> Composite index

Composite coincident index (Compared to the previous month, %)

·Cyclical component

·Month-to-month difference in cyclical component (p)

Composite leading index (Compared to the previous month, %)

·Compared to the same month the previous year (%)

·Month-to-month difference (%p)

[DiagramⅡ-1] Business Cycle Clock (BCC)


Business cycle

According to the Business Cycle Clock (BCC) in January 2011, the value of

construction completed is recovering. The value of exports, industrial production, and

retail sales, which slowed down in November 2010, have entered an upward trend.

Service industry activity, which was also on a downward trend, has made a shift into

an upward trend.

In contrast, the consumer expectation index, business survey index, and value of

imports are slowing down. The number of employed persons has increased

compared to November, but is still on a downward trend.

Primary energy consumption for 2010 has been tentatively tallied at 261.2 million TOE,

a year-on-year rise of 7.3%.

Primary energy consumption went up by 10.5% in the first quarter and 7.5% in the

second quarter according to changes in the economic growth rate by quarter. The

rate of increase stood at 5.3% in the third quarter and 6.1% in the fourth quarter,

indicating a slight slowdown in the level of increase in the second half of the year.

* Economic growth rate: (First quarter) 8.1% → (Second quarter) 7.2% → (Third

quarter) 4.4% → (Fourth quarter) 4.8%

- The rate of increase in energy consumption continued to remain higher than the

economic growth rate from the second quarter of 2009 through the third quarter of

2010, but was lower than the economic growth rate in the fourth quarter.



Trends in primary energy consumption2


The rise in primary energy consumption in 2010 is attributable to the economic

recover (including base effects from the economic downturn of the previous year) and

the climate (abnormally low temperatures in the winter and high temperatures and


- An upswing in production in industries that consume a great amount of electricity

such as fabricated metal as well as an expansion of steel making facilities that

consume a great amount of electricity had a considerable influence on increased

energy consumption in 2010.

- A sharp rise in energy consumption for cooling and heating purposes, triggered by

abnormal weather throughout 2010, also contributed to the increase in primary

energy consumption.



[DiagramⅡ-2] Recent economic and primary energy consumption trends


Notes: 1) Values in parentheses refer to the rate of increase from the same period the previous year; p refers to tentativefigures

2) LNG consumption includes the estimated directly-adopted and consumed volume of POSCO and K-POWER

In 2010, primary energy consumption, excluding energy for raw materials (naphtha

and coking coal), reached 200.9 million TOE, a year-on-year growth of 7.2%.





Coal 25.0 25.1 29.2 29.2 108.4 30.7 27.7 30.1 31.0 119.5 10.6

(Million ton) (-0.3) (-0.1) (7.3) (8.6) (4.0) (22.9) (10.6) (3.3) (6.3) (10.3) (-8.5)

-Excluding 20.4 20.3 23.6 23.3 87.6 23.3 21.6 24.3 24.9 94.1 8.5

coking coal (6.2) (5.6) (10.9) (11.6) (8.7) (14.2) (6.2) (3.0) (6.8) (7.4) (5.7)

Oil 199.1 192.5 183.6 203.2 778.5 198.8 193.5 192.1 210.1 794.5 73.3

(Million bbl) (-2.8) (5.3) (0.4) (6.9) (2.3) (-0.1) (0.5) (4.6) (3.4) (2.1) (5.7)

-Excluding 117.7 122.4 104.7 121.0 455.9 117.7 111.3 109.1 124.7 462.8 42.7

naphtha (-3.6) (4.9) (1.1) (3.9) (1.5) (0.0) (-1.0) (4.2) (3.1) (1.5) (4.1)

LNG 8.5 4.6 4.6 8.4 26.1 10.7 6.5 5.5 9.4 32.0 4.9

(Million ton) (-14.7) (-11.8) (-2.0) (11.0) (-4.9) (25.0) (39.8) (20.2) (11.8) (22.6) (20.2)

Hydro 0.8 1.4 2.5 0.9 5.6 1.2 1.6 2.1 1.5 6.3 0.3

(TWh) (-12.3) (9.1) (4.8) (-4.2) (1.4) (48.0) (10.5) (-18.6) (66.5) (11.6) (-35.0)

Nuclear power 36.6 37.3 37.2 36.6 147.8 36.0 36.5 37.2 37.8 147.5 12.4

(TWh) (-8.2) (3.1) (-0.8) (-1.9) (-2.1) (-1.6) (-2.3) (0.0) (3.2) (-0.2) (-6.3)

Other 1.3 1.3 1.3 1.6 5.5 1.5 1.5 1.4 1.8 6.2 0.5

(Million TOE) (8.5) (6.6) (5.6) (1.9) (5.4) (12.1) (13.2) (14.2) (14.0) (13.4) (10.8)

Primary energy 62.5 56.9 58.2 65.7 243.3 69.1 61.2 61.3 69.7 261.2 25.9

(Million TOE) (-5.1) (1.3) (2.0) (6.5) (1.1) (10.5) (7.5) (5.3) (6.1) (7.3) (2.6)

Primary energy 48.9 43.3 44.2 51.1 187.5 53.5 46.3 46.6 54.5 200.9 20.6

-Excluding for raw (-4.5) (2.2) (3.4) (6.2) (1.7) (9.4) (7.0) (5.4) (6.6) (7.2) (7.2)materials

<TableⅡ-3> Primary energy consumption trends


- As of 2010, energy for raw materials accounted for 23.1% of primary energy

consumption.

- The percentage taken up by energy for raw materials is steadily rising from 21.7%

in 2000, gaining strength from growth of the oil/chemical and steel making

industries.

Trends in consumption of each energy source in 2010

In 2010, coal consumption witnessed a year-on-year rise of 10.3%.

- Coal consumption led a rise in primary energy consumption in the first half of the

year. However, the rate of increase in coal consumption slowed down in the

second half of the year.

·In the first half of the year, coal consumption recorded 16.7%, the highest figure in

the 2000s, resulting from a rise in coking coal consumption in the steel making

industry, triggered by economic recovery, as well as base effects.

·The rate of increase in consumption slowed down in the second half of the year to

record a year-on-year comparison of 4.8%, owing to decreased base effects. As

such, the level of increase was high in the first half of the year and low in the

second half of the year.

- Coal consumption for power generation went up 8.1%, attributable to a rise in use

by bituminous coal-firing thermal power plants (8.9% rise in bituminous coal

consumption for power generation).

In 2010, oil consumption recorded sound growth of 2.1%.

- Oil consumption remained weak in the first half of the year. However, annual oil

consumption indicated relatively high growth, owing to a substantial increase in

consumption of transport fuel and oil for industrial raw materials in the second half

of the year, in addition to a sharp rise in consumption in the transformation (power

generation) sector.

- With regards to consumption by sector, petroleum product consumption evenly

went up in all sectors, with the exception of reduced consumption for fuel in the

industrial sector.




·Consumption for transport fuel, industrial raw material use, and in the

transformation sector went up 2.1%, 2.9%, and 1.0%, respectively. Consumption

in the residential/commercial and public/other sector recorded high growth of

5.7% due to the cold weather in the winter.

In 2010, natural gas (LNG) consumption witnessed a year-on-year rise of 22.6%.

- Natural gas consumption for production of town gas and natural gas consumption

for power generation both indicated high growth owing to influence from the

economic recovery and climate.

- Consumption of natural gas for power generation, which is used to handle peak

load, recorded a year-on-year rise of 38.3%, attributable to a substantial rise in

electricity demand in addition to zero expansion of base-load power facilities such

as nuclear power plants.

- LNG consumption for production of town gas went up 12.6% in tandem with a

sharp rise (24.4%) in town gas consumption for industrial use, attributable to

increased industrial activities.



[DiagramⅡ-3] Trends in primary energy consumption increase rate


The level of nuclear power generation went down 0.2% in 2010, maintaining a level

similar to that recorded in the previous year.

- This is attributable to a year-on-year decrease in nuclear power generation of 1.3%

from the first through the third quarter, resulting from no additional installation of

power generation facilities and concentration of planned facility inspections (Uljin

Nuclear Power Plant Units 1, 2, 4, and 5, Yeonggwang Nuclear Power Plant Units

1, 2, 3, and 6, Wolseong Nuclear Power Plant Unit 4, Gori Nuclear Power Plant

Units 1 and 2, etc.).

- There was a 3.2% increase in the fourth quarter, owing to the completion of a

substantial number of planned facility inspections and pilot operation of Singori

Nuclear Power Plant Unit 1 (21st nuclear power plant in Korea, commercial

operation on February 28, 2011).

Primary energy consumption trends in January 2011

In January 2011, primary energy consumption reached 25.9 million TOE, a year-on-

year rise of 2.6%.

Primary energy consumption increased, with LNG and oil taking the lead, as a result

of a favorable turn in the economy and continued abnormal cold wave in January.

- LNG consumption witnessed a year-on-year increase of 20.2%, owing to a rise in

consumption for town gas production and consumption for power generation,

resulting from a favorable turn in industries that consume a great amount of

electricity and abnormally low temperatures.

* A 13.7% rise in the mining/manufacturing industry production index: (January

2010) 129.3 → (January 2011) 147.0

* A 11.9% rise in HDD (Heating Degree Day): (January 2010) 697.4 → (January

2011) 780.7

- Oil consumption in January witnessed a year-on-year rise of 5.7%, owing to

increased consumption of naphtha in the petrochemical industry, as well as

kerosene and diesel for heating purposes, and oil for transport.

* Rate of increase of key petroleum products in January: Naphtha 8.0%, kerosene




14.1%, gasoline 5.6%, and diesel for transport 3.6%

- Coal recorded a 8.5% decrease in tandem with a year-on-year drop of 40.5% in

consumption of coking coal in the steel making industry, which previously led a rise

in overall coal consumption.

·Consumption for power generation posted a year-on-year rise of 4.6% due to an

increase in electricity consumption (8.6%).

- Nuclear energy recorded a year-on-year drop of 6.3% owing to planned

inspections of key nuclear power generation facilities (Wolseong Nuclear Power

Plant Unit 3, Gori Nuclear Power Plant Unit 1, Yeonggwang Nuclear Power Plant

Unit 5, Singori Nuclear Power Plant Unit 1).

Level of contribution of each factor that led to an increase in primary energy

consumption in 2010 compared to the previous year

The economic growth factor explains for 84.6% (15.1 million TOE) of the increase in

primary energy consumption (17.9 million TOE).

Weather conditions in 2010 also contributed 27.4% (4.9 million TOE) towards the

increase in primary energy consumption.

* Tentative economic growth rate for 2010: 6.1% (The Bank of Korea)

* Average temperature fluctuations: (First quarter) 1.9℃↓ (April·May) 2.6℃↓

(Third quarter) 0.8℃↑ (Fourth quarter) 0.7℃↓

Improvements in energy usage efficiency have resulted in energy consumption

reduction effects of 12.0% (2.1 million TOE).




Notes: The energy efficiency effect includes all factors that trigger a change in energy consumption excluding thetemperature effect and economic growth effect such as changes in the industrial structure and technical energyefficiency improvements.

Notes: Values in parentheses refer to the level of contribution of each factor to energy consumption changes

Level of contribution of each factor that led to a rise in primary energy consumption

from 2000 through 2010

In the 2000s, the economic growth effect had the biggest influence on the rise in

primary energy consumption.



Category

Level of contribution tothe primary energy

consumption increaserate (%)

Contribution to a rise in consumption byeach factor in 2010

Contribution to change inconsumption (1,000 TOE)

Level of contribution (%)

Energy efficiency effect -2,147 -12.0 -0.9

Growth effect 15,123 84.6 6.2

Temperature effect 4,902 27.4 2.0

Change in primary energy 17,879 100.0 7.3

<TableⅡ-4> Level of contribution of each factor that led to a rise in primary energy consumption

[DiagramⅡ-4] Level of contribution to the primary energy increase rate by each factor in 2010


The energy efficiency improvement effect generally brought down primary energy

consumption.

With the stabilization of the economic growth rate in the 2000s, abnormal weather is

having increased influence on changes in the energy consumption increase rate.

- Energy consumption is being substantially influenced by temperature changes in

tandem with increased propagation of cooling and heating devices in buildings

(including those for residential purposes), triggered by a rise in income levels and

high growth of the service industry.

- It is assumed that the climate factor triggered a 2.8% rise in the primary energy

consumption increase rate in 2005, while causing a -2.8% drop in 2006. It is also

assumed that the climate factor caused a 2.0% rise in the primary energy

consumption increase rate in 2010.

Changes in primary energy consumption in the 2000s, when excluding the

temperature effect

- It is assessed that the climate factor substantially influenced energy consumption

from 2003 through 2007, and in 2010.



[DiagramⅡ-5] Level of contribution of each factor towards the annual primary energy increase rate


- It is assumed that the climate factor served to substantially raise primary energy

consumption in 2005 and 2010 (3.1 million TOE and 3.2 million TOE, respectively).

- In contrast, it is assumed that the temperature effect led to a decrease in energy

consumption from 2003 to 2004 and 2006 to 2007.



Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010p

198.4 208.6 215.1 220.2 228.6 233.4 236.5 240.8 243.3 261.2

1.4 -2.0 -3.1 -3.1 3.1 -3.3 -3.7 -1.2 -1.7 3.2

0.7 -1.0 -1.4 -1.4 1.3 -1.4 -1.6 -0.5 -0.7 1.2

<TableⅡ-5> Temperature effect regarding an increase in primary energy consumption

primary energy(1 million TOE)

Temperatureeffect

Amount ofincrease/decrease(1 million TOE)

Increase/decreaserate (%)

[DiagramⅡ-6] Assumed changes in primary energy consumption caused by the temperature effect


Notes: Total HDD from January through March, November through December

Notes: Total CDD from June through September

Level of contribution of each energy source to an increase in primary energy

consumption in 2010

The level of contribution of electricity (triggering energy consumption for power

generation) and energy for industrial raw materials (naphtha and coking coal) stood at

43.4% and 25.3%, respectively, accounting for 68.7% of the primary energy

increase.



[DiagramⅡ-7] Changes in HDD

[DiagramⅡ-8] Changes in CDD


- Energy consumption for power generation in 2010 reached 127.3 million TOE, a


- Energy consumption for industrial raw materials in 2010 posted a year-on-year rise

of 8.0% to reach 60.2 million TOE.

The level of contribution of town gas, oil, anthracite (for industrial and

residential/commercial use), and new & renewable energy in the final sector stood at

15.3%, 5.4%, 3.3%, and 5.5%, respectively.

In 2010, final energy consumption rose by 7.0% from the previous year to stand at

194.9 million TOE.



[DiagramⅡ-9] Level of contribution of each energy source to primary energy increase in 2010

Trends in final energy consumption3







Industry 25.4 26.1 26.6 28.0 106.1 29.1 28.5 27.8 29.9 115.4 10.2(Million TOE) (-6.1) (-1.3) (0.2) (6.1) (-0.3) (14.6) (9.4) (4.7) (6.8) (8.8) (-4.9)

-Excluding for 11.8 12.5 12.6 13.4 50.3 13.6 13.7 13.2 14.7 55.2 4.8raw materials (-4.9) (-1.1) (2.8) (4.8) (0.4) (15.0) (9.7) (4.4) (9.9) (9.7) (4.1)

Transport 8.5 9.1 9.1 9.3 35.9 8.5 9.2 9.4 9.5 36.6 2.9(Million TOE) (-2.9) (0.8) (2.3) (1.3) (0.4) (0.3) (1.4) (3.7) (2.4) (2.0) (4.7)

Residential12.7 7.0 5.8 10.3 35.7 13.6 7.8 6.2 10.6 38.3 5.6/commercial

(Million TOE) (-8.2) (0.9) (1.2) (5.1) (-1.4) (7.7) (12.3) (6.0) (3.4) (7.1) (5.2)

Public/other 1.1 1.0 1.0 1.2 4.3 1.2 1.0 1.1 1.2 4.6 0.4(Million TOE) (-0.5) (11.9) (5.9) (3.6) (4.8) (6.7) (3.5) (12.6) (4.9) (6.8) (-1.5)

Total 47.7 43.1 42.5 48.7 182.1 52.5 46.6 44.5 51.3 194.9 19.1(Million TOE) (-6.0) (-0.3) (0.9) (4.9) (-0.3) (10.0) (8.0) (4.8) (5.2) (7.0) (-0.7)

Total 34.1 29.5 28.5 34.1 126.3 37.0 31.7 29.8 36.1 134.6 13.7-Excluding for

(-5.5) (0.3) (2.4) (3.8) (0.0) (8.4) (7.5) (4.8) (5.7) (6.6) (4.5)raw materials

Town gas 6.9 3.6 2.7 5.3 18.4 7.9 4.3 2.8 5.7 20.8 3.2(Billion m3) (-6.1) (-1.1) (-2.5) (5.4) (-1.5) (14.5) (20.9) (6.1) (7.8) (12.6) (2.9)

Oil 187.2 186.1 181.0 197.9 752.2 189.0 187.8 187.0 204.2 768.0 68.5(Million bbl) (-4.9) (3.6) (1.0) (6.8) (1.5) (1.0) (0.9) (3.3) (3.2) (2.1) (4.3)

-Excluding 105.8 106.0 102.1 115.7 429.6 107.9 105.7 104.0 118.7 436.3 38.0naphtha (-7.2) (2.1) (2.2) (3.5) (0.0) (1.9) (-0.3) (1.9) (2.6) (1.6) (1.5)

Electricity 100.3 94.0 99.0 101.2 394.5 112.5 103.6 109.1 109.0 434.2 43.1(TWh) (-2.3) (2.0) (2.7) (7.7) (2.4) (12.2) (10.3) (10.2) (7.7) (10.1) (8.6)

Coal 8.2 8.2 9.5 10.0 35.9 11.3 10.2 9.4 10.4 41.2 3.4(Million ton) (-15.4) (-16.4) (-0.5) (-3.3) (-8.9) (37.0) (24.1) (-1.2) (3.9) (14.7) (-27.7)

-Excluding 3.7 3.4 3.9 4.2 15.2 3.9 4.0 3.5 4.3 15.8 1.3coking coal (-7.5) (-11.5) (8.6) (-5.6) (-4.3) (6.5) (17.1) (-9.1) (3.3) (4.0) (11.8)

Thermal and1,870 1,391 1,223 1,933 6,418 2,180 1,683 1,455 2,234 7,553 879other

(Thousand TOE) (1.5) (1.7) (1.9) (4.6) (2.5) (16.6) (21.0) (19.0) (15.5) (17.7) (9.8)

<TableⅡ-6> Trends in final energy consumption


Final energy consumption in 2010 marked a year-on-year growth of 6.6% to post

134.6 million TOE, excluding energy for raw materials (naphtha, coking coal).

- In 2010, energy for raw materials accounted for 30.9% of final energy consumption.

- With regards to the share of final energy consumption taken up by each energy

source and use in 2010, energy for industrial raw materials took up the highest

share, followed by oil for fuel (29.8%), electricity (19.2%), and town gas (11.2%).

Final energy consumption trends by sector in 2010

The industrial sector and residential/commercial sector indicated a year-on-year rise

of 8.8% and 7.1%, respectively, thus leading a rise in final energy consumption (2.0%

in the transport sector and 6.8% in the public/other sector).

Consumption in the industrial sector increased by 14.6% in the first quarter and 9.4%

in the second quarter, but the rate of increase slowed down to 5.8% in the second

half of the year, owing to reduced base effects and a slowdown in the level of

increase in coking coal consumption.

- Coking coal consumption indicated a year-on-year rise of 45.0% in the first half of

the year, but the rate of increase substantially slowed down in the second half of

the year to stand at 4.3%. Annually, coking coal consumption rose 22.6%.

- In contrast, naphtha consumption only went up 1.1% in the first half of the year, but

rose 4.5% in the second half of the year, attributable to a rise in demand for raw



[DiagramⅡ-10] Final energy consumption by energy source and use


materials in the petrochemical industry, resulting from a rise in the international

margin of ethylene and growth in domestic demand. Annually, naphtha

consumption rose 2.8%.

- Electricity consumption for industrial use sensitively responds to business

fluctuations. Electricity consumption for industrial use indicated high growth of

12.9% from the previous year, owing to a boom in industries that consume a great

amount of electricity and an expansion of steel making facilities that consume a

great amount of electricity.

Source: Statistics Korea, Korean Statistical Information Service (http://kostat.go.kr/portal/korea)

In 2010, consumption in the transport sector rose by 2.0% from the previous year

owing to an upswing in consumption of gasoline and jet oil.

- Gasoline consumption rose 4.6% from the previous year, attributable to a sharp rise

in new car sales as a result of economic recovery.

- Jet oil in the transport sector rose 8.3%, owing to a rise in overseas travels and

exports, thus leading an increase in transport energy consumption.



[DiagramⅡ-11] Business trends in the manufacturing industry and changes in electricity consumption for industrial use


- In contrast, diesel for transport indicated an increase of merely 0.7%, owing to a

relatively rapid rise in diesel prices and sluggish sales of vans and trucks that mainly

use diesel, despite the economic recovery.

In 2010, consumption in the residential/commercial sector recorded high growth of

7.1% due to influence from the economic recovery, and abnormally low temperatures

in the winter and high temperatures and high humidity in the summer.

- Petroleum product consumption in this sector rose 5.7% due to the weather, thus

recording unprecedented high growth.

- Electricity consumption indicated growth of 7.7% for commercial use and 6.2% for

residential use. Town gas consumption recorded sound growth in both residential

use (8.1%) and commercial use (5.4%).

In 2010, consumption in the public/other sector marked a year-on-year rise of 6.8%.

- Consumption in this sector includes energy consumption by government offices, for

military purposes, and by public service providers such as those in charge of water

supply.



[DiagramⅡ-12] Trends in the rate of final energy consumption increase by sector


Trends in final energy consumption by energy source in 2010

In 2010, town gas, electricity, and coal consumption recorded a year-on-year rise of

12.6%, 10.1%, and 14.7%, respectively, thus indicating noticeable growth.

Final petroleum product consumption rose 2.1% in 2010 which is a relatively high

figure, attributable to the economic recovery and the climate.

- The level of increase in final petroleum product consumption has slowed down,

posting an annual average increase rate of 0.8% from 2000 through 2009.

- The relatively high growth in consumption in 2010 is attributable to a rise in naphtha

consumption for raw materials (2.8%) in the petrochemical industry as well as a rise

in consumption of oil for heating purposes as a result of continued cold weather.

Electricity consumption posted a rise of 10.1%, owing to base effects from the

sluggish consumption in 2009 and an increase in consumption for heating purposes

owing to the climate as well as a rise in industrial activities.

- The rate of increase in electricity consumption remained high, posting two-digit

figures, from the first through the third quarter. However, it somewhat slowed down

to 7.7% in the fourth quarter.

- Consumption of electricity for industrial use went up 12.9% owing to a considerable

rise in industrial activities and facility investments in the manufacturing sector,

especially industries that consume a great amount of electricity.

* Rate of increase in electricity consumption by type of business: Basic metal

(19.0%), fabricated metal (17.1%), petrochemical sector (7.9%).




Notes: Data was extracted from various publications issued by relevant organizations such as the Korea Iron & SteelAssociation

- Electricity consumption for commercial and residential use also indicated relatively

high growth owing to a considerable rise in the use of electric equipment for cooling

and heating purposes, influenced from the economic recovery and abnormal

weather (abnormally low temperatures in the winter, and high temperatures and


In 2010, peak demand was reached on December 15 at 71,308MW. The power

supply capability was 75,747MW. peak demand recorded a year-on-year increase of

a whopping 6.8% due to the cold wave, resulting in a supplied reserve margin of

6.2%, the lowest figure in the 2000s.

- A recent important characteristic to note is that peak demand was reached in

winter (December) for two consecutive years in 2009 and 2010.


but another reason is a noticeable, recent rise in electricity consumption for heating



Company Facility Capacity (1,000 tons)

Launch of operation Notes

Dangjin Blast Furnace 1 4,200 AprilConstruction completed (Blowing-in in January)

Hyundai Steel Dangjin Hot Rolling Plant 3,500 April Expanded

Dangjin Blast Furnace 2 4,200 NovemberConstruction completed (Blowing-in in November)

Dongkuk Steel Plate Plant 1,500 May New

Gwangyang New 2,800 July New

POSCO Steelmaking Plant

Gwangyang Plate Plant 2,500 August New

SeAH BesteelExpansion of Bar Steel

300 March ExpandedLine in Gunsan

Total 19,000 - -

<TableⅡ-7> Expansion of facilities that consume a great amount of electric power in 2010


purposes in the winter.

- peak demand in the winter of 2010 to 2011 reached 73,137MW, a 6.1% rise from

the previous year, attributable to an upswing in the economy, continued cold wave,

and relatively affordable electricity charge.

In 2010, consumption of town gas recorded the highest increase - 12.6% - since

2001, amid high consumption (24.4%) in the industrial sector.

- Consumption of town gas for residential/commercial use increased by a great

extent, influenced by abnormally low temperatures in the winter, spring, and

autumn.

- Consumption for transport indicated a year-on-year rise of 13.8%, attributable to

the expansion of CNG buses by local governments.

Coal consumption went up 30.5% in the first half of the year as a result of a soar in

coking coal consumption for steel making. However, consumption by key demand

industries slowed down in the second half of the year, resulting in a rise of merely

1.4%. Annually, coal consumption rose 14.7%.

- Consumption of bituminous coal for steelmaking, which accounts for most (at least

70%) of the consumption of coal in the final consumption sector, went up 22.6%,

thus leading the rise in overall consumption.

- Consumption of bituminous coal for cement production continued a downward

trend in 2009 and 2010 (-14.8% in 2009 → -9.1% in 2010) due to an increase in

inventory of cement, triggered by the stagnant construction business, despite an

upswing in the overall economy.

Thermal energy posted a high increase rate of 10.8% owing to the dissemination of

district heating and temperature effects.

New & renewable energy consumption in the final consumption sector rose 19.9%

from the previous year, gaining strength from the government’s active implementation

of propagation policies.

Trends in final energy consumption in January 2011

In January 2011, final energy consumption recorded a year-on-year drop of 0.7% to




stand at 19.1 million TOE.

With regard to final energy consumption trends by sector, the transport sector and

residential/commercial sector recorded a year-on-year growth of 4.7% and 5.2%,

respectively.

- The transport sector posted a year-on-year rise of 4.7%, attributable to a rise in oil

(4.5%), electricity (11.8%), and CNG (2.6%).

- The residential/commercial sector recorded a year-on-year rise of merely 5.2%

owing to the implementation of energy-saving policies such as the ‘measure on

restricting heating temperatures in buildings’despite a soar in energy demand for

heating due to the cold wave in January.

* HDD rise of 11.9% in January: (January 2010) 697.4 → (January 2011) 780.7

- Consumption in the public/other sector recorded a year-on-year decrease of 1.5%,

influenced by the government’s energy-saving policies.

Energy consumption in the industrial sector, which takes up a high share of final

energy consumption, dropped 4.9%, thus leading a decrease in overall final energy

consumption.

- From among energy sources for industrial use, electricity (12.4%), town gas (7.9%),

and oil (2.8%) recorded a rise in consumption owing to continued overall favorable

conditions in the economy.

- Bituminous coal consumption, which soared in the same month the previous year,

plummeted (-33.4%) due to base effects, recording a decrease rate of 4.9%.

With regard to final energy consumption trends by energy source, there was a sharp

rise in electricity consumption, attributable to a favorable turn in industrial activities

and the cold wave.

- Electricity power, town gas, and oil consumption went up 8.6% 2.9%, and 4.3%,

respectively, but coal consumption posted a year-on-year decrease of 27.7%.

- Oil recorded a year-on-year rise of 4.3%, owing to a rise in the consumption of

most petroleum products including gasoline (5.6%), kerosene (14.1%), diesel

(2.4%), naphtha (8.0%), and LPG (4.8%).

- Town gas consumption for industrial use and residential/commercial use indicated




a year-on-year increase of 7.9% and 2.4%, respectively.

- Coal consumption went down 27.7% owing to a 40.5% reduction in coking coal

demand in the steel industry, notwithstanding a 30.0% year-on-year rise in

consumption in the cement industry, which previously recorded a continuous

downward trend.

- Electricity consumption recorded a year-on-year growth of 8.6%. Consumption for

industrial use went up 12.0%, leading a rise in electric power demand.

·Consumption for industrial use maintained two-digit growth for four consecutive

months starting in last October, gaining strength from favorable conditions in

industries that consume a great amount of electricity such as machinery and

equipment (24.9%), steel (18.5%), automobile (18.1%), and semiconductor

(15.1%).

·Consumption for residential use and general use indicated year-on-year growth of

3.7% and 8.2%, respectively, attributable to a rise in electricity demand for heating

purposes resulting from a temperature drop compared to the same month the

previous year.

A. Trends in petroleum product consumption by sector

Petroleum product consumption for 2010 was tentatively tallied at 794.5 million

barrels, a year-on-year rise of 2.1%.

Consumption for transport and industrial raw material use indicated a sharp rise in

the second half of the year. The difference in the price with LNG resulted in a soar in

consumption in the transformation sector, leading to a rise in overall oil consumption.



Trends in petroleum product consumption4


With regards to petroleum product consumption by sector in 2010, consumption went

up in all sectors, except the fuel consumption in the industrial sector.


The transport sector indicated a year-on-year rise of 2.1% due to a rapid rise in

consumption after the second quarter, as a result of an increase in domestic sales of

automobiles, overseas traveling, and exports.

- As of December 2010, the number of registered vehicles saw an increase of 3.6%

from the end of last year to reach 17.9 million, of which the number of registered

passenger cars went up 4.7% while that of vans went down 2.9%.

The industrial sector recorded a year-on-year rise of 1.6%, despite a reduction in fuel

consumption, attributable to a rise in naphtha demand resulting from favorable

conditions in business and the completion of regular maintenance work in the

petrochemical industry.



(Unit: Million bbl)

Category2009 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Transport 61.0 65.1 65.4 66.9 258.4 61.2 66.2 67.9 68.4 263.7(-3.2) (0.2) (1.7) (1.2) (0.0) (0.4) (1.6) (3.9) (2.2) (2.1)

Industry 107.2 109.9 106.3 111.6 434.9 107.8 109.1 109.3 115.8 442.1(-3.0) (6.3) (0.2) (10.1) (3.3) (0.6) (-0.7) (2.9) (3.8) (1.6)

- Fuel 20.2 21.5 20.2 22.0 83.9 20.2 18.9 19.2 22.4 80.7(-8.5) (2.6) (-1.0) (5.9) (-0.4) (0.1) (-12.2) (-4.7) (1.9) (-3.7)

- feedstockl 87.0 88.3 86.1 89.6 351.1 87.6 90.2 90.1 93.4 361.3(-1.6) (7.3) (0.5) (11.1) (4.2) (0.7) (2.1) (4.6) (4.3) (2.9)

Residential/co 19.0 11.1 9.4 19.5 58.9 20.0 12.6 9.7 20.0 62.3mmercial/public (-18.5) (-1.5) (5.0) (8.4) (-4.1) (5.1) (13.3) (4.0) (2.6) (5.7)

Transformation 11.9 6.4 2.6 5.3 26.2 9.8 5.6 5.1 6.0 26.5(48.3) (93.1) (-29.2) (14.3) (33.2) (-17.3) (-12.3) (92.2) (12.5) (1.0)

Total Oil 199.1 192.5 183.6 203.2 778.5 198.8 193.5 192.1 210.1 794.5(-2.8) (5.3) (0.4) (6.9) (2.3) (-0.1) (0.5) (4.6) (3.4) (2.1)

<TableⅡ-8> Trends in petroleum product consumption by sector


The residential/commercial/public sector posted a year-on-year rise of 5.7% due to a

surge in energy consumption, a result of abnormal temperatures, and base effects

from decreased consumption in the previous year.

The transformation sector witnessed a year-on-year rise of 1.0%, owing to a surge in

heavy oil consumption for power generation since the second half of the year as well

as a rise in propane demand for production of town gas.



[DiagramⅡ-13] Changes in the petroleum product consumption increase rate by sector


B. Trends in key petroleum product consumption

With regards to trends in oil consumption by key product in 2010, there was a rise in

consumption of most products, including naphtha for industrial raw material use,

gasoline, and jet fuel.


Gasoline consumption posted a year-on-year rise of 4.6% to reach 68.9 million

barrels, attributable to a sharp rise in automotive sales resulting from quick economic

recovery and active release of new vehicles.

Diesel for transport recorded a year-on-year rise of merely 0.7%, owing to sluggish

sales of vans and trucks, which mostly use diesel, and a relatively quick rise in diesel

prices, despite rapid economic recovery.



(Unit: Million bbl)

Category2009 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Gasoline 15.2 16.4 17.1 17.2 65.9 15.9 16.9 18.5 17.7 68.9

(2.1) (6.8) (6.2) (3.5) (4.7) (4.6) (2.8) (8.1) (3.1) (4.6)

Diesel for 23.9 27.1 25.9 27.2 104.1 23.8 27.0 26.5 27.6 104.8transport

(-8.2) (-1.9) (0.8) (-1.1) (-2.6) (-0.2) (-0.3) (2.2) (1.2) (0.7)

16.7 10.3 8.6 18.6 54.2 17.9 11.0 10.4 19.9 59.2

(-17.2) (5.1) (8.6) (6.6) (-2.0) (7.8) (7.7) (19.9) (6.8) (9.3)

23.8 17.1 12.0 16.5 69.4 20.0 15.1 13.9 16.6 65.5

(3.6) (8.6) (-16.2) (-2.5) (-0.8) (-16.2) (-12.0) (15.8) (0.7) (-5.6)

Naphtha 81.4 80.1 78.9 82.2 322.6 81.1 82.1 83.0 85.4 331.7

(-1.6) (5.8) (-0.5) (11.7) (3.6) (-0.3) (2.6) (5.1) (3.9) (2.8)

LPG 26.1 26.1 27.3 26.8 106.3 26.5 26.2 25.5 27.0 105.2

(1.3) (3.9) (2.6) (9.9) (4.3) (1.3) (0.1) (-6.3) (0.8) (-1.1)

<TableⅡ-9> Trends in key petroleum product consumption

Heavy oil(including for

power generation)

(including for power generation)

Kerosene+Diesel(including for

power generation)


Consumption of kerosene and diesel, excluding diesel for transport, witnessed a

year-on-year rise of 9.3% owing to a considerable rise in consumption for heating

purposes in the residential/commercial sector due to abnormal temperatures.



[DiagramⅡ-15] Changes in consumption of diesel for transport and increase rate

[DiagramⅡ-14] Changes in gasoline consumption and increase rate


Consumption of heavy oil posted a year-on-year drop of 5.6%, attributable to a

decrease in consumption for industrial and power generation use, notwithstanding a

rise in consumption for transport.



[DiagramⅡ-17] Changes in consumption of heavy oil and increase rate

[DiagramⅡ-16] Changes in consumption of kerosene and diesel, and increase rate


Naphtha recorded a year-on-year rise of 2.8%, despite concerns of excessive supply

in the global market, attributable to a rapid increase in consumption as raw material in

the petrochemical sector, resulting from a rise in the international margin of ethylene

as well as growth in domestic demand.

LPG consumption recorded a year-on-year decrease of 1.1%, owing to a decrease

in consumption for naphtha replacement and for transport, despite a substantial rise

in propane demand in the gas production sector.



[DiagramⅡ-19] Changes in LPG consumption and increase rate

[DiagramⅡ-18] Changes in consumption of naphtha and increase rate


In 2010, total electricity consumption witnessed a year-on-year rise of 10.1% to record

434.2 TWh.

Consumption for industrial use and for residential/commercial use considerably

increased due to several factors: increased industrial production from the economic

recovery as well as abnormally low temperatures in the winter and high temperatures

and humidity in the summer.

- In 2010, the climate factor further increased electricity demand for heating and

cooling purposes in each season.

* Changes in climate compared to the same period the previous year: (First half of

the year) 18.3% increase in HDD, (July-August) 16.1% increase in CDD, (Fourth

quarter) 6.3% increase in HDD

- The high electricity consumption increase recorded in 2010 partially results from

base effects from sluggish consumption (2.4% increase) of the previous year.




Trends in electricity consumption5

(Unit: TWh)

Category2009 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Residential14.9 13.8 14.5 14.4 57.6 15.7 14.5 16.2 14.9 61.2 (1.9) (3.2) (0.2) (4.5) (2.4) (5.3) (5.0) (11.3) (3.3) (6.2)

Commercial39.4 31.7 33.6 34.3 139.1 42.7 34.2 37.0 36.0 149.8 (1.7) (5.2) (3.5) (4.8) (3.7) (8.2) (7.7) (9.9) (4.7) (7.7)

Industrial45.9 48.5 50.9 52.5 197.7 54.1 55.0 56.0 58.1 223.2 (-6.6) (-0.4) (3.0) (10.7) (1.6) (17.8) (13.4) (10.0) (10.8) (12.9)

Total100.3 94.0 99.0 101.2 394.5 112.5 103.6 109.1 109.0 434.2 (-2.3) (2.0) (2.7) (7.7) (2.4) (12.2) (10.3) (10.2) (7.7) (10.1)

<TableⅡ-10> Trends in electricity consumption


With regards to the electricity consumption increase rate by quarter in 2010, high

two-digit growth year-on-year was recorded from the first through the third quarter.

The level of growth decreased and remained at a single digit level in the fourth

quarter.

- Changes in the increase rate by quarter in 2010 indicated an opposite pattern from

the increase rate by quarter recorded in 2009 due to base effects.

In January 2011, electricity consumption posted a year-on-year rise of 8.6%,

continuing an upward trend for 22 months straight since April 2009.

Electricity consumption for industrial use went up 12% to stand at 21.767 billion

kWh.

- Two-digit growth continued for four consecutive months since October 2010,

gaining strength from favorable conditions in industries that consume a great

amount of electricity such as machinery and equipment (24.9%), steel (18.5%),

automobile (18.1%), and semiconductor (15.1%).

Consumption for residential use and commercial use marked a year-on-year rise of

3.7% and 8.2%, respectively, attributable to a rise in demand resulting from a drop in

temperatures.

Electricity demand by sector

In 2010, electricity demand for industrial use witnessed a year-on-year rise of 12.9%

to reach 223.2TWh.

- The sharp rise in electricity consumption for industrial use is attributable to a

substantial rise in facility investments and industrial activities in the manufacturing

sector, especially industries that consume a great amount of electricity.




Source: Statistics Korea, Korean Statistical Information Service (http://kostat.go.kr/portal/korea)

- Electricity consumption for industrial use reached bottom in the first quarter of

2009. Afterwards, the rate of increase in consumption remained lower than the rate

of increase in production and facility investments in the manufacturing industry. This

is assessed to be a normal consumption increase pattern.

·The manufacturing industry production index and plant & equipment investment

index went up 44.0% and 46.2%, respectively, from the first quarter of 2009 to

the fourth quarter of 2010, but electricity consumption went up merely 26.5% in

the same period.

- In 2010, electricity demand in the manufacturing industry, agriculture/forestry/fishing

industry, and mining industry posted year-on-year growth of 12.9%, 9.8%, and

24.6%, respectively.

- In the manufacturing industry, the rate of increase in electricity consumption by the

basic metal industry, which includes the steel industry, was the highest at 19.0%.

The cause is assumed to be favorable conditions in the steel business and the

operation of new facilities by steel companies.



[DiagramⅡ-20] Recent manufacturing business trends and electricity consumption for industrial use


- In 2010, consumption in the fabricated metal sector posted a year-on-year rise of

17.1%, thanks to continued favorable conditions in production in the automobile

manufacturing industry and ICT industry.

- During the same period, the petrochemical industry and lumber industry also

recorded a sound electricity consumption increase rate of 7.9% and 10.4%,

respectively.

In 2010, electricity demand for commercial and residential use rose 7.7% and 6.2%,

respectively, from the previous year to reach 149.8TWh and 61.2TWh.

- Electricity consumption for commercial and residential use indicated a

comparatively high increase in tandem with a substantial rise in the use of electric

equipments used for heating and cooling, attributable to the economic recovery

and abnormal weather (low temperatures in the winter and high temperatures and

humidity in the summer).



[DiagramⅡ-21] Rate of increase in industrial activity indexes and electricity consumption forindustrial use (First quarter of 2009 - Fourth quarter of 2010)


Expansion of power plants in 2010

Power plants indicated a year-on-year rise of 3.5%(2608MW) to reach 76,078MW.

- Coal and gas power plants increased 123MW and 1,900MW, respectively. Oil

power plants went down 37MW.

- New & renewable energy posted a year-on-year growth of 22.5% with an

expansion of 622MW.

Source: Korea Power Exchange, Electric power system operation performance for 2010, March 2011



[DiagramⅡ-22] Changes in the electricity consumption increase rate

Category Nuclear Coal Oil Gas PumpingNew &

renewableenergy

Total

Capacity (MW) 17,716 24,800 5,805 20,471 3,900 3,386 76,078

Increase (MW) - 123 37 1,900 - 622 2,608

<TableⅡ-11> Expansion of plant capacity for each source in 2010


peak demand and supplied reserve margin5) in the 2000s

peak demand recorded annual average growth of 5.7% in the 2000s, but total

capacity and supply capability indicated annual average growth of 4.7% and 5.1%,

respectively, translating into a steady decrease in the supplied reserve margin.

- In 2010, peak demand was reached on December 15 at 71,308MW. The supply

capability level was 75,747MW. peak demand went up a whopping 6.8% year-on-

year due to the cold wave, but total capacity and supply capability went up a mere

3.8% and 5.1%, respectively, year-on-year.

- The supplied reserve margin in 2010 was 6.2%, the lowest in the 2000s.

A recent important characteristic to note is that peak demand was reached in winter





Source: Korea Electric Power Corporation, Each month’s issue of the Electricity Statistics News



5) Supplied reserve margin = 100*(Supply capability-peak demand)/peak demand

[DiagramⅡ-23] Changes in peak demand and supplied reserve margin


peak demand in the winter from 2010 to 2011

peak demand last winter (December 2010-February 2011) indicated year-on-year

growth of 6.1% to reach 73,137MW, attributable to favorable conditions in the

economy, continued cold wave, and relatively affordable charge.

Source: Press release of the Korea Power Exchange (http://www.kpx.or.kr)

According to an analysis carried out by the Korea Power Exchange, the amount of

electricity used for heating as a result of low temperatures and the abnormal cold

wave presumably accounted for at least 25% of peak demand in the winter.

- It is presumed that the rate of increase in heating load for commercial use was

most prominent. Thus electricity for heating in the commercial sector led the recent

rise in heating load.

- On the day of peak demand in the winter from 2010 to 2011, heating load for

commercial use accounted for 37.8% of total heating load (18,576MW).

Notes: Values in parentheses refer to the share taken up by each use (%)Source: Press release of the Korea Power Exchange (http://www.kpx.or.kr)



Category 2008~2009 2009~2010 2010~2011

peak demand (MW) 62,645 68,963 73,137

Year-on-year growth rate (%) 2.8 10.1 6.1

<TableⅡ-12> Changes in peak demand in the winter

(Unit: MW)

Category 2008~2009 2009~2010 2010~2011

Total heating load 14,150 16,640 18,576

For residential3,931 4,252 4,754(27.8) (25.6) (25.6)

For commercial4,468 6,178 7,021(31.6) (37.1) (37.8)

For industrial5,751 6,210 6,801(40.6) (37.3) (36.6)

<TableⅡ-13> Heating load in the winter


A. Trends in LNG consumption

In 2010, LNG consumption saw a year-on-year rise of 22.6% to record 31,971,000

tons. LNG consumption for town gas production and for power generation recorded

high growth, attributable to the economic recovery and abnormal climate.

LNG consumption for town gas production marked year-on-year growth of 12.6% to

reach 17,611,000 tons, resulting from a sharp rise (24.4%) in town gas demand for

industrial use.

LNG consumption for power generation in 2010, when there was no expansion of

base power generation facilities, recorded a year-on-year increase of 38.3%, owing

to a soar in electricity demand. This was the highest rate of increase since 2004.



[DiagramⅡ-24] Changes in heating load by use

Trends in LNG and town gas consumption6


- In 2004, LNG consumption for power generation recorded a year-on-year rise of

40.8% owing to high oil prices and failure at nuclear power plants (Yeonggwang

Nuclear Power Plant Units 5 and 6).

Notes: 1. Values in parentheses are the year-on-year growth rate (%); p refers to tentative figures. Figures for powergeneration include the estimated directly-adopted volume of POSCO and K-POWER.

2. LNG for power generation includes LNG used for district heating.3. LNG refers to the total amount of primary energy including internal consumption and gas production losses.

With regards to recent trends in LNG consumption by use, LNG consumption for

power generation sharply rose together with the economic recovery in 2010, thus

leading an increase in overall LNG consumption.

LNG demand for power generation, which is used to handle peak load, substantially

rose owing to a soar in electricity demand, a result of the economic recovery after the

second half of 2009 as well as the cold wave in the winter of 2010 and abnormally

high temperatures in the summer.

- Electricity, whose share of consumption for industrial use is higher than town gas

(mainly used for cooking and heating), more flexibly responds to business cycles.

In 2010, the share of consumption for industrial use was 51.4% and 33.5%,

respectively, for electricity and town gas.



(Unit: 1,000 tons)

CategoryYear 2009 Year 2010(p)

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Town gas5,784 2,692 2,202 4,955 15,634 6,659 3,303 2,369 5,280 17,611(-4.7) (0.9) (1.4) (8.2) (0.1) (15.1) (22.7) (7.6) (6.6) (12.6)

Power 2,696 1,869 2,311 3,354 10,229 3,918 3,123 3,071 4,038 14,150generation (-30.1) (-26.7) (-5.9) (14.9) (-13.2) (45.3) (67.2) (32.9) (20.4) (38.3)

LNG8,538 4,625 4,556 8,364 26,083 10,674 6,467 5,475 9,355 31,971(-14.7) (-11.8) (-2.1) (11.0) (-4.9) (25.0) (39.8) (20.2) (11.8) (22.6)

<TableⅡ-14> Trends in LNG consumption


B. Trends in town gas consumption

In 2010, town gas recorded the highest annual consumption increase rate of 12.6%

since 2001, when town gas supply settled down.

The record increase rate of 2010 is attributable to a rise in heating demand, owing to

abnormally low temperatures in the winter and spring, and a rise in consumption for

industrial use, a result of the economic recovery. In the second quarter, HDD

indicated a year-on-year increase of 64.5% (181.5 in the second quarter of 2009 →

298.5 in the second quarter of 2010).

- Town gas consumption for residential and commercial use both indicated year-on-

year growth of 7.8% due to the cold wave in the first quarter. In the second quarter,

they indicated a year-on-year increase of 18.6% and 10.1%, respectively, owing to

abnormally low temperatures in the spring. They both recorded a high increase rate

in the first half of the year. The level of increase slowed down in the second half of

the year, attributable to reduced base effects, but annually, town gas consumption

for residential and commercial use recorded high growth of 8.1% and 5.4%,

respectively.



[DiagramⅡ-25] Trends in LNG consumption increase rate per use


- Town gas consumption for industrial use6) includes town gas consumed for heating

of industrial facilities and town gas directly used for industrial processes. Town gas

consumption for industrial use marked a high year-on-year increase of 33.7% in the

first half of the year, thus leading overall town gas consumption.

The level of increase slightly slowed down in the second half of the year, triggered by

a slowdown in the economic recovery and removal of base effects. However, there

was a high increase rate annually at 24.4% in 2010.

Notes: 1) Values in parentheses are the year-on-year growth rate (%); p refers to tentative figures2) Town gas includes the amount used for transport and co-generation



6) Use of town gas for industrial purposes (http://www.samchully.co.kr/): ① Heating furnace (forging furnace,rolling furnace, soaking furnace, preheating furnace, welding and cutting) ② Melting furnace (reverberatoryfurnace, crucible furnace, holding furnace, water-soaking type melting furnace, bottom-heating type meltingfurnace, electric furnace for steelmaking) ③ Heat treatment furnace (quenching furnace, annealing furnace,carburizing furnace, homogenization furnace, aging furnace, annealing furnace, shielding gas generationfurnace) ④ Drying furnace (dry off oven, solvent drying furnace, adhesive drying furnace, shell mould drying,baking oven, etc.)

(Unit: Million m3)

Category2009 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Residential4,150 1,568 585 2,574 8,877 4,481 1,860 548 2,708 9,597(-4.5) (0.8) (5.7) (7.4) (0.3) (7.8) (18.6) (-6.3) (5.2) (8.1)

Commercial1,227 623 640 914 3,404 1,323 686 674 905 3,588(-5.3) (3.5) (-0.4) (5.8) (0.01) (7.8) (10.1) (5.3) (-1.0) (5.4)

Industrial1,447 1,238 1,271 1,626 5,585 1,962 1,629 1,437 1,920 6,947(-6.4) (-2.5) (-4.3) (10.1) (-0.7) (35.5) (31.5) (13.0) (18.0) (24.4)

Town gas6,917 3,591 2,664 5,274 18,445 7,916 4,342 2,826 5,684 20,768(-6.1) (-1.1) (-2.5) (5.4) (-1.5) (14.5) (20.9) (6.1) (7.8) (12.6)

<TableⅡ-15> Trends in town gas consumption


A review of recent trends in town gas consumption for industrial use and the increase

rate of the index of industrial production indicates that consumption for industrial use

sensitively responds to production activities in the economy.

Changes in graphs indicate that town gas consumption for industrial use more

flexibly increased in tandem with a rise in the index of industrial production in the

manufacturing sector since the end of 2009, a period of economic recovery, thus

leading overall town gas consumption.

- Consumption for industrial use recorded the highest growth in the first quarter of

2010, when economic recovery was in full swing. Consumption for residential and

commercial use indicated the highest growth in the second quarter of 2010, when

there were abnormally low temperatures.

Source: Korea City Gas Association, The Bank of KoreaNotes: 1. The data labels on the graph refer to the monthly total town gas consumption increase rate

2. The industrial production index refers to the rate of increase from the original index



[DiagramⅡ-26] Trends in town gas consumption increase rate per use


A. Trends in coal consumption

In 2010, coal consumption marked a year-on-year rise of 10.3% to reach an annual

119,517,000 tons, despite a slowdown in the increase rate in the second half of the

year, attributable to a substantial rise in consumption for raw material use in the

industrial sector and consumption for power generation in the first half of the year.

In the first half of the year, coal consumption recorded year-on-year growth of 16.7%,

the highest in the 2000s, attributable to a rise in coking coal consumption in the steel

making industry triggered by the economic recovery. In the second half of the year,

when the economic growth rate slowed down and base effects decreased, coal

consumption indicated year-on-year growth of a mere 4.8%. The level of increase

was high in the first half of the year and low in the second half.

Notes: Pig iron sales are based on domestic sales.Source: Korea Iron & Steel Association (steeldata DB), Monthly Report on Energy Statistics



Trends in coal and other energy consumption7

[DiagramⅡ-27] Changes in the rate of increase in pig iron and bituminous coal for steel making


- Bituminous coal consumption in the steel making industry soared in the first half of

the year, owing to favorable conditions in the steel making business and the

operation of new facilities (Hyundai Steel, POSCO). The level of growth sharply

slowed down in the second half of the year. Notwithstanding, consumption

witnessed a year-on-year rise of 22.6% to reach 25,424,000 tons in 2010.

Level of increase in bituminous coal consumption for steel making in the first and

second half of the year: First half of the year (45.0%), second half of the year (4.3%)

Notes: Values in parentheses are the year-on-year growth rate (%)Source: Korea Iron & Steel Association (steeldata DB), Monthly Report on Energy Statistics

In 2010, bituminous coal consumption for cement production temporarily rose owing

to anticipations of economic recovery in the first quarter. However, the construction

industry continued to remain stagnant, resulting in a year-on-year decrease of 9.1%

to post 4,059,000 tons.

- Cement inventory went up, attributable to restructuring of construction companies

and a slump in the regional real estate business, leading to imbalance between

cement supply and demand.



(Unit: 1,000 tons, %)

Category2009 2010

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Pig iron 5,785 6,468 7,300 7,732 27,284 8,266 8,788 8,411 9,600 35,065 production (-25.4) (-17.0) (-7.7) (2.0) (-12.1) (42.9) (35.9) (15.2) (24.2) (28.5)

Pig iron 71 71 71 76 290 84 99 67 73 324 shipment (-35.0) (-37.1) (-30.9) (-23.4) (-31.9) (17.7) (39.8) (-5.4) (-4.3) (11.7)

Pig iron 164 113 110 72 72 82 203 155 195 195 inventory (24.7) (8.8) (9.3) (-38.3) (-84.1) (-50.1) (80.2) (40.4) (172.1) (172.1)

Consumption of bituminous 4,551 4,783 5,565 5,835 20,734 7,354 6,176 5,810 6,084 25,424

coal for steel (-21.6) (-18.8) (-5.8) (-2.2) (-12.0) (61.6) (29.1) (4.4) (4.3) (22.6)making

<TableⅡ-16> Pig iron production, shipment, and inventory, and bituminous coal consumption for steel making



Bituminous coal consumption for power generation indicated year-on-year growth of

8.9% to reach 77,452,000 tons. It showed sound growth throughout the year,

triggered by a rise in use of bituminous coal-based power generation facilities.

- The rate of use of bituminous coal-based power generation facilities reached 96%

in 2010.

Anthracite consumption marked a year-on-year drop in the residential/commercial

and power generation sectors, but went up in the industrial sector to record

10,105,000 tons, a year-on-year rise of 3.4%.



(Unit: 1,000 tons)

Category2009p 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Anthracite2,572 1,870 2,590 2,744 9,777 2,540 2,463 2,265 2,836 10,105(-6.5) (-22.4) (18.2) (-4.2) (-4.3) (-1.3) (31.7) (-12.6) (3.4) (3.4)

Residential, 618 206 229 888 1,941 563 236 219 842 1,860commercial (-40.0) (66.1) (3.6) (-2.8) (-15.2) (-8.9) (14.6) (-4.4) (-5.2) (-4.2)

Industrial1,620 1,348 2,008 1,499 6,476 1,758 2,045 1,834 1,768 7,406(36.4) (-24.1) (33.7) (-0.1) (8.5) (8.5) (51.7) (-8.7) (18.0) (14.4)

Power 334 316 353 357 1,360 219 182 212 226 839generation (-37.3) (-38.2) (-24.6) (-20.3) (-30.6) (-34.4) (-42.4) (-39.9) (-36.7) (-38.3)

Bituminous 22,378 23,210 26,592 26,422 98,602 28,118 25,256 27,870 28,159 109,413coal (0.5) (2.2) (6.3) (10.0) (4.9) (25.6) (8.8) (4.8) (6.6) (11.0)

Steel 4,551 4,783 5,565 5,835 20,734 7,354 6,176 5,180 6,084 25,424manufacturing (-21.6) (-18.8) (-5.8) (-2.2) (-12.0) (61.6) (29.1) (4.4) (4.3) (22.6)

Cement828 1,354 1,109 1,172 4,463 928 1,139 932 1,051 4,059(-24.8) (-4.2) (-15.0) (-17.3) (-14.8) (12.1) (-15.9) (-16.0) (-10.3) (-9.1)

Other 610 527 552 625 2,314 665 592 559 661 2,478industries (-7.1) (-7.5) (-1.9) (4.2) (-3.1) (9.0) (12.4) (1.3) (5.8) (7.1)

Power 16,389 16,546 19,366 18,790 71,091 19,171 17,349 20,569 20,363 77,452generation (11.5) (11.5) (12.4) (17.3) (13.2) (17.0) (4.9) (6.2) (8.4) (8.9)

Coal24,950 25,080 29,182 29,166 108,378 30,659 27,720 30,135 30,996 119,517(-0.3) (-0.1) (7.3) (8.6) (4.0) (22.9) (10.6) (3.3) (6.3) (10.3)

<TableⅡ-17> Trends in coal consumption


- Anthracite consumption in the residential/commercial and power generation sector,

which continues a downward trend, recorded a year-on-year decrease of 4.2%

and 38.3%, respectively. In contrast, anthracite consumption for industrial use,

which is mainly used as fuel for co-generation at industrial complexes, marked a


B. Trends in consumption of thermal energy, new & renewable energy, and other energy

In 2010, tentative figures indicate that thermal energy supply reached 1,718 TOE, an

annual rise of 10.8%, owing to abnormally low temperatures, despite a slowdown in

the level of increase of customers in tandem with a slowdown in the dissemination of

district heating.

Thermal energy supply indicated year-on-year growth of 12.3% and 25.2%,

respectively, in the first and second quarter, attributable to abnormally low

temperatures in the first half of the year.

In 2010, consumption of new & renewable energy and other energy indicated a year-

on-year rise of 19.9% to reach 5,835,000 TOE, as a result of government efforts to

promote their dissemination.

Consumption of new & renewable energy is indicating a high rise every year, owing to

a measure that made it mandatory for the public sector to use new & renewable

energy and the implementation of measures by the industrial sector in response to

climate change policies such as those on recycling waste gas.







(Unit: 1,000 TOE)

Quarter2009p 2010p

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Thermal 716 203 89 542 1,550 805 254 93 566 1,718energy (-2.3) (3.4) (5.3) (8.8) (2.5) (12.3) (25.2) (4.0) (4.4) (10.8)

New & renewable 1,154 1,188 1,134 1,391 4,867 1,376 1,429 1,363 1,667 5,835

energy/ (3.9) (1.4) (1.6) (3.1) (2.5) (19.2) (20.3) (20.2) (19.9) (19.9)Other energy

<TableⅡ-18> Trends in consumption of thermal energy, new & renewable energy, and other energy


ChapterⅢ

Energy Demand Outlook for 2011

1. Outlook on the international oil market

2. Domestic economic outlook and outlook assumptions

3. Outlook on primary energy demand

4. Outlook on final energy demand

5. Outlook on petroleum product demand

6. Outlook on electricity demand

7. Outlook on LNG and town gas demand

8. Outlook on coal and other energy demand

9. Demand forecast characteristics and implications


A. Outlook on global oil supply and demand

In the March 2011 issue of the “Oil Market Report”, IEA expected that global oil

demand in 2010 reached 87.9 million b/d, a year-on-year rise of approximately 2.9

million b/d. It forecasted that global oil demand in 2011 will be roughly 89.4 million b/d,

a rise of around 1.4 million b/d.

Forecasted oil demand was raised due to the increase of the forecast for non-OECD

countries in Asia and increased records in the Middle East.

In 2011, non-OPEC supply and OPEC NGL supply are forecast to be around 53.6

million b/d and 5.9 million b/d, a year-on-year rise of approximately 0.8 million b/d and

0.6 million b/d.

Demand for OPEC oil in 2010 is estimated at 29.2 million b/d, a year-on-year increase

of 0.5 million b/d. Forecasts in the previous month were maintained.

Notes: Asia* refers to Asian developing countries excluding ChinaSource: IEA, Oil Market Report, March issue

ChapterⅢ Energy Demand Outlook for 2011


Outlook on the international oil market1

(Unit: Million b/d)

CategoryYear 2010Year

2009Year 2011

1/4 2/4 3/4 4/4 Annual average 1/4 2/4 3/4 4/4 Annual

average

OECD 45.4 45.9 45.2 46.6 46.7 46.1 46.4 45.1 46.2 46.5 46.0

North America 23.3 23.6 23.8 24.2 24.0 23.9 23.9 23.7 24.2 24.0 24.0Europe 14.5 14.2 14.1 14.8 14.7 14.4 14.2 14.1 14.6 14.6 14.4

Asia Pacific 7.7 8.2 7.3 7.6 8.0 7.8 8.3 7.3 7.4 7.9 7.7

Non OECD 39.6 40.6 41.9 42.1 42.6 41.8 42.6 43.4 43.7 43.6 43.3China 8.4 8.9 9.4 9.2 10.0 9.4 9.9 10.0 9.9 10.1 10.0Asia* 10.1 10.4 10.5 10.1 10.5 10.4 10.6 10.8 10.4 10.8 10.6

World 85.0 86.5 87.1 88.7 89.4 87.9 89.0 88.4 89.9 90.1 89.4

<TableⅢ-1> IEA’s global oil consumption figures and forecasts


B. International oil price outlook

International oil prices (Dubai) are expected to record an annual average $89.17/barrel

in 2011, a year-on-year rise of 14%, in tandem with continued global economic

recovery and the resulting steady rise in oil demand.

Source: Korea Energy Economics Institute, International Crude Oil Market Conditions in 2011 and Oil Price Outlook,January 2011

CERA forecasts that Dubai oil prices will reach $96.77/barrel in 2011, a year-on-year

rise of 24%, and $96.09/barrel in 2012, a year-on-year drop of 0.7%.

Notes: CGES: Center for Global Energy Studies (London)CERA: Cambridge Energy Research AssociatesEIA: US Energy Information AdministrationPIRA: PIRA Energy Group



(Unit: $/Bbl)

Scenario 20102011

1/4 2/4 3/4 4/4 AnnualBase oil price 91.49 89.38 88.36 87.44 89.17

High oil price 78.13 93.76 98.54 100.89 102.07 98.81

Low oil price 87.46 79.88 73.83 70.21 77.85

<TableⅢ-2> Oil price outlook for 2010 and 2011 (Dubai oil)

(Unit: $/Bbl)

CategoryYear 2011Year

2010Year 2012

1/4 2/4 3/4 4/4 Annual average 1/4 2/4 3/4 4/4 Annual

average

CGES Brent(D) 79.9 97.5 103.2 103.2 98.9 100.7 - - - - -

Dubai 78.07 97.64 98.87 94.84 95.72 96.77 92.02 95.01 96.06 98.29 96.09CERA Brent(D) 79.47 100.97 102.33 98.33 98.00 99.91 97.67 98.66 99.66 100.66 99.16

WTI 79.45 90.19 94.00 91.67 93.67 92.38 93.67 94.66 95.66 96.66 95.16

EIA WTI 79.40 93.25 103.83 105.00 105.00 101.77 105.83 105.00 104.17 104.00 104.75

PIRABrent 79.45 106.90 118.35 112.00 114.50 112.95 - - - - -WTI 79.40 94.30 108.50 106.85 107.50 104.30 - - - - -

<TableⅢ-3> Oil price outlook of key overseas organizations in March


A. Outlook on the domestic economy7)

Economic growth rate

In these forecasts, estimates made by the Korea Development Institute (KDI) on the

economic growth rate were used.

- In 2011, the GDP growth rate is expected to be 4.5% (3.8% year-on-year in the

first half of the year, and 5.0% year-on-year in the second half of the year).

- The 4.5% growth rate of 2011 is the trend rate of growth, and does not mean

economic slowdown compared to 2010.

- The reason for the lower growth rate figure is because the growth rate (6.1%,

tentative) for 2010 seems relatively high due to base effects from the process of

overcoming the financial crisis.

Private consumption and investments

Exports and facility investments are indicating an upswing, thanks to continued global

economic recovery and good IT industry conditions.

Private consumption is expected to continue sound growth, attributable to a rise in

purchasing power of households and an upswing in consumer sentiment.

Construction investments are expected to slightly increase, resulting from a rise in the

construction of non-residential buildings.

Current account

In 2011, Korea is expected to record a current account surplus of 18 billion dollars, a

reduction from the 29 billion dollars posted in the previous year.



Domestic economic outlook and outlook assumptions2

7) Referred to 「Economic Outlook for 2010」(December 2010) of the Bank of Korea


Imports will substantially increase more than exports, thus leading to a decrease in

the goods account balance surplus.

Consumer price

Consumer prices are expected to record growth of 3.5% in 2011. Core inflation is

expected to be more than 3.0%.

Notes: p refers to tentative figures; e refers to forecastsSource: The Bank of Korea, Economic Outlook for 2011, December 2010

B. Temperature assumption

Average temperature information for the last 20 years was used for temperature

variables used in the forecasts such as CDD (Cooling Degree Days) and HDD (Heating

Degree Days).



(Year-on-year comparison, %, 100 million dollars)

Category2010p 2011e

First half of the year

Second half of the year Annual First half of

the yearSecond half of the year Annual

GDP 7.6 4.6 6.1 3.8 5.0 4.5

Private consumption 5.0 3.4 4.2 3.8 4.5 4.1

Construction investment -0.7 -2.1 -1.5 0.1 2.5 1.4Facility investment 30.1 19.5 24.3 9.5 3.9 6.5

Exports of goods 17.9 14.5 16.1 11.5 8.0 9.6Imports of goods 21.9 18.9 20.3 12.3 8.2 10.1

Consumer price 2.7 3.2 2.9 3.7 3.3 3.5Core inflation 1.7 1.9 1.8 2.8 3.3 3.1

Current account 89 200 290 70 110 180

- Goods account balance 171 237 408 150 165 315- Service, primary income,transfer income -81 -37 -118 -80 -55 -135

<TableⅢ-4> Economic outlook for 2011


In 2010, there was abnormal weather such as abnormally low temperatures in the

winter and high temperatures and humidity in the summer. It is assumed, however,

that average year temperatures will be recovered in 2011.

Notes: CDD (HDD) refers to the difference between the daily average temperature and standard temperature if the dailyaverage temperature is higher (lower) than the standard temperature (18℃). Monthly CDD/HDD is the sum of dailydegree days in the month.



CategoryYear 2011

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Average -1.8 0.9 6.0 12.7 18.0 22.4 25.1 25.7 21.5 14.9 7.5 -1.3temperature

CDD 0 0 0 3.8 33.7 134.6 220.5 240.0 110.3 7.9 0 0

HDD 612.6 483.5 372.6 163.3 33.2 1.2 0 0 4.6 104.1 317.8 597.6

<TableⅢ-5> Assumptions on temperature variables

[DiagramⅢ-1] Changes in CDD and HDD and assumptions for 2011


Primary energy demand in 2011 is expected to reach 270.8 million TOE, a year-on-

year rise of 3.7%.

Notes: 1) Values in parentheses refer to the rate of increase from the same period the previous year; p refers to tentativefigures; e refers to estimates

2) LNG consumption includes the estimated directly-adopted volume of POSCO and K-POWER



Outlook on primary energy demand3

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Coal 30.7 27.7 30.1 31.0 119.5 31.3 28.4 30.7 32.0 122.4(Million ton) (22.9) (10.6) (3.3) (6.3) (10.3) (2.1) (2.3) (2.0) (3.2) (2.4)

-Excluding 23.3 21.6 24.3 24.9 94.1 23.5 21.9 24.2 25.2 94.8coking coal (14.2) (6.2) (3.0) (6.8) (7.4) (1.0) (1.4) (-0.7) (1.3) (0.8)

Oil 198.8 193.5 192.1 210.1 794.5 204.8 193.6 193.4 209.8 801.6(Million bbl) (-0.1) (0.5) (4.6) (3.4) (2.1) (3.0) (0.0) (0.7) (-0.1) (0.9)


LNG 10.7 6.5 5.5 9.4 32.0 11.5 7.1 6.4 10.4 35.4(Million ton) (25.0) (39.8) (20.2) (11.8) (22.6) (7.6) (9.3) (16.5) (11.6) (10.6)

Hydro 1.2 1.6 2.1 1.5 6.3 1.2 1.5 2.2 1.6 6.5(TWh) (48.0) (10.5) (-18.6) (66.5) (11.6) (-2.7) (-1.9) (6.2) (11.8) (3.7)

Nuclear power 36.0 36.5 37.2 37.8 147.5 37.9 38.4 39.1 39.6 155.1(TWh) (-1.6) (-2.3) (0.0) (3.2) (-0.2) (5.3) (5.3) (5.2) (4.9) (5.2)

Other 1.5 1.5 1.4 1.8 6.2 1.6 1.7 1.5 2.0 6.8(Million TOE) (12.1) (13.2) (14.2) (14.0) (13.4) (11.2) (11.9) (6.0) (11.3) (10.2)

Primary energy 69.1 61.2 61.3 69.7 261.2 71.8 63.0 63.6 72.3 270.8(Million TOE) (10.5) (7.5) (5.3) (6.1) (7.3) (4.0) (3.0) (3.7) (3.8) (3.7)

Primary energy 53.5 46.3 46.6 54.5 200.9 55.4 47.7 48.1 56.6 207.8-Excluding for raw (9.4) (7.0) (5.4) (6.6) (7.2) (3.6) (2.9) (3.3) (3.8) (3.4)materials

<TableⅢ-6> Outlook on primary energy demand


The level of increase in primary energy demand will likely go down this year due to

several factors: a decrease in the economic growth rate (6.1% in 2010 → 4.5% in

2011), removal of temperature effects resulting from an assumption that average year

temperatures will be recovered, and base effects from high growth in consumption in 2010.



[DiagramⅢ-2] Forecasts on the economic growth rate and primary energy increase rate

[DiagramⅢ-3] Trends in primary energy consumption and assumptions on consumption changes triggered by temperature effects


Primary energy demand in 2011, excluding energy for raw material use (naphtha,

coking coal), is expected to go up by a mere 3.4% from the previous year.

- In 2011, energy demand for raw material use will likely go up 4.4%, indicating

relatively quick growth.

- Favorable conditions in the economy will likely continue in 2011, leading to

forecasts of a year-on-year increase of 8.5% for coking coal and 2.7% for naphtha.

Forecasts on key energy indicators

The energy intensity (TOE/million won) deteriorated to 0.251 in 2010, continuing the

trend witnessed in 2009. However, it will likely improve to 0.249 in 2011.

- The deterioration of the energy intensity in 2009 is a result of a 1.1% rise in primary

energy consumption, a result of the operation of new facilities in industries that

consume large amounts of energy, against the backdrop of a considerable

slowdown (0.2%) in the growth rate owing to the financial crisis.

- The worsened intensity in 2010 mainly resulted from a soar in energy consumption

for industrial use, owing to a favorable turn in the economy and base effects, as well

as a rise in energy consumption for cooling and heating purposes resulting from

abnormal weather in the winter and summer.

- It is assessed that the worsening of the energy intensity in 2009 and 2010 is

temporary, and that improvements will take place in 2011 and onwards.




Category 2005 2006 2007 2008 2009 2010p 2011e

Economic growth rate (%) 4.0 5.2 5.1 2.3 0.2 6.1 4.5

Per capita consumption (TOE) 4.75 4.83 4.88 4.95 4.99 5.34 5.53

Primary energy consumption 3.8 2.1 1.3 1.8 1.1 7.3 3.7

increase rate (%)

Energy intensity(TOE/Million won) 0.264 0.256 0.247 0.246 0.248 0.251 0.249

<TableⅢ-7> Key indices related to energy consumption


Per-capita energy consumption rose from 4.99TOE in 2009 to 5.34TOE in 2010, and

is expected to post 5.53TOE in 2011.

Forecasts on primary energy demand by energy source

In 2011, coal demand is expected to show gradual growth of 2.4%, attributable to

increased demand in the steel industry, despite a slowdown in coal consumption for

power generation (no new facilities), sluggishness in the cement industry, and base

effects from a high increase in consumption in the previous year.

* Operation of a new blast furnace (blast furnace No. 2) at Hyundai Steel (November

2010; annual production of 4 million tons), etc.

- Coal demand, excluding coking coal, is expected to record a year-on-year rise of

merely 0.8%, attributable to sluggish consumption (0.4%) of bituminous coal for

power generation.

In 2011, oil demand is expected to record a year-on-year rise of 0.9% to reach 801.6

million bbl.

- Oil demand for industrial use is expected to indicate relatively high growth (1.8%) as

a result of increased consumption for raw material use, but the level of increase is



[DiagramⅢ-4] Forecasts on energy intensity and per capita consumption


expected to decrease in comparison to 2010 owing to a relative decrease (-1.4%)

in the level of growth in oil demand for heating purposes based on the assumption

that average year temperatures will be recovered.

- Petroleum product demand, excluding naphtha, will likely post a year-on-year drop

of 0.4%.

- Naphtha, a single petroleum product, takes up an extremely high share of total oil

consumption (41.7% as of 2010). A rise in naphtha demand (2.7%) is expected to

lead an increase in total oil consumption in 2011.

In 2011, LNG demand will likely record high growth of 10.6% compared to the

previous year. LNG demand for power generation (17.5%), which accounted for 44%

of overall consumption in 2010, is expected to lead a rise in demand.

- Demand for LNG for power generation, which is used to handle peak load, is

forecast to record relatively high growth as it is expected that there will be

restrictions on the expansion of capacity of base-load power generation facilities

such as those for nuclear energy and bituminous coal and a high rise in electricity

demand.

- There may be a shortage in LNG supply in the event of abnormal weather that was

witnessed in the previous year such as abnormally low temperatures in the winter

and abnormally high temperatures in the summer. There is therefore a need to take

continuous interest in electricity demand management policies to ensure stability in

energy supply and demand.

The amount of nuclear power generation will record a year-on-year rise of 5.2% as

new facilities are planned for operation in 2011, the first after 2005.

- There will likely be a rate of increase in the low 5% range as a result of effects of

facility expansion (approximately 5.5% increase)8) from the operation of Singori Units

1 and 2.



8) The total facility capacity of Singori Units 1 and 2 is 2,000MW. This accounts for 11.3% of the nuclear powerplant capacity (17,716MW) recorded at the end of 2010. However, completion of construction of Singori Unit 2is scheduled for the end of December. Production of electricity through actual pilot operations will likely bepossible in the second half of the year.


- Singori Units 1 and 2 are Korea’s 21st and 22nd nuclear power plants. Singori Unit

1 commenced commercial operation on February 28, 2011. Singori Unit 2 is now in

a pilot operation test phase before fuel loading. Completion of construction is

planned for December.

Forecasts on percentage of total consumption taken up by each energy source

The percentage of total consumption taken up by oil decreased to less than 50% in

2002, and continued to go down to stand at 39.9% in 2010 (tentative figure). The

percentage occupied by oil is expected to further go down in 2011 to indicate

38.9%.

The percentage of total consumption occupied by coal continually increased from

23.0% in 2001 to 29.1% in 2010, gaining strength from a steady rise in coking coal

consumption for industrial use and consumption for power generation.

- The percentage will likely indicate a downward trend in 2011 (28.8%) for the first

time in the 2000s, owing to no additional bituminous coal-based power generation

facilities and a slowdown in the level of increase in demand for use as industrial fuel.

The share occupied by LNG is steadily on the rise owing to a continuous rise in

demand for power generation, resulting from restrictions on the expansion of base

power generation facilities.

- The share occupied by LNG is expected to rise to 17.0% in 2011 because not

enough base facilities will be built to address the increase in electricity demand.

The share of demand taken up by the amount of nuclear power generation went up

to 16.1% in 2005, and then continued a downward trend as no facility expansions

took place through 2010. The share occupied by nuclear power is expected to

remain at the mid-12% range in 2011, despite the construction of Singori Units 1 and

2 (2,000 MW).




Forecasts on level of contribution made by each energy source to primary energy

demand

Regarding the level of contribution of each final energy source to the increase in

primary energy consumption, the level of contribution made by demand for use as

electricity and industrial raw material is expected to rise from 68.7% in 2010 to 80.6%

in 2011.

- Electricity (triggering energy demand for power generation): (’10) 43.4% → (’11)

53.3%

- Energy for industrial raw materials (naphtha?coking coal: (’10) 25.3% → (’11)

27.3%

Based on the assumption that there will be a slowdown in economic growth and

average year temperatures will be recovered in 2011, town gas demand for industrial

use and heating purposes is expected to substantially drop. The level of contribution

of town gas to primary energy demand is forecast to decrease from 15.3% in 2010

to 12.3% in 2011.



[DiagramⅢ-5] Share of primary energy demand taken up by each energy source


Petroleum product for fuel in the final sector is expected to see reduced consumption

in 2011, and will likely contribute to a 1.5% reduction in primary energy demand. The

level of contribution of new & renewable energy will likely go up from 5.5% from the

previous year to 6.0% in 2011.

Final energy demand is forecast to record a year-on-year increase of 3.4% in 2011 to

reach 201.4 million TOE.

Consumption soared in the industrial sector and residential/commercial/public sector

in 2010, but the level of consumption increase is expected to slow down in 2011.

The transport sector will likely indicate a low increase rate of 0.6%.



[DiagramⅢ-6] Forecasts on level of contribution of each energy source to increase in primary energy

Outlook on final energy demand4


Notes: Values in parentheses are the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts

In 2011, consumption in the industrial sector is expected to record sound growth of

4.4% despite base effects from a substantial rise in consumption in 2010.



Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Industry 29.1 28.5 27.8 29.9 115.4 30.6 29.6 29.1 31.2 120.5(Million TOE) (14.6) (9.4) (4.7) (6.8) (8.8) (5.0) (3.8) (4.4) (4.4) (4.4)

-Excluding for 13.6 13.7 13.2 14.7 55.2 14.2 14.4 13.6 15.4 57.6raw materials (15.0) (9.7) (4.4) (9.9) (9.7) (4.3) (4.7) (3.5) (4.9) (4.3)

Transport 8.5 9.2 9.4 9.5 36.6 8.6 9.2 9.5 9.5 36.9(Million TOE) (0.3) (1.4) (3.7) (2.4) (2.0) (1.1) (0.6) (1.4) (-0.4) (0.6)

Residential/commercial 14.9 8.8 7.3 11.9 42.8 15.6 8.9 7.6 12.0 44.1/public

(Million TOE) (7.6) (11.2) (7.0) (3.6) (7.1) (4.6) (0.6) (4.0) (1.6) (2.8)

Total 52.5 46.6 44.5 51.3 194.9 54.7 47.8 46.2 52.7 201.4Million TOE (10.0) (8.0) (4.8) (5.2) (7.0) (4.3) (2.6) (3.7) (2.8) (3.4)

Total 37.0 31.7 29.8 36.1 134.6 38.3 32.5 30.7 37.0 138.5-Excluding forraw materials

(8.4) (7.5) (4.8) (5.7) (6.6) (3.7) (2.4) (2.9) (2.4) (2.9)

Town gas 7.9 4.3 2.8 5.7 20.8 8.3 4.6 3.1 5.9 21.9(Billion m3) (14.5) (20.9) (6.1) (7.8) (12.6) (5.3) (6.2) (9.9) (3.0) (5.5)

Oil 189.0 187.8 187.0 204.2 768.0 195.4 188.0 188.3 204.1 775.9(Million bbl) (1.0) (0.9) (3.3) (3.2) (2.1) (3.4) (0.1) (0.7) (0.0) (1.0)


Electricity 112.5 103.6 109.1 109.0 434.2 117.9 109.3 114.9 115.1 457.2(TWh) (12.2) (10.3) (10.2) (7.7) (10.1) (4.8) (5.5) (5.4) (5.7) (5.3)

Coal 11.3 10.2 9.4 10.4 41.2 11.8 10.5 10.2 11.2 43.7(Million ton) (37.0) (24.1) (-1.2) (3.9) (14.7) (4.4) (3.2) (9.0) (8.1) (6.1)

-Excluding 3.9 4.0 3.5 4.3 15.8 4.0 4.0 3.6 4.5 16.1coking coal (6.5) (17.1) (-9.1) (3.3) (4.0) (2.5) (-0.4) (2.2) (3.9) (2.1)

Thermal and2,180 1,683 1,455 2,234 7,553 2,350 1,854 1,538 2,425 8,167other

(Thousand TOE) (16.6) (21.0) (19.0) (15.5) (17.7) (7.8) (10.1) (5.7) (8.6) (8.1)

<TableⅢ-8> Outlook on final energy demand


- Even after excluding energy (naphtha?coking coal) demand for raw material use,

the level of increase in demand in this sector will likely be 4.3%, thus maintaining a

similar level. This results from forecasts that electricity for industrial use (6.5%) and

town gas (7.3%) will maintain relatively high growth in 2011.

In 2011, energy demand in the transport sector is expected to go up by a mere

0.6%, attributable to a rise in international oil prices, despite a rise in new car sales

and overseas traveling, a result of continued economic recovery, and an increase in

demand for international freight transport.

The residential/commercial/public sector will likely indicate a substantial slowdown in

the demand increase rate at 2.8%. This is mainly attributable to base effects from

2010 as it is assumed that average year temperatures will be recovered.

In terms of each energy source, most energy sources will post a relatively low level of

consumption increase in 2011 due to a slowdown in economic growth and base

effects from the assumption that average year climate conditions will be recovered.

Town gas consumption went up 12.6% in 2010, owing to a surge in demand for

industrial use resulting from economic recovery and abnormally low temperatures.

However, the level of increase is expected to slow down to 5.5% in 2011.

- Town gas demand will likely rise, led by town gas demand for industrial use, as it is

expected that favorable conditions in the economy will continue in 2011.

- In terms of residential use, consumption is expected to slightly go down (-1.4%) as

a result of the reflection of base effects resulting from a difference in climate

conditions with 2010, as the number of customers reaches a state of saturation,

mainly in large cities.

In 2011, oil consumption for raw material use in the industrial sector is estimated to

lead a rise in oil demand.

- Oil demand for raw material use, including naphtha, solvent, and asphalt, is

expected to indicate a year-on-year rise of 3.0% owing to an upswing in the

economy.

- Oil consumption in the residential/commercial/public sector sharply went up due to




abnormally low temperatures in 2010. It is forecast to post a year-on-year drop of

1.4% if average year climate conditions are recovered in 2011.

- When excluding naphtha, oil demand is expected to slightly drop (-0.2%).

Electricity will likely indicate relatively high growth of 5.3% in 2011 resulting from

several factors: continued, sound economic growth, relatively low charge, continued

dissemination of equipment that use electricity, and convenience in use.

- In 2011, peak demand in the summer is expected to be 73,601MW (August), a

5.3% rise from the 69,886MW recorded in (August) 2010, assuming that average

year temperatures will be recovered.

- Installed reserve margin and supplied reserve margin at the point of time of peak

demand in the summer is expected to be 9.3% and 7.7%, respectively.

In 2011, coal consumption in the final sector is forecast to see an increase of 6.1%

owing to a rise in bituminous coal demand for steel making, despite forecasts of

decreased demand for cement production.

- When excluding coking coal, final consumption of coal will likely post a year-on-year

increase of a mere 2.1%.

Thermal energy is forecast to witness a substantial slowdown in the consumption

increase rate at 1.8% in 2011. New & renewable energy is expected to post a

consumption increase rate of approximately 10%, thanks to the government’s active

implementation of propagation policies.

Final energy consumption structure by sector

The share of final energy consumption taken up by the industrial sector remained at

around 55% up until 2005, but continued to rise afterwards and will likely reach

59.8% in 2011.

- The increase in the share taken up by the industrial sector is a result of steady

growth of industries that consume large amounts of energy such as the steel and

petrochemical industries, as well as sharp growth in the fabricated metal industry,

which consumes a great amount of electricity.

Consumption in the transport sector maintained relatively high growth up until the




early 2000s. However, a sharp rise in international oil prices after 2003 has resulted in

a slowdown in the increase of oil consumption for transport.

- The share of total consumption occupied by the transport sector is expected to

decrease and post 18.3% in 2011.

The share of consumption occupied by the residential/commercial/public sector,

where energy is mostly consumed for heating and cooling purposes, tends to go up

and down from impact from temperature fluctuations in the summer and winter.

- The percentage of consumption accounted for by the sector indicated a downward

trend up until the mid-2000s due to stagnant consumption in the residential sector.

However, consumption in the commercial sector increased relatively quickly, thus

resulting in a share of approximately 22% after 2007.

Final energy consumption structure by energy source

Oil’s share of final energy consumption steadily went down in the 2000s and is

expected to stand at 50.4% in 2011, a year-on-year drop of 1.2%p.



[DiagramⅢ-7] Share of final energy demand occupied by each energy sector


In contrast, all other energy sources are indicating a continuous upward trend in

terms of their share of consumption.

Electricity’s share of consumption is quickly rising. Electricity’s share of consumption

is expected to reach around 20% in 2011.

- A rise in electricity consumption expands energy conversion loss, thus triggering a

rapid increase in primary energy consumption. Compared to other final energy

sources, a rise in electricity consumption incurs additional energy expenses at the

national level.

- There is a need to identify various policy measures that would prevent excessive

consumption of electricity to curtail social costs that arise from primary energy

increase and to ensure stability in energy supply and demand.

The share of consumption occupied by town gas is steadily rising in the 2000s as

well owing to a continued expansion in the number of customers and the

development of new areas of use such as for transport and cooling.



[DiagramⅢ-8] Share of final energy demand taken up by each energy source


In 2011, oil demand is expected to see a year-on-year rise of 0.9% to reach 801.7

million barrels, attributable to continued high oil prices and base effects from the rapid

growth recorded in the previous year.

Notes: Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts

- Oil demand for transport is expected to post a year-on-year rise of merely 0.3%,

attributable to high oil prices, despite a rise in new car sales, overseas traveling, and

international freight.

- Oil demand for feedstock in the industrial sector is expected to show a steady

slowdown in the increase rate as it is expected that growth in domestic demand

and exports will become stagnant. Oil demand for power generation is expected to



Outlook on petroleum product demand5

(Unit: Million bbl)

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Transport61.2 66.2 67.9 68.4 263.7 61.7 66.4 68.6 68.0 264.6(0.4) (1.6) (3.9) (2.2) (2.1) (0.7) (0.3) (1.0) (-0.6) (0.3)

Industry107.8 109.1 109.3 115.8 442.1 112.2 110.6 110.6 116.5 449.9(0.6) (-0.7) (2.9) (3.8) (1.6) (4.1) (1.4) (1.1) (0.6) (1.8)

- Fuel20.2 18.9 19.2 22.4 80.7 20.3 18.3 17.9 21.1 77.6(0.1) (-12.2) (-4.7) (1.9) (-3.7) (0.5) (-3.1) (-6.9) (-5.7) (-3.8)

- feedstock87.6 90.2 90.1 93.4 361.3 91.9 92.3 92.7 95.4 372.3(0.7) (2.1) (4.6) (4.3) (2.9) (4.9) (2.4) (2.9) (2.1) (3.0)

20.0 12.6 9.7 20.0 62.3 21.5 11.0 9.2 19.7 61.4(5.1) (13.3) (4.0) (2.6) (5.7) (7.9) (-12.4) (-5.9) (-1.5) (-1.4)

Transformation9.8 5.6 5.1 6.0 26.5 9.4 5.6 5.1 5.8 25.8

(-17.3) (-12.3) (92.2) (12.5) (1.0) (-4.8) (-1.4) (0.2) (-3.3) (-2.8)

total Oil198.8 193.5 192.1 210.1 794.5 204.8 193.6 193.4 209.9 801.7(-0.1) (0.5) (4.6) (3.4) (2.1) (3.0) (0.0) (0.7) (-0.1) (0.9)

Residential/commercial/

public

<TableⅢ-9> Outlook on petroleum product demand by sector


slightly decrease due to influence from high oil prices.

- By product, the increase rate of demand for key products will record a substantial

drop, excluding naphtha, owing to influence from high oil prices.

- In particular, kerosene and diesel demand will make a shift from a short-term rise to

a downward trend, and is expected to record a relatively substantial decrease.

Products for transport, such as gasoline and transport diesel, will likely see stagnant

consumption at the previous year’s level.

Notes: Kerosene+Diesel: Sum of diesel (excluding for transport), indoor kerosene, and boiler kerosene consumption.Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts



(Unit: Million bbl)

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Gasoline 15.9 16.9 18.5 17.7 68.9 16.4 16.9 18.3 17.2 68.8(4.6) (2.8) (8.1) (3.1) (4.6) (3.3) (0.2) (-0.9) (-3.0) (-0.2)

Diesel for 23.8 27.0 26.5 27.6 104.8 23.9 27.2 26.6 27.8 105.4transport (-0.2) (-0.3) (2.2) (1.2) (0.7) (0.4) (0.5) (0.4) (0.7) (0.5)

Kerosene+Diesel 17.9 11.0 10.4 19.9 59.2 19.1 9.9 8.9 18.6 56.6(7.8) (7.7) (19.9) (6.8) (9.3) (6.6) (-10.1) (-13.8) (-6.3) (-4.4)

Heavy oil 20.0 15.1 13.9 16.6 65.5 19.0 14.5 13.5 15.4 62.4(-16.2) (-12.0) (15.8) (0.7) (-5.6) (-4.9) (-3.6) (-3.0) (-7.1) (-4.8)

Naphtha 81.1 82.1 83.0 85.4 331.7 85.8 83.9 84.7 86.3 340.7(-0.3) (2.6) (5.1) (3.9) (2.8) (5.7) (2.1) (2.1) (1.0) (2.7)

LPG 26.5 26.2 25.5 27.0 105.2 26.7 25.0 25.3 27.4 104.4(1.3) (0.1) (-6.3) (0.8) (-1.1) (0.8) (-4.4) (-0.9) (1.6) (-0.7)

<TableⅢ-10> Outlook on demand of key petroleum products





Total electricity demand is forecast to record an year-on-year increase of 5.3% in 2011

to reach 457.2 TWh.

Electricity demand is expected to indicate high growth in 2011, despite base effects

from the assumption that average year temperatures will be recovered, due to several

factors: a rise in consumption for industrial use as a result of continued economic

growth (4.5%), low charge, increased propagation of equipment that use electricity,

and convenience in use.


A comparison between the economic growth rate and rate of increase in electricity

demand indicates that the level of increase in electricity demand has been higher

than the economic growth rate since 2000 with the exception of 2006.

- In 2011, the GDP elasticity of total electricity consumption is expected to be 1.18

and the GDP elasticity of consumption for industrial use is expected to be 1.45. The

year 2006 is the only year when the GDP elasticity of total electricity consumption

was less than 1 in the 2000s.



Outlook on electricity demand6

(Unit: TWh)

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Residential15.7 14.5 16.2 14.9 61.2 16.2 14.8 16.9 15.4 63.2 (5.3) (5.0) (11.3) (3.3) (6.2) (3.3) (2.2) (4.3) (3.5) (3.3)

Commercial42.7 34.2 37.0 36.0 149.8 44.0 35.7 38.6 37.9 156.2 (8.2) (7.7) (9.9) (4.7) (7.7) (3.1) (4.4) (4.6) (5.3) (4.3)

Industrial54.1 55.0 56.0 58.1 223.2 57.7 58.8 59.4 61.8 237.7 (17.8) (13.4) (10.0) (10.8) (12.9) (6.5) (7.0) (6.2) (6.4) (6.5)

Total112.5 103.6 109.1 109.0 434.2 117.9 109.3 114.9 115.1 457.2 (12.2) (10.3) (10.2) (7.7) (10.1) (4.8) (5.5) (5.4) (5.7) (5.3)

<TableⅢ-11> Outlook on electricity demand


- The level of increase in electricity consumption for industrial use showed similar

trends as the economic growth rate in the early 2000s. However, the level of

growth became prominent after 2007, and this trend will likely continue in 2011.

- In particular, there was a huge gap between the rate of increase in electricity

consumption and the economic growth rate in 2010, owing to favorable conditions

in industries that consume great amounts of electricity and expansion of facilities in

steel industries.




Category Economic growth rate (%)

Rate of increase in electricityconsumption (%)

GDP elasticity of electricityconsumption

Total electricity For industrial use Total electricity For industrial use

2000 8.8 11.8 9.4 1.34 1.07

2001 4.0 7.6 2.7 1.91 0.67

2002 7.2 8.0 6.4 1.12 0.89

2003 2.8 5.4 4.1 1.94 1.47

2004 4.6 6.3 5.3 1.36 1.14

2005 4.0 6.5 5.4 1.65 1.36

2006 5.2 4.9 4.7 0.94 0.90

2007 5.1 5.7 6.6 1.12 1.30

2008 2.3 4.5 4.5 1.94 1.96

2009 0.2 2.4 1.6 12.48 8.18

2010p 6.1 10.1 12.9 1.65 2.11

2011e 4.5 5.3 6.5 1.18 1.45

<TableⅢ-12> Trends in GDP elasticity of electricity demand


Electricity demand by sector

Electricity demand for industrial use is forecast to record a year-on-year rise of 6.5%

in 2011.

- The fabricated metal and basic metal industries including machinery, equipment,

and automobiles are expected to lead growth in demand.



[DiagramⅢ-9] Outlook on economic growth rate and electricity demand increase rate

[DiagramⅢ-10] Outlook on electricity demand by sector


The rate of increase in electricity demand for commercial use is forecast to slow

down to 4.3% in 2011 as it is expected that the economic growth rate will be lower

(4.5%) than the previous year.

Electricity demand for residential use went up 6.2% in 2010 due to great influence

from climate conditions. The rate of increase is expected to go down to the low 3%

range in 2011 owing to base effects based on the assumption that average year

temperatures will be recovered.

Electricity demand structure by sector

The share of electricity demand for industrial use is expected to slightly rise from

51.4% in 2010 to 52.0%in 2011, due to a rise in industrial activities, a result of

continued favorable conditions in the economy in 2011.

The share of electricity demand for residential use is forecast to drop from 14.1% in

2010 to 13.8% in 2011.

The share of demand for commercial use continually increased owing to growth of

the service industry after 2000 and up to 2009. However, the share decreased to

34.5% as a result of strong demand for industrial use in 2010. The share is expected

to slightly go down in 2011 as well.



[DiagramⅢ-11] Trends in electricity consumption share of each sector and forecasts


Outlook on electricity supply/demand in the summer of 2011

Peak demand in the summer of 2011 (base forecast) is expected to be 73,601MW

(August), a 5.3% rise from the 69,886MW witnessed in (August) 2010.

- The monthly electricity supply/demand information for January 1990 through

February 2011 was used, along with the econometric model (ARDL).

- An assumption was made that the economic growth rate for 2011 would be 4.5%

and monthly average temperature information (HDD, CDD) for 20 years was used.

- Real electric charge (unit cost of electricity sales) did not change.

Peak demand forecasting by scenario


the last five years (2005-2010), estimates that summer peak demand will reach

73,886MW, a year-on-year rise of 5.7%.




Installed reserve margin in the event of peak demand in the summer of 2011 is



- Total capacity is calculated by applying the monthly capacity increase/decrease

plan for 2011 of the 5th Electricity Supply/Demand Plan to the facility capacity

recorded at the end of 2010.

- Because installed reserve level(total capacity - peak demand) is expected to be

5,469MW for the base forecast and 5,184MW for Maximum Forecast No. 1, stable

electricity supply/demand is expected.

- However, if climate conditions in the summer are the same as last year’s, installed

reserve level may drop to approximately 4,200MW, which is lower than what was

recorded (4,521MW) in the summer of the previous year.




Notes: 1) Installed reserve margin (%) = [(Total capacity - peak demand)/peak demand]×1002) Total capacity excludes small hydro power facilities and isolated facilities that are not connected to systems

A. Outlook on LNG demand

In 2011, LNG demand is expected to reach 35,375,000 tons, a year-on-year rise of

10.6%, gaining strength from a sound increase in demand for town gas production

and high growth in demand for power generation.

In 2011, LNG demand for town gas production is expected to post a year-on-year

increase of 5.1% to reach 18,055,000 tons, when base effects from 2010 disappear

and an assumption is made that average year temperatures will be recovered.

- Demand will likely be led by demand for industrial use rather than for

residential/commercial use, where the number of customers has reached a state of

saturation.



Category 2008 2009 20102011

Base forecast MaximumForecast No. 1

MaximumForecast No. 2


Total capacity (MW) 70,353 73,373 74,407 79,070 79,070 79,070- Installed reserve margin (%) 12.0 16.1 6.5 7.4 7.0 5.6

<TableⅢ-13> Outlook on electricity supply/demand in the summer of 2011

Outlook on LNG and town gas demand7


Notes: 1. Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts.The figures for power generation include the estimated directly-adopted volume of POSCO and K-POWER

2. LNG for power generation includes LNG input for district heating3. LNG refers to the total amount of primary energy that includes gas production loss and internal consumption

In 2011, LNG demand for power generation is expected to reach 16,624,000 tons, a

year-on-year rise of 17.5%, following high growth in the previous year. LNG demand

for power generation will likely lead a rise in overall LNG demand.

- The capacity of base-load power facilities was somewhat expanded with the

operation of Singori Nuclear Power Plant Unit 1 (capacity of 1,000MW), which

launched commercial operation at the end of February, but LNG demand for power

generation will continue to indicate strong growth in 2011 in consideration of

forecasts on electricity demand based on economic growth.

B. Outlook on town gas demand

In 2011, town gas consumption is expected to record a year-on-year rise of 5.5% to

reach 21,908 million m3, gaining strength from a sound increase in demand for

industrial use.

Town gas demand for residential and commercial use, which has reached saturation9)

in terms of the number of customers, mainly in large cities, is expected to record a



(Unit: 1,000 tons)

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Town gas6,659 3,303 2,369 5,280 17,611 7,003 3,479 2,601 5,422 18,505(15.1) (22.7) (7.6) (6.6) (12.6) (5.2) (5.3) (9.8) (2.7) (5.1)

Power 3,918 3,123 3,071 4,038 14,150 4,403 3,541 3,733 4,947 16,624generation (45.3) (67.2) (32.9) (20.4) (38.3) (12.4) (13.4) (21.6) (22.5) (17.5)

LNG 10,674 6,467 5,475 9,355 31,971 11,485 7,070 6,378 10,442 35,375(25.0) (39.8) (20.2) (11.8) (22.6) (7.6) (9.3) (16.5) (11.6) (10.6)

<TableⅢ-14> Outlook on LNG demand


year-on-year drop of 1.4% and a year-on-year rise of 5.6%, respectively, assuming

that average year temperatures will return.

- Consumption for heating purposes likely went up due to the continued cold wave in

January 2011. However, a relatively low annual increase rate is expected owing to

base effects from 2010, when high growth was witnessed due to abnormally low

temperatures.

Notes: 1. Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures2. Town gas includes the amount that was used for transport and cogeneration

Consumption of town gas is continually expanding in the industrial sector. Town gas

consumption in the industrial sector is expected to continue sound growth, recording

a year-on-year increase of 7.3%, as favorable conditions in the economy are

expected to continue. It will likely lead a rise in overall town gas consumption.



9) The nationwide average propagation rate for town gas is 75%, and the average propagation rate inmetropolitan areas is 88% (as of the end of 2010)

(Unit: Million m3)

Category2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Residential4,481 1,860 548 2,708 9,597 4,593 1,835 553 2,480 9,461(7.8) (18.6) (-6.3) (5.2) (8.1) (2.5) (-1.3) (0.9) (-8.4) (-1.4)

Commercial1,323 686 674 905 3,588 1,367 698 686 1,037 3,788(7.8) (10.1) (5.3) (-1.0) (5.4) (3.3) (1.8) (1.8) (14.6) (5.6)

Industrial1,962 1,629 1,437 1,920 6,947 2,098 1,784 1,552 2,022 7,456(35.5) (31.5) (13.0) (18.0) (24.4) (7.0) (9.5) (8.0) (5.3) (7.3)

Town gas7,916 4,342 2,826 5,684 20,768 8,334 4,613 3,106 5,855 21,908(14.5) (20.9) (6.1) (7.8) (12.6) (5.3) (6.2) (9.9) (3.0) (5.5)

<TableⅢ-15> Outlook on town gas demand


A. Outlook on coal demand

In 2011, coal demand is expected to indicate steady growth of 2.2% as a result of

base effects from the high increase in consumption witnessed in the previous year.

In 2011, coal consumption is expected to indicate steady growth as a result of an

expansion in new facilities in the steel industry, despite continuous reduction in

demand in the cement industry and stagnant consumption for power generation, a

result of zero expansion of power generation facilities.



[DiagramⅢ-12] Town gas trends and outlook by use

Outlook on coal and other energy demand8


- The level of increase of bituminous coal consumption for steel making began to

show indications of slowdown in the second half of 2010. It is expected that

structural steel production will record a year-on-year rise of 7.8% in 2011.

Accordingly, bituminous coal consumption for steel making will likely continue

sound growth to record a year-on-year rise of 8.5%.

Notes: 1. Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts2. Source: POSCO Research Institute, POSRI Steel Supply/Demand Outlook (January 2011)

- Bituminous coal demand in the cement industry continues to go down. It is

expected to post a year-on-year decrease of 3.7% to stand at 3,909,000 tons.

Construction orders, which are an early indicator of cement demand, are extremely

sluggish. Completed construction is forecast to decrease in 2011, attributable to a

slump in the housing market and restructuring of construction companies.

- Since there are no new facility expansions, bituminous coal demand for power

generation will likely maintain the level witnessed in the previous year, when the

maximum rate of use was recorded, in 2011.



(Unit: 1,000 tons)

Category2010e 2011e

First half of theyear

Second half ofthe year Annual

First half of theyear

Second half ofthe year Annual

Structural steel32,483

(27.5)

32.386

(2.9)

64,869

(14.0)

35,050

(7.9)

34,861

(7.6)

69,911

(7.8)

<TableⅢ-16> Outlook on steel production



With regards to coal consumption trends and forecasts per use after 2001, coal

consumption in the power generation and industrial sectors, which accounts for most

of total coal consumption, is continually increasing.

- Coal demand for power generation indicated a year-on-year rise of 8.9% in 2010,

owing to the completion of Units 7 and 8 of the Hadong Thermal Power Plant in

2009. The current level of consumption is expected to continue until additional

facility expansions take place.

- Coal consumption for industrial use temporarily went down in 2009, a period of



(Unit: 1,000 tons)

Category2010e 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Anthracite2,540 2,463 2,265 2,836 10,105 2,632 2,462 2,332 3,037 10,464(-1.3) (31.7) (-12.6) (3.4) (3.4) (3.6) (-0.1) (3.0) (7.1) (3.6)

Residential/ 563 236 219 842 1,860 603 220 215 871 1,909commercial (-8.9) (14.6) (-4.4) (-5.2) (-4.2) (7.1) (-6.8) (-1.8) (3.4) (2.6)

Industrial1,758 2,045 1,834 1,768 7,406 1,803 2,056 1,898 1,921 7,678(8.5) (51.7) (-8.7) (18.0) (14.4) (2.6) (0.5) (3.5) (8.6) (3.7)

Power 219 182 212 226 839 226 186 219 245 877generation (-34.4) (-42.4) (-39.9) (-36.7) (-38.3) (3.2) (2.2) (3.4) (8.5) (4.5)

Bituminous 28,118 25,256 27,870 28,159 109,413 28,661 25,917 28,188 28,962 111,728coal (25.6) (8.8) (4.8) (6.6) (11.0) (1.9) (2.6) (1.1) (2.9) (2.1)

Steel7,354 6,176 5,180 6,084 25,424 7,750 6,516 6,574 6,755 27,595(61.6) (29.1) (4.4) (4.3) (22.6) (5.4) (5.5) (13.1) (11.0) (8.5)

Cement928 1,139 932 1,051 4,059 923 1,107 929 950 3,909(12.1) (-15.9) (-16.0) (-10.3) (-9.1) (-0.5) (-3.6) (-0.3) (-9.6) (-3.7)

Other 665 592 559 661 2,478 681 621 582 750 2,634industries (9.0) (12.4) (1.3) (5.8) (7.1) (2.4) (4.9) (4.1) (13.4) (6.3)

Power 19,171 17,349 20,569 20,363 77,452 19,307 17,673 20,103 20,507 77,590generation (17.0) (4.9) (6.2) (8.4) (8.9) (0.7) (1.9) (-2.3) (0.7) (0.2)

Coal30,659 27,720 30,135 30,996 119,517 31,293 28,379 30,521 32,000 122,192(22.9) (10.6) (3.3) (6.3) (10.3) (2.1) (2.3) (1.3) (3.2) (2.2)

<TableⅢ-17> Outlook on coal demand


global economic downturn. However, it is on a continuous upward trend, mainly led

by coking coal demand in the steel industry.

B. Outlook on thermal energy, new & renewable energy, and other energy demand

In 2010, thermal energy demand posted a year-on-year rise of 10.8% due to

abnormally low temperatures. In 2011, thermal energy demand is expected to post

steady growth of 1.8%, owing to base effects from the high growth witnessed in the

previous year if average year temperatures are recovered.

Thermal energy demand is forecast to post steady growth for the time being since

the speed at which new district heating facilities are propagated is slowing down, a

result of the sluggish construction business.



[DiagramⅢ-13] Coal trends and forecasts


Notes: 1) Values in parentheses refer to the year-on-year growth rate (%); p refers to tentative figures; e refers to forecasts2) New & renewable energy/Other energy includes the amount consumed for transport

New & renewable energy and other energy demand is expected to record a year-on-

year rise of 10.0% in 2011 to reach 6,419,000 TOE, following a 19.9% increase in

2010.



(Unit: 1,000 TOE)

Quarter2010p 2011e

1/4 2/4 3/4 4/4 Annual 1/4 2/4 3/4 4/4 Annual

Thermal 805 254 93 566 1,718 821 256 99 572 1,748energy (12.3) (25.2) (4.0) (4.4) (10.8) (2.0) (0.7) (6.9) (1.0) (1.8)

1,376 1,429 1,363 1,667 5,835 1.529 1,598 1,439 1,853 6,419(19.2) (20.3) (20.2) (19.9) (19.9) (11.1) (11.8) (5.6) (11.1) (10.0)

<TableⅢ-18> Outlook on thermal energy, new & renewable energy, and other energy demand

[DiagramⅢ-14] Thermal energy trends and outlook

New &renewable

energy/Otherenergy


An increase in new & renewable energy consumption is expected to be prominent

mainly in the public sector, gaining strength from the government’s propagation

policies.

The industrial sector is forecast to actively move forward with increasing use of new &

renewable energy based on use of waste gas, in response to the Renewable

Portfolio Standard (RPS) planned for enforcement in 2012.



[DiagramⅢ-15] Trends and outlook on new & renewable energy and other energy


A. Key characteristics

Forecasts on energy intensity improvements in 2011

Energy intensity (TOE/million won) deteriorated in 2009 and 2010, but is expected to

slightly improve to 0.248 in 2011.

- The worsened energy intensity of 2009 resulted from a 1.1% rise in primary energy

consumption, triggered by favorable conditions in industrial activities of industries

that consume great amounts of energy, against the backdrop of a substantial

slowdown in the economic growth rate (0.2%) due to the financial crisis.

- The worsened energy intensity of 2010 resulted from a soar in energy demand for

heating and cooling purposes, a result of abnormal climate conditions (abnormally

low temperatures in the winter and high temperature and humidity levels in the

summer), an increase in the number of steel facilities (Hyundai Steel and Dongkuk

Steel), and an increase in industrial activities owing to the economic recovery.

The worsened energy intensity in 2009 and 2010 seems to be temporary, caused by

unusual factors, amid improvements in energy efficiency in the mid- to long-term.


Continued rapid increase in electricity consumption

Electricity consumption went up 10.1% in 2010, indicating two-digit growth for the



Demand forecast characteristics and implications9

Category 2005 2006 2007 2008 2009 2010p 2011e

3.8 2.1 1.3 1.8 1.1 7.3 3.7

0.264 0.256 0.247 0.246 0.248 0.251 0.249

<TableⅢ-19> Outlook on energy intensity

Primary energy consumptionincrease rate (%)

Energy intensity(TOE/Million won)


first time after 2000 (11.8%). It is expected to post a 5.3% increase rate, which is

higher than the final energy demand increase rate (3.4%), in 2011 as well.

- Electricity consumption indicated annual average growth of 9.8% in the 1990s, and

continued an annual average increase of 6.1% in the 2000s, the highest growth

among key final energy sources.

Consumption of electricity, a high-quality energy source10), continues to mark relatively

high growth in the 2000s as well because of several factors.

- The fabricated metal industry (machinery and equipment, electricity and electronics,

semiconductor, automobile, etc.), an industry that consumes great amounts of

electricity, recorded the highest degree of growth among manufacturing industries.

* Average rate of increase in added value from 2000 through 2010: (Manufacturing)

2.8%, (Fabricated metal) 5.6%

- From 2009 to 2010, operation of new facilities that consume great amounts of

electricity was launched in the steel making industry (Hyundai Steel, POSCO,

Dongkuk Steel, etc.).

- Petroleum product prices continue to remain high due to high oil prices. Against

this backdrop, an electricity charge that fails to reflect production costs is

maintained. For this reason, electricity is quickly replacing oil and town gas, energy

sources for heating.

Electricity is expected to continue to perform leading roles in Korea’s energy

consumption activities due to several factors: increased added value of key

manufacturing industry products, which consume great amounts of electricity,

convenience in use, and changes in lifestyles resulting from a rise in income levels

and technological development.



10) 2.74 TOE of primary energy is needed to produce 1 TOE of electricity. In other words, there is energy lossof 63.6% in the power generation sector (as of 2010).


LNG demand soaring as a result of a rapid increase in electricity consumption

LNG consumption rose 22.6% (tentative) in 2010 owing to a rise in demand for

power generation. It is expected to mark high growth of 10.6% in 2011 as well.

* Rate of increase in consumption for power generation: (’09) -13.2% → (’10)

38.3% → (’11) 17.5%

* Rate of increase in consumption for town gas: (’09) 0.9% → (’10) 12.6% → (’11) 5.1%

- The increase in LNG demand for power generation, which is used to handle peak

load, is a result of a rise in electricity demand and restricted expansion of base

power generation facilities (nuclear energy, bituminous coal).

* Based-load power facility increase rate (as of the end of the year)11): (’09) 1.2% →

(’10) 2.5% → (’11) 2.4%

* Electricity demand increase rate: (’09) 2.4% → (’10) 10.1% → (’11) 5.3%

Continued expansion of transformation loss of primary energy

A rapid increase in electricity consumption expands the amount of transformation

loss of energy for power generation, triggering additional supply of primary energy.

- The level of contribution of electricity consumption towards the rise in primary energy

supply (demand) was 43.4% in 2010 and is expected to expand to 53.3% in 2011.



11) Construction of Hadong bituminous coal-based thermal power plant (500MW) in 2009, Singori Power PlantUnit 1 (1,000MW) in 2010, and Singori Power Plant Unit 2 (1,000MW) in 2011

[DiagramⅢ-16] Level of contribution of electricity to primary energy increase


The rate of energy transformation loss for electricity production stands at 64%

(tentatively for 2010). For this reason, if the electricity consumption increase rate is

higher than the average increase rate of final energy, primary energy supply rises

faster than final energy consumption.

- The amount of energy that is lost in the transformation sector for production of

secondary energy such as electricity is expected to record an annual average rise

of 6.0% from 55.0 million TOE in 2007 to 69.3 million TOE in 2011.

- The share of primary energy consumption that is taken up by the amount of energy

loss in the transformation sector is forecast to go up from 23.3% in 2007 to 25.6%

in 2011.




Category Final energyincrease rate

Electricityconsumptionincrease rate

Energy loss (Million TOE)(primary energy - Final

energy)

Loss factor (%)(Amount of loss/primaryenergy consumption)

2007 4.5 5.7 55.0 23.3

2008 0.6 4.5 58.2 24.2

2009 -0.3 2.4 61.2 25.2

2010p 7.0 10.1 66.3 25.4

2011e 3.4 5.3 69.3 25.6

Annual average 2.6 5.5 6.0 -increase rate (%)

<TableⅢ-20> Outlook on energy transformation loss in transformation sector


Supplied reserve margin continues a downward trend due to a rapid increase in peak

demand.

peak demand indicated an annual average rise of 5.7% from 2000 through 2010,

while power generation capacity and supply capability recorded annual average

growth of merely 4.7% and 5.1%, respectively. The installed and supplied reserve

margins are continually dropping.

- The supplied reserve margin in 2010 was 6.2%, the lowest level in the 2000s.

* peak demand in 2010 was 71,308MW (December 15), and supply capability was

75,747MW.



[DiagramⅢ-17] Trends in electricity consumption increase and energy loss factor increase


Source: Korea Electric Power Corporation, The monthly report on Major Electric Power statistics

A recent important characteristic to note is that peak demand was reached in winter





Share of winter peak demand taken up by heating load is on the rise

Last winter (December 2010 - February 2011), peak demand indicated a year-on-

year rise of 6.1% to reach 73,137MW, attributable to economic recover, continued

cold wave, and relatively affordable charge.

According to the Korea Power Exchange, the amount of electricity used for heating

presumably accounted for at least 25% of peak load at the point of time of peak

demand in the winter of 2010 to 2011.

- It is presumed that the heating load for commercial use indicated noticeable

growth. Heating load for commercial use accounted for 37.8% of total heating load



[DiagramⅢ-18] Changes in peak demand and supplied reserve margin


(18,576MW) on the day of peak demand in the winter of 2010 to 2011.

- The rise in heating load for the last few years mainly results from heating for

commercial purposes rather than industrial purposes.

Notes: Values in parentheses refer to the share of each useSource: Press release of the Korea Power Exchange (Results of analyzing peak demand in the winter of 2010 to 2011),

March 7, 2011



Category 2008~2009 2009~2010 2010~2011

peak demand (MW) 62,645 68,963 73,137

- Year-on-year increase (%) 2.8 10.1 6.1

Heating load (MW) 14,150 16,640 18,576

- Residential3,931 4,252 4,754(27.8%) (25.6%) (25.6%)

- Commercial4,468 6,178 7,021(31.6%) (37.1%) (37.8%)

- Industrial5,751 6,210 6,801(40.6%) (37.3%) (36.6%)

<TableⅢ-21> Trends in winter peak demand and heating load

[DiagramⅢ-19] Changes in share of winter peak demand taken up by heating load


It is forecast that oil dependence regarding primary energy consumption will decrease

to between 30 and 40%.

The share of oil reached its peak at 63% in 1994 and continued to decrease

afterwards. It stood at 39.9% in 2010 and is expected to further drop to 38.9% in

2011.

- The primary energy share taken up by naphtha, which is mainly used for industrial

raw materials, reached 16.3% in 2010, higher than LNG (15.9%) and nuclear

energy (12.9%).

- The primary energy share of naphtha continued to fluctuate according to

fluctuations in the petrochemical industry. It has been indicating a steady downward

trend since 2009 and is expected to record 16.1% in 2011.

- When excluding naphtha, the share of primary energy taken up by oil is expected to

be a mere 22.7% in 2011.



[DiagramⅢ-20] Trends in oil dependence and forecasts


B. Policy implications

Installed reserve margin is expected to be 7.4% in the summer of 2011.

Peak demand in the summer of 2011 is expected to be 73,601MW (expected to be

in August), a 5.3% rise from the 69,886MW recorded in 2010 (in August).

* The monthly electricity supply/demand information from January 1990 through

February 2011 was used.


the last five years, estimates that summer peak demand will reach 73,886MW, a







[DiagramⅢ-21] Comparison between economic growth rate and summer peak demand increase rate


If an assumption is made that average year climate conditions will be recovered in the

summer of 2011, installed reserve margin should have more room than the previous

year’s level (6.5%).

- Installed reserve margin in the event of peak demand in the summer of 2011 is



- Because installed reserve margin(facility capacity - peak demand) is expected to be

5,469MW for the base forecast and 5,184MW for Maximum Forecast No. 1, stable

electricity supply/demand is expected.

* Calculation of the summer total capacity: Applied the monthly facility capacity

increase/decrease plan for 2011 of the 5th Electricity Supply/Demand Plan

(December 2010) to the capacity recorded at the end of 2010.



[DiagramⅢ-22] Trends in monthly peak demand and forecasts


Notes: 1) Installed reserve margin (%) = [(Total capacity - peak demand)/peak demand]×1002) Total capacity excludes small hydro power facilities and isolated facilities that are not connected to systems

There is a need to overhaul measures on stabilizing electricity supply/demand in

preparation for abnormal climate conditions in the summer.

- If the weather in the summer is similar to that witnessed in the summer of 2010,

there is a possibility of installed reserve margin going down from the previous year

(6.5%). In this case, installed reserve level is estimated at 4,200MW.

- There is a need to revisit relevant plans in preparation for a rise in peak demand in

the summer (expected to be August) as a result of abnormal climate conditions.

Examples are adjusting the regular repair period of base-load power facilities and

raising the output of power plants.

Measures for abnormal climate conditions in the winter of 2011 will become more

significant.

- During the last two years (2009-2010), peak load was reached for the first time in

winter12). Heating load is taking up a higher proportion of peak demand in the

winter.

- In this case, there will be a sharp rise in consumption of LNG for power generation,

which is used to handle peak load, as well as town gas for heating. For this reason,

there is a possibility that ensuring stability in the supply and demand for LNG in the

winter will become more important.



Category 2008 2009 20102011

Base forecast Maximum ForecastNo. 1

Maximum ForecastNo. 2


Total capacity (MW) 70,353 73,373 74,407 79,070 79,070 79,070- installed reserve margin (%) 12.0 16.1 6.5 7.4 7.0 5.6

<TableⅢ-22> Forecasts on electricity supply/demand for the summer of 2011

12) In 2009 and 2010, peak demand occurred in the winter (December 18, 2009, December 15, 2010)


- Considering that the scope of energy consumption fluctuation caused by

temperature effects has recently been approximately ±1.3%, there is a possibility

of primary energy demand in 2011 reaching 274.3 million TOE, a 3.5 million TOE

increase from the forecasted 270.8 million TOE.

Notes: p refers to tentative figures

There is a need to strengthen electricity demand side management and enhance

efficiency in electricity use.

Consumption of electricity continues to increase rapidly due to its low charge;

diversification, increased size, and propagation of electrical equipments; a rise in the

number of facilities that consume a great amount of electricity; increased demand for

heating in the winter; and convenience in use.

- Even in 2008 and 2009, when the rate of increase in final energy consumption

remained low at 0.6% and -0.3%, respectively, electricity consumption recorded

comparatively high growth of 4.5% and 2.4%.

- A two-digit (10.1%) consumption increase rate was recorded in 2010, attributable

to the economic recovery and temperature effects. It is expected that sound

growth of 5.3% will be witnessed in 2011.

There is a need to promote the stable supply/demand of electricity by strengthening

demand side management in consideration of the continuous downward trend of the



Category 2003 2004 2005 2006 2007 2008 2009 2010p

215.1 220.2 228.6 233.4 236.5 240.8 243.3 261.2

-3.1 -3.1 3.1 -3.3 -3.7 -1.2 -1.7 3.2

-1.4 -1.4 1.3 -1.4 -1.6 -0.5 -0.7 1.2

<TableⅢ-23> Temperature effect on primary energy consumption increase

Temperatureeffect

Primary energy(Million TOE)

Amount ofincrease/decrease

(Million TOE)

Rate of increase/decrease (%)


supplied reserve margin at the point of time of peak demand.

- There are various constraints in building enough capacity to cover increasing

electricity demand. For this reason, there is a need for the government to place

more focus on electricity demand side management policies.

- There is a need to actively review the adoption of EERS (Energy Efficiency Resource

Standard) as soon as possible to strengthen electricity demand side management.

- There is also a need to encourage an appropriate level of use of cooling and

heating devices in large buildings (buildings used for industrial purposes, large

buildings used by the service industry and by the public sector, etc.), where there is

much potential to bring down electricity demand. There is also a need to improve

efficiency of lighting fixtures by promoting the ESCO (Energy Service Company)

program, and facilitate the adoption of electricity-saving building management

systems.

There is a need to adjust the electricity charge to a realistic level so as to reduce

excessive consumption (especially for heating purposes) of electricity in order to

boost efficiency in electricity consumption.

- Large shopping malls, financial institutes, and other organizations in the service

industry tend to provide excessive heating and cooling in Korea.

- To remove such practices that lead to the waste of resources, there is an urgent

need to strengthen the market functions of energy prices.

In 2011, the value of energy imports is expected to go up by 20.2%.

The value of imported energy (oil, natural gas, coal, uranium) reached 121.7 billion

dollars in 2010, a year-on-year rise of 33.4%.

- The amount of energy imports (oil, natural gas, coal) indicated a year-on-year

increase of merely 8.8%, but the value of imports rose substantially owing to a

surge in energy prices such as international oil prices.

The value of energy imports in 2011 is estimated at 146.2 billion dollars.

- The level of increase in energy demand (imports) is expected to slow down this

year, but the value of energy imports is expected to indicate a year-on-year rise of




20.2%, owing to forecasted increase in international energy prices.

* Oil: (’09) $66.6 billion → (’10) $90.9 billion → (’11) $111.2 billion

* Natural gas: (’09) $13.9 billion → (’10) $17 billion → (’11) $20 billion

* Bituminous coal: (’09) $9 billion → (’10) $11.4 billion → (’11) $13.4 billion

Notes: 1. The values in parentheses are the year-on-year growth rate (%), p refers to tentative figures, e refers to forecasts2. The import price of each energy source is based on the unit price of import



Category 2006 2007 2008 2009 2010p 2011e

233.4 236.5 240.8 243.3 261.2 270.8(2.1) (1.3) (1.8) (1.1) (7.3) (3.7)

238.7 246.8 255.5 257.1 279.6 285.2(4.5) (3.4) (3.5) (0.6) (8.8) (2.0)

856 950 1,415 912 1,217 1,462(28.3) (11.0) (49.0) (-35.6) (33.4) (20.2)

<TableⅢ-24> Energy consumption and import and outlook

Primary energyconsumption(Million TOE)

Amount of imports(Million TOE)

Value of imports (100 million dollars)


KKEEEEII Korea Energy Demand Outlook(Volume 13 No. 1)

Printed on April 18, 2011

Issued on April 20, 2011

CEO of publisher: Kim Jin-woo

Registration: No. 7 on December 7, 1992

Printed by: Beomshinsa (02)503-8737

ⓒ Korea Energy Economic Institute 2010

132 Naesonsunhwan-ro, Uiwang-si, Gyeonggi-do

Phone: (031)420-2114, Fax: (031)422-4958

Publisher: Korea Energy Economics Institute


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