In principle all hydrocarbons are owned by the state under Korean constitutional law.

Even under the Mining Industry Act (the “Mining Act”) and the Submarine Mineral Resources Development Act (SMRDA), generally only the Korean government has the right to exploit relevant resources, however, private entities may acquire temporary rights to conduct certain related businesses on a concession basis.

The Bureau of Resources under the Ministry of Trade, Industry and Energy (MOTIE) is primarily in charge of regulating relevant hydrocarbon activity.

Among the five divisions of the Bureau of Resources, the Petroleum Division and Gas Division have primary responsibility for the oil and gas sectors.

In addition, MOTIE has four separate internal sections responsible for the safety inspection and security measures with respect to relevant facilities.

MOTIE has also granted special licences to the Korea National Oil Corporation (KNOC) which is a public corporation established under MOTIE. For example, KNOC is authorised to, among other things, implement oil storage policies in order to stabilise supply and demand (Article 16(2) of the PAFBA and Article 20 of the Enforcement Rules of the PAFBA), collect levies on oil imports and sales (Article 28(1) of the Enforcement Decree of the PAFBA), report on oil sale prices and public disclosure of those prices (Article 38(2)(4) of the PAFBA and Article 42(2)(8) of the PAFBA Enforcement Decree).

KNOC, which is established under the Korean National Oil Corporation Act as a state-owned company sitting under MOTIE is primarily responsible for exploration and development of crude oil deposits.

In respect to gas, the Korea Gas Corporation (KOGAS) which is a similar state-owned company sitting under MOTIE and established pursuant to the Korea Gas Corporation Act is primarily responsible for the production and supply of urban gas as well as the development, import and export of natural gas.

Upstream

For petroleum resources on land, the Mining Act is the main governing legislation, whereas petroleum resources at sea are mainly governed by the SMRDA. It is worth noting that Article 9 of the Mining Act also applies some provisions of the SMRDA mutatis mutandis to certain provisions of the Mining Act. Further, the SMRDA also provides for (i) the establishment of a master plan for the development of undersea resources by the state, (ii) the designation of undersea mining areas, (iii) the state’s attribution of mining rights, and (iv) the establishment of exploration and extraction rights for private enterprises and the applicable conditions thereof.

Midstream and Downstream

The Petroleum and Alternative Fuel Business Act (PAFBA) is the main governing legislation with respect to crude oil. Gas is mainly regulated by the Urban Gas Business Act, the Safety Control and Business of Liquefied Petroleum Gas Act (the “LPG Act”) or the High-Pressure Gas Safety Control Act, as applicable.

The authors also note that the PAFBA, the Enforcement Decree of the PAFBA and the Enforcement Rules of the PAFBA have been recently amended in respect of the determination of the scope of certain environmentally friendly petroleum alternatives such as bio-fuels, etc, which amendments were made on 6 February 2024 and are due to take effect on 7 August 2024.

As a general principle under the Mining Act and the SMRDA, only the state has the right to mine for oil regardless of whether relevant resources are on land or at sea. However, a private entity may apply to MOTIE in order to obtain permission to temporarily explore for or extract resources in respect to state-owned resources. Under relevant laws, a concession fee is unilaterally imposed on extracted oil and gas according to the standards set by MOTIE. Moreover, there is no explicit expectation for a production sharing agreement (PSA) at law, however, in practice, it is possible to conclude a PSA to cover any conditions that are not otherwise covered at law.

In order to obtain a licence to explore for or extract relevant resources, the relevant entity must apply to MOTIE for the relevant licence. The processes and conditions are discussed below.

Exploration Rights

Any person who wishes to obtain a licence to explore for relevant resources must file the prescribed application to MOTIE along with requisite documents including, among other things: (i) an undersea area map designating the area to be explored; (ii) an exploration plan and funding plan; and (iii) a description of the major equipment and personnel expected to be necessary for the exploration activities.

Further, exploration licences will only be granted to persons who are (i) determined as having sufficient financial and technical capabilities as well as the requisite equipment for the proposed activities; and (ii) deemed to be reasonably able to undertake the exploration activities.

Extraction Rights

Where a person with an exploration licence identifies any undersea resources of economic value, the person must notify MOTIE within seven days and may apply for an extraction permit no later than three months before the expiry of their exploration licence by applying to MOTIE along with, among other things: (i) the target area for mining, (ii) an exploration report and evidence of the settlement of exploration expenses; and (iii) a mining plan and financing plan.

Extraction rights will only be granted where the relevant where MOTIE has determined that (i) the explorer has faithfully carried out the exploration work during the term of the relevant exploration licence; (ii) the relevant resource is of economic value; and (iii) extraction processes can be undertaken sufficiently.

An entity with the right to extract for relevant resources is required to pay royalties or concession fees to MOTIE every quarter. Royalties/concession fees are calculated by multiplying the sales price of the relevant crude oil or natural gas by the applicable rate with that rate applying differently depending on the production volume.

Certain tariffs and value added taxes may be exempted on certain machinery, equipment and materials imported before 31 December 2025 by an entity with a right to explore for or extract undersea resources (and the same applies when imported by an agent or contractor in the name of the relevant license holder) (Article 140 of the Restriction of Special Taxation Act).

Other than the foregoing, similar to other industries, general corporate taxation regimes will apply.

Under the Act on Acquisition of and Compensation for Land for Public Use Projects (Land Compensation Act), KNOC has a status similar to the state, so KNOC has the right to expropriate or use certain rights such as ownership rights of land, buildings or fixtures on land or the non-ownership rights thereof, mining rights, fishing rights, aquaculture or water rights if required for the exploration, development, storage or transportation of petroleum.

Although there are no explicit local content requirements under relevant Acts, the granting of relevant licences is ultimately a discretionary action, so the possibility of the relevant authorities taking such factors into account cannot be excluded. In this respect, the SMRDA does not provide that MOTIE “must” grant relevant licences to applicants who satisfy the relevant conditions.

As noted in 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights, once the holder of an exploration licence discovers any resources of economic value, they must report the finding to MOTIE within seven days and may apply for a permit to extract no later than three months prior to the end of their exploration licence, at which point the conditions for issuance of a permit to extract will apply to that application.

Overview

Until recently, South Korea was not known to have any commercially available oil and gas reserves, so there are no meaningful precedents to date. As such, the regulatory framework governing the upstream industry has remained high-level, not developed to be sophisticated. E&P rights are granted to private entities on a concession basis. In particular, SMRDA only provides on a high level that MOTIE may impose necessary conditions when issuing rights of exploration or extraction, without specific and detailed guidance thereto. This indicates that the terms and conditions to be imposed on concessionaires are to be determined at MOTIE’s absolute discretion.

Terms

Generally, exploration rights are granted for ten years from the date of issuance, and extraction rights are granted for 30 years from the date of issuance. However, if exploration or extraction is restricted due to a force majeure event, the relevant licence may be extended by an equivalent period subject to MOTIE approval. Similarly, if certain circumstances exist, a permit holder may apply to MOTIE for extensions up to three times and two times (respectively).

Production in respect of the Donghae-1 gas field commenced in 2004 but was ended in 2021 due to the natural depletion of reserves.

Surrender and Cancellation

A licence holder may surrender the relevant licence by submitting an application to MOTIE. MOTIE may cancel relevant licences if the relevant licence holder fails to comply with the conditions or obligations imposed on the licence/licensee at the time of issuance or if the licence holder fails to pay prescribed royalties for more than one year.

Special Rules for Gas

In principle, a gas wholesale business can only be conducted with a licence granted under the Urban Gas Business Act. However, if an entity with an extraction licence extracts natural gas under the SMRDA, it may sell such gas without a separate wholesale licence to certain gas wholesalers under the Urban Gas Business Act.

Seabed mining rights may be transferred with the approval of MOTIE but such rights may not be used for other purposes (SMRDA Article 6(1)). Further, MOTIE may only approve a transfer request if the proposed transferee also satisfies the relevant conditions described in 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights (Article 6(2) of the SMRDA).

South Korea is not a major oil-producing nation and is not affiliated with OPEC or other oil-related international organisations, and there are separately no express domestic restrictions on production rates. However, when issuing extraction rights, MOTIE may impose such conditions.

Refer to 3.2 Downstream Operations Run by a National Monopoly: Rights and Terms of Access regarding KOGAS’s exclusivity in respect to the LNG wholesale market.

Refer to 3.3 Issuing Midstream/Downstream Licences regarding the procedures and conditions for registering, reporting or obtaining a licence for relevant businesses.

LNG Wholesale Market

Only KOGAS is permitted to import LNG for wholesale distribution, which is then distributed to urban gas retailers. KOGAS is also deemed to have obtained permission to undertake urban gas business under the Urban Gas Business Act.

Private entities may obtain permission to directly import LNG for the purpose of self-consumption for power generation, industrial uses, cogeneration or thermal uses, however, as a general rule, such LNG may not be disposed of to a third party. Currently POSCO Energy, GS Energy and SK E&S are representative entities which have received such import permission for self-consumption.

LNG Retail Market

Urban gas business entities have an exclusive right to supply urban gas to end-users.

LNG Transportation

Currently, KOGAS has an exclusive operational right in respect to domestic LNG supply networks (pipeline infrastructure).

Crude Oil

Under the PAFBA, any proposed oil refining, oil export/import or oil sales business must be registered with the head of the relevant local government (in the case of an oil sales business) or MOTIE. Any person who intends to undertake an oil refining business that manufactures asphalt, lubricating base oil or lubricating oil must file an application along with relevant business plan to the Korean Petroleum Management Authority.

In particular, in the case of an oil sales business, the PAFBA Enforcement Decree prescribes certain facility standards and capital requirements for registration. For example, in the case of a general agency, minimum paid-in capital requirements of KRW100 million apply.

Gas

Under the Urban Gas Business Act, permission from MOTIE or the relevant local government authority is required to undertake an urban/urban gas business and permission is only granted to businesses which satisfy certain requirements. In this respect, gas wholesale or urban gas businesses are only possible when (i) the relevant business is of a scale suitable for general demand or other public interests, (ii) adequate financial and technical resources are available for the relevant business, and (iii) the business has the ability to install and maintain appropriate facilities for the stable supply of urban gas. However, as discussed above, the wholesale business is substantially dominated by KOGAS, and a private entity is unlikely to get issued the licence for the wholesale business.

In particular, for permission to operate a gas wholesale business or general urban gas charging business, the equity capital ratio demonstrated in the business plan is required to exceed 30% of the business funding requirements until gas supply commences, and then not less than 20% thereafter.

LPG businesses under the LPG Act or high-pressure, gas-related business under the High Pressure Gas Safety Control Act may also require permission from the relevant provincial or local government depending on the detailed classification of the relevant business, with certain facility and technical standards also being applicable.

Local Presence Requirement

Both crude oil and gas regulations do not explicitly exclude foreign entities from participating in relevant businesses, however, licensing practices often presuppose South Korean incorporated entities or branches.

Main Types of Business and Supply Regulations, etc

The main types of downstream business under the Urban Gas Business Act include: (i) gas wholesale businesses (supply gas to other urban gas users or high-volume end-users. KOGAS has monopoly in this segment), (ii) general urban gas business (supply urban gas to general consumers), and (iii) urban gas charging business (supply gas to storage tanks or containers etc.).

Among the foregoing, a gas wholesale business and a general urban gas business must obtain approval (from MOTIE or the provincial/local government (respectively)) of the proposed supply conditions, such as supply charges, etc, and are required to supply urban gas accordingly. Supply conditions will only be approved if (i) the proposed rates or charges are deemed appropriate, (ii) charges are expressly a fixed ratio or fixed rate, (iii) responsibility and obligations for charges are appropriately and clearly determined, and (iv) the rates are not unfairly discriminatory against any particular business or person.

Under the LPG Act, the main types of downstream business include: (i) import/export of LPG, (ii) LPG filling stations, (iii) collective supply of LPG (supplying LPG for general consumption), (iv) sales of LPG (supplying charging LPG to storage facilities), and (v) consignment transportation of LPG (the business of supplying LPG to small-scale storage tanks on consignment from gas charging stations or gas sales businesses).

In respect to a collective supply, a business which intends to set supply conditions must report to the relevant permitting authority and such conditions must include matters concerning the calculation of gas charges and the sharing of responsibilities and obligations between the supplier and user, etc.

Pipeline Use

Under the Urban Gas Business Act, a gas wholesaler or general urban gas business which owns gas pipeline facilities must set by-laws for the use of the pipeline facilities such as usage fees, etc, and must complete relevant reporting or approval processes with MOTIE.

Under the PAFBA, among oil sales business, small and medium-sized enterprises that operate gas filling stations that meet certain requirements such as being designated “affordable gas stations” may benefit from special reductions in income or corporate tax rates.

Under the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, VAT is exempted from the supply of greenhouse gas emissions permits, greenhouse gas reductions from external sources and offset rights converted from same.

Further, under the Transportation, Energy and Environment Tax Act, those who manufacture and ship gasoline, diesel and other similar alternative oils or those who export them from designated areas under the Customs Act are required to pay certain transportation, energy and environment taxes.

Crude Oil

In the event that KNOC imports or exports crude oil in order to implement its oil reserves policy, such import/export business is exempt from relevant registration requirements.

In addition, KNOC is entrusted with some of the regulatory tasks of MOTIE in respect to the petroleum business.

Gas

KOGAS is deemed to have obtained relevant permissions for urban gas business under the Urban Gas Business Act.

In the event that KOGAS has prepared a gas business implementation plan which is approved by MOTIE, it is deemed to: (i) be a recognised business under the Land Compensation Act, (ii) have obtained development approval under the National Planning and Utilisation Act, (iii) have relevant road permits under the Road Act, (iv) have relevant permissions under the Farmland Act, and (v) have requisite permits under the State Property Act, in each case as required to implement the relevant business or project.

Further, in order for KOGAS to carry out the relevant business smoothly, related administrative agencies may preferentially install required public facilities or allow KOGAS to install such facilities if requested by KOGAS.

Not applicable.

Obligation to Supply

Under the Urban Gas Business Act, gas wholesale companies and general urban gas companies cannot refuse to supply gas, or suspend any supply of gas, without justifiable reasons.

Export

Under the relevant legislation, businesses that may export crude oil or gas include crude oil import/export businesses under PAFBA, natural gas import/export businesses under the Urban Gas Business Act and liquefied petroleum gas import/export businesses under the LPG Act. The procedures and conditions of permits, filings and registrations are discussed in 3.3 Issuing Midstream/Downstream Licences.

Debt Conditions

There are businesses that require a certain ratio of equity capital by law. See 3.3 Issuing Midstream/Downstream Licences for details.

Business Closure

For both crude oil and gas, there are no established permit periods for downstream businesses as there are for upstream businesses.

If a crude oil or gas business intends to terminate its business activities, petroleum businesses and urban gas businesses must notify the Minister of Trade, Industry and Energy or the chief executive of the relevant local government, and liquefied petroleum gas businesses must report such to the chief executive of the relevant local government.

Under the PAFBA, where a petroleum refiner, petroleum exporter or importer, international petroleum trader, or petroleum retailer obtains registration or makes a report fraudulently or improperly, fails to meet the facility standards, or grounds for disqualification of registration or reporting occur, MOTIE may revoke its registration, close its place of business or suspend its business, and MOTIE or the chief executive of the local governmental authority may impose a penalty.

If an urban gas company under the Urban Gas Business Act, a liquefied petroleum gas company under the LPG Act, or a company under the High-Pressure Gas Act obtains a permit or registration by fraud or other improper means, or violates other obligations under the above-related laws, MOTIE or the chief executive of the relevant local government may revoke such permission or registration and/or impose a penalty.       

National Land Planning and Utilisation Act

As gas supply facilities constitute infrastructure, if a project for installing, maintaining or improving gas supply facilities is designated under a city management plan under National Land Planning and Utilisation Act, the entity implementing such project may expropriate or use the relevant land.

Land Compensation Act

Projects related to petroleum reserves, petroleum supply, and gas which have the necessary licence, authorisation, approval or designation in accordance with relevant laws and which are being implemented for the purpose of public interest constitute public works projects. Therefore, if a business of installing pipes and other supply facilities meets the above requirements, the business operator can acquire or use the relevant land.

Act on Public-Private Partnerships in Infrastructure

If the project is an infrastructure project designated as a public-private investment project under the Act on Public-Private Partnerships in Infrastructure, the entity implementing the project can enjoy the benefit of having obtained a business approval under the Land Compensation Act by virtue of obtaining the approval of the relevant governmental authority. The entity implementing the project may entrust the sale and purchase of the relevant land, compensation for loss, and the implementation of relocation measures to the relevant governmental authority or the chief executive of the relevant local government, but may be subject to an entrustment fee.

MOTIE is the central administrative agency responsible for the regulation of the transportation of hydrocarbons.

The Urban Gas Business Act generally governs the transportation of urban gas, including quality standards.

The Oil Pipeline Safety Control Act governs matters relating to safe management of pipelines, including completion inspection conducted by MOTIE, approval of safety management regulations, and precision safety diagnosis by the Korea Gas Safety Corporation.

In relation to gas supply facilities such as gas production facilities (including storage facilities), gas pipeline facilities, and gas charging facilities (including storage facilities), the Urban Gas Business Act stipulates that urban gas business operators that do not have such gas supply facilities may also use such facilities jointly through consultation with a facility owner. In particular, with respect to gas pipeline facilities, the owner of the pipeline is required to set usage regulations for the pipeline, as discussed in 3.4 Fiscal Terms and Commercial Arrangements: Midstream and Downstream. This is viewed as an open-access rule.

Since KOGAS, operates a pipeline network and directly engages in the gas sales business, it would be fair to say that there is no strict unbundling requirement.

For the sale of crude oil in Korea, the registration of a petroleum sales business or petroleum import/export business is required under the PAFBA, but the registration requirement in respect of a petroleum sales business is exempted if registration of a petroleum refinery business or a petroleum import-export business has already been completed.

For the sale of gas in Korea, it is necessary to obtain (as applicable):

• a permit for a gas wholesale business, a general urban gas business or an urban gas charging business under the Urban Gas Business Act;
• registration as a liquefied petroleum gas export and import business or a permit for a liquefied petroleum gas charging business, collective supply business or sales business under the LPG Act; or
• registration as a high-pressure gas importer under the High-Pressure Gas Act,

as discussed in 3.1 Forms of Private Investment: Midstream/Downstream and 3.3 Issuing Midstream/Downstream Licences.

There are no other statutory provisions that separately regulate sales at the local government level.

Exports and imports can be conducted only after the proposed exporter or importer obtains registration with MOTIE as a petroleum/natural gas exporter or importer (as applicable) in accordance with the PAFBA (in respect of crude oil exports and imports) or the Urban Gas Business Act (in respect of natural gas). 

Crude Oil

Under the PAFBA, where a petroleum refiner, petroleum exporter or importer, international petroleum trader, or petroleum retailer transfers all of its business to a transferee, that transferee, or, if the petroleum project company undergoes a merger, the surviving company or the new company, will succeed to the position of the petroleum project company, and will also assume the effects of any suspension of business and any imposition of penalties of the petroleum project company.

Gas

If an urban gas company under the Urban Gas Business Act, a liquefied petroleum gas company under the LPG Act, or a company under the High-Pressure Gas Safety Control Act transfers all or part of its business to a transferee, that transferee or, if the relevant company undergoes a merger, the surviving corporation or new corporation, will succeed to the position of the relevant company, and must report the transfer to MOTIE or the chief executive of the relevant local government.

In the event that the position of an urban gas company or a liquefied petroleum gas company is succeeded to, the succeeding entity assumes the effects of any suspension of business and restrictions, as well as any imposition of penalties of the relevant company.

The Foreign Investment Promotion Act applies to foreign investments as a general law. Since the Act is intended to support and promote foreign investment, there are certain tax reductions and exemptions which may be granted for foreign investments, and a foreign corporate investor that has completed registration may borrow national or public property through private contracts, notwithstanding provisions of any other relevant laws.

Foreign investment means:

• an investment the amount of which is equal to KRW100 million or more; and
• either:
1. where the foreigner owns 10% or more of the total number of voting stocks or total amount of investment in a Korean corporation or enterprise; or
2. where the foreigner dispatches or appoints an officer to a Korean corporation or enterprise while owning the stocks of the Korean corporation or enterprise.

In the petroleum industry, there is no restriction on foreign ownership of shares under Korean law (unlike some other industries).

Under the Foreign Exchange Transaction Act, certain financial transactions and payments involving North Korea, Iran, certain designated entities and individuals are restricted. It is noteworthy that Korea joined the multilateral sanctions regime targeting certain Russian banks and excluding them from SWIFT.

Korea has also expanded its catch-all export controls against Russia, which would comprehensively capture items for use in oil and gas projects in Russia.

Upstream Operations

Upstream operations may be subject to environmental impact assessments under the Environmental Impact Assessment Act, and the relevant regulatory authority is the Ministry of Environment. See 5.2 Environmental Obligations for a Major Hydrocarbon Project for details.

If the Act on Conservation and Utilisation of the Marine Environment applies, there are obligations to take necessary measures to minimise marine pollution and damage to the marine ecosystem, and the relevant regulatory authority is the Ministry of Environment.

The Marine Environment Management Act regulates the discharge of marine pollutants, and prescribes obligations to share the cost of restoration and damage relief, and the relevant regulatory authority is the Ministry of Oceans and Fisheries. 

In addition, the Mining Act and SMRDA contain obligations to restore artificial structures, facilities and other equipment in the event of a loss of a mining concession, and the relevant regulatory authority is MOTIE.

Downstream Operations

The regulations under the Environmental Impact Assessment Act and the Marine Environment Management Act also apply to the downstream sector.

Energy development projects and extraction projects for minerals including petroleum (and for above-land extraction subject to the Mining Act, the extraction area must be over 300,000 square metres) are subject to environmental impact assessments. The Ministry of Environment is the central authority in charge of regulations under the Act.

For such projects, the relevant project company must prepare a preparatory assessment statement, undergo review by the Environmental Impact Assessment Council, prepare a draft impact assessment statement and hold public hearings from residents, obtain approval from the head of the approving agency or review by the Minister of Employment, and if consultation is necessary, take necessary measures to reflect the content of such consultations in its business plan.

The project company has an obligation to report the results of implementing the agreed contents of consultations and to conduct a follow-up environmental impact survey. The head of the approving agency has the power to order the project company to undertake certain measures or pay penalties according to the results of the management and supervision of the agreed details of the consultation.

Article 33 of SMRDA provides that the Mining Safety Act applies mutatis mutandis to the exploration and extraction of submarine minerals, and as such the provisions of the Mining Safety Act also apply to deep-sea mining activities. The key requirements are as follows:

• a mining rights-holder or a mining concession holder must take measures necessary to prevent natural disasters, environmental pollution and hazards, protect workers’ safety, and protect underground resources;
• a mining rights-holder or a mining concession holder must appoint mining safety management personnel; and 
• a mining rights-holder or a mining concession holder must report to the Minister of Trade, Industry and Energy in respect of mining safety.

Upstream Sector

As discussed in 5.1 Environmental Laws and Environmental Regulator(s), there are obligations to restore artificial structures, facilities and other equipment in the event of a loss of a mining concession under the Mining Act and the SMRDA.

In addition, pursuant to the Mining Damage Prevention and Restoration Act, a mining concession holder must establish a mining damage prevention project plan and obtain approval from MOTIE prior to commencing the project. The concession holder is also responsible for the costs of preventing any mining damage (in addition to the damage contemplated in the mining damage prevention project plan) which occurs following the closure of the mine, as well as the costs of installing, operating and managing the relevant mining damage prevention facilities. 

Downstream Sector

Under the LPG Act and the High-Pressure Gas Safety Control Act, if the relevant project or storage facility is to be demolished, this must be notified to the permitting authority and documents evidencing the disposal of residual gas must be also be submitted.

Under the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, which was enacted in 2012, business entities which are designated by the relevant government authority as being eligible for the allocation of emission permits are allocated greenhouse gas emission permits for each compliance year within a commitment period.

Emission permits may be traded. Further, upon approval of the relevant governmental authority, emission permits may be carried over to another compliance year, and emission permits which have been allocated for a different compliance year may be used in part for the relevant compliance year.

Business entities eligible for the allocation of emission permits may also apply to the relevant governmental authority for the conversion of all or part of the reduction in greenhouse gases generated from external projects into emission permits in a manner which is in accordance with international standards. The Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Crisis (Carbon Neutrality Act), which was enacted in 2022, also stipulates the greenhouse gas emission permit trading system.

Under the Act on Conservation and Utilisation of the Marine Environment, national and local governments have an obligation to prepare policies to cope with climate change in accordance with the Carbon Neutrality Act.

Depending on the results of the environmental impact assessment, local governments may prohibit the implementation of related projects or the use of public waters.

Also, the development permits for greenfield projects are delegated to the local governments, which implies that a local government may, at its discretion, refuse to issue a required development permit if it is not satisfied with certain factors such as social acceptability.

Carbon Neutrality Act

The Carbon Neutrality Act was enacted on 31 December 2022 with the goal of achieving net zero greenhouse gas emissions by 2050. The government must establish and implement a 20-year national framework plan every five years, and must also establish and implement national climate crisis adaptation measures every five years.

Relevant business entities must:

• endeavour to minimise greenhouse gas emissions generated in the course of business activities;
• endeavour to increase investment and employment in green technology research development and green industries;
• participate in and co-operate with national and local government policies; and
• include a climate change impact assessment when conducting an environmental impact assessment.

2030 National Greenhouse Gas Reduction Goals

The government announced its first framework plan on carbon neutrality and green growth in March 2023, and the plan included the following goals: (i) the 2030 national greenhouse gas reduction target to reduce 40% of the 2018 total greenhouse gas emissions by 2030; (ii) securing reduction technology and transitioning to a low-carbon structure; and (iii) reducing coal power generation and increasing nuclear power and renewable energy.

Carbon Capture and Storage Projects

In connection with the 2030 national greenhouse gas reduction target discussed above, MOTIE announced the carbon capture and storage demonstration project using the East Sea gas field, the production of which had ended in 2021. The project is currently being undertaken by KNOC.

Natural gas will play a key role in the energy transition phase as set out below.

• Natural gas will be used to produce grey or blue hydrogen.
• Natural gas infrastructure will be used to store and transport hydrogen.
• Gas power plants will fill the gap of grid disparity or stability arising from deployment of renewable energy sources.

In accordance with the Electricity Business Act, MOTIE has the obligation to establish and announce a framework plan for electricity supply and demand to stabilise supply and demand. The working draft of the 11th framework plan was released on 31 May 2024. Key goals include:

• increasing the proportion of carbon-free electricity to 70% by 2038;
• setting a 2030 renewable energy supply target which is three times that of 2022; and
• introducing small module nuclear reactors.

Not applicable.

Currently, there is no particular legislation which separately regulates LNG development projects only.        

Under the Urban Gas Business Act, any export of LPG must meet certain facility standards and be registered with MOTIE. Even where there is a separate export contract, the transaction must be in accordance with all requirements including in relation to the necessity of gas supply and demand and price adequacy, and must obtain the approval of the MOTIE. In certain circumstances, the transaction must be reported to the MOTIE following execution of the contract.

The oil industry in Korea has been mainly developing in the downstream sector to date with little development in the upstream sector.

Korea is one of the most dependent countries on imports, importing more than 75% of its oil. According to KNOC, the amount of oil imports increased by 44.5% from the previous year to USD135.7 billion following COVID-19 in 2022, and this was equivalent to 18.6% of the total national income.

However, Korea’s refining facility capacity ranked fifth in the world in 2022 (averaging 3.36 million barrels per day) according to the Statistical Review of World Energy published by PB, and the high competitiveness of the oil refining industry allows Korea to be self-sufficient in relation to petroleum products.

According to KNOC, oil exports in 2022 exceeded USD60 billion, having increased by 69.7% from the previous year’s oil exports, and oil was the second-highest export item after semiconductors.

PAFBA regulates adjustments of supply and demand for oil in emergency situations. Under that Act, MOTIE may issue an order to stabilise oil supply and demand if events such as deteriorating domestic and overseas oil markets occur, and may take measures such as implementing restrictions or prohibitions on the distribution and use of oil upon the occurrence of wars, natural disasters and other similar events. 

As discussed in 6.1 Energy Transition Laws and Regulations, the Carbon Neutrality Act was enacted with the goal of achieving net zero greenhouse gas emissions by 2050.

In addition, the Special Act on National Resource Security was enacted on 6 February 2024, in consideration of the high level of dependence on overseas energy imports characteristic to the Korean market. The Act will be enforced from 7 February 2025.

The key contents of the Act include:

• the designation of oil, natural gas, coal, uranium, and hydrogen and other resources as “core resources”;
• the designation of MOTIE as the body with exclusive responsibility for resource security;
• the establishment and operation of an national integrated resource security information system; and
• the obligation to stockpile core resources in respect of certain suppliers prescribed by Presidential Decrees.

The same Act is characterised as a high-level law that encompasses legislation for specific energy resources, such as the PAFBA, the Urban Gas Business Act, the Mining Act, and the Overseas Resources Development Business Act.