Analysts urge caution after announcement of possible oil, gas reserve

By Kim Joo-heon Posted : June 4, 2024, 16:30 Updated : June 5, 2024, 15:04
This undated photo shows an industrial pump used in the oil industry Getty Images Bank
This undated photo shows offshore oil drilling. Getty Images Bank

SEOUL, June 4 (AJU PRESS) – Analysts urged investors to be cautious after the government approved oil and natural gas exploration in the southern industrial city of Pohang, expecting that up to $1.4 trillion worth of resources could be buried.

During a briefing on Monday, President Yoon Suk Yeol said up to 14 billion barrels of oil and gas are expected to be stored in the waters off Yeongil Bay in Pohang. Citing a geophysical study conducted by U.S. geoscience consulting firm Act-Geo, Yoon said Korea has natural gas reserves that could last up to 29 years, and oil reserves that could last over 4 years.

The actual drilling work to determine the presence of gas and oil will begin in December this year. The government plans to drill at least five holes, each costing more than 100 billion won ($72.6 million).

Energy stocks surged following Yoon's announcement. According to the Korea Exchange on Tuesday, Korea Petroleum Industries' share was trading at 22,900 won ($16.71) as of 9:41 a.m., marking a 27.58 percent increase from the previous day. Korea Gas Corporation rose by 18.22 percent and Daesung Energy rose by 19.47 percent. 

Securities analysts say that it is premature to confirm its economic viability. If the exploration commences at the end of 2024, it is projected that the presence of reserves will be ascertained by the first half of 2025. Once reserves are confirmed, additional exploration is expected to take place around 2028, and commercial development could potentially become feasible from 2035 onwards.

"The project is still in the initial stages of exploration and we need to observe the progress further," Hana Securities analyst Yoo Jae-sun said.

"It's expected to take 7 to 10 years for reserves to be commercialized," said Hi Investment & Securities analyst Byun Yong-jin. "Considering the prolonged duration, it's necessary to be cautious against excessive short-term stock price surges."

A report published by Meritz Securities on Monday said it’s difficult to anticipate the results until drilling is conducted and advised investors to distinguish between the exploration reserves announced by the government and the actual reserves.
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