Resource Nationalism in Central Asia Might Disrupt Korea’s Energy Supply

According to the Korea National Oil Corporation (KNOC) and others in the oil industry on February 1, the Kazakhstan government has recently drawn up new regulations to ban the sale of oil exploration rights to other companies for two years after making contracts with domestic operators.

The country seems to have come up with this plan for fear of foreign companies holding a large amount of stakes in its oil fields.

Accordingly, the government is also preparing a bill that will forbid companies threatening its national security to participate in the bidding for exploration rights.

So far, many Korean companies have made inroads into the Kazakhstan oil exploration market by paying more money to buy the oil rights, not by participating in the local government bid. Therefore, it may be difficult for Korean oil businesses to make new investments in the country from now on.

“Now we have to either win the exploration rights from the local government or acquire local companies. In practice, however, it will be difficult to get more rights to explore oil,” said one official of a Korean oil company in a phone interview. His company had made forays into Kazakhstan to extract oil.

Currently, seven Korean companies are conducting oil-extracting business in Kazakhstan. Those include the KNOC, SK Corporation, and LG International.

Korean companies are finding themselves in bigger trouble in Latin America as well, where resource nationalism raised its ugly head earlier than in Central Asia.

Dongwon Enterprise, a Korean company which had been mining gold in the Paula Cecilia mining field, had to stop business in Bolivia last December.

The KNOC has not started exploring Venezuela’s Onado mining field, even though it won the mining rights from the Venezuelan government last year after agreeing to give Venezuela a 60% stake in the field.

“The Venezuelan government substantially increased corporate taxes on foreign companies, so we have to pay half of our revenue to them. Venezuela has unlimited potential, but we cannot guarantee its profitability,” said one official from the KNOC.

jarrett@donga.com