1. Introduction
The Asia-Pacific gas market is growing due to the massive investment in liquefied natural gas (LNG) supplies and increasing demand. According to the International Energy Agency (IEA) [
1], the Asia-Pacific demand for natural gas will increase from 732 billion cubic meters (bcm) in 2016 to over 1472 bcm in 2040. The predicted average annual demand growth rate of 3.0% between 2016 and 2040 is much faster than those projected for North America or Europe—0.7% per year and 0.3% per year, respectively, over this period [
1]. Despite this increase in demand, structural oversupply of the gas market has occurred due to the construction of large-scale liquefaction facilities in the US, Australia, and Russia, and policies to expand Qatar’s exports. Hence, the growth of the market has continued based on the abundant gas supply capability and because the current gas market is a buyers’ market [
2,
3].
However, the presence of a buyers’ market does not mean that risks to the security of supply have disappeared. This risk is demonstrated, for example, by the past disruption in supply caused by the Middle East war and Russia, and by the recent diplomatic confrontation between Qatar and its neighbors [
1,
4,
5]. These events pose a serious threat to the energy security of certain LNG importing countries. The characteristics of the LNG market also increase the risks. Unlike the oil market, long-term contracts have long dominated the Asia-Pacific market for LNG [
6]. In the case of LNG, a long-term project period is required because the exporting country must build a large-scale infrastructure for transportation [
7]. Therefore, the LNG market is inflexible in the sense that supply is unable to respond elastically to short-term increases in demand [
8]. These market characteristics indicate that policy-making and research concerning stable importation is necessary.
Korea was the world’s third-largest LNG-consuming country in 2017 [
9], but its dependence on LNG imports was as high as 99.6% [
10]. Due to the lack of domestic natural gas resources, the stability and security of LNG is an important policy issue. Korea is unable to trade with neighboring countries through pipelines due to geopolitical conditions caused by the ceasefire with North Korea. This means that Korea is an isolated market that depends entirely on LNG transport [
11]. In addition, the storage cost of natural gas is high, and Korea’s geographical features make the underground storage of natural gas difficult [
12]. The Renewable Energy 3020 Implementation Plan [
13], an energy transition policy established in 2017, further boosted the importance of stable LNG imports. The policy states that the electricity supply through renewable generation will be increased to 20% by 2030 [
13]. An increase in renewable energy will increase the demand for LNG because the intermittency of renewable energy requires LNG-fired plants to serve as backup generators to stabilize the electricity supply [
14,
15]. With these conditions, any problems in a natural gas exporting country such as a natural disaster, or marine transportation accident can severely threaten energy security. Since the 2000s, the threat of terrorism on energy infrastructure and transportation has increased, and natural disasters such as hurricanes have an adverse ripple effect. Consequently, the understanding of energy security has extended beyond security and diversification of energy sources to include all energy supply infrastructures related to transportation and utilization [
16].
Considering the Korean situation and value chain of the natural gas market, we developed an optimal LNG portfolio model that considers tangible and intangible costs to improve the importation stability of LNG from the perspective of Yergin’s [
16] energy security model. The model quantifies not only tangible factors that depend on the supply capability of each exporting country, such as the natural gas price, reserve capacity, and liquefaction facilities, but also intangible factors, such as the risk of natural disasters, transportation, and political influences.
Previous studies [
17,
18,
19,
20,
21] based on the linear programming (LP) portfolio model did not consider spot contracts when determining optimal portfolio strategies and only considered long-term contracts. Since the demand for natural gas markedly differs between winter and summer, spot trading is used in winter to cope with natural gas shortages. Therefore, it is necessary to consider spot contracts within the model. We solved this problem by combining the Markowitz’s mean-variance (MV) portfolio model [
22] with the LP portfolio model. Also, we solved the problem of weight determination using the fuzzy analytic hierarchy process (AHP) methodology. The weights have a significant impact on the optimal portfolio strategy and therefore, it is essential to derive the weights quantitatively using a scientific methodology. The study of applying fuzzy AHP to determine weights has been applied in various fields, and its validity has been verified [
23,
24,
25]. AHP plays a critical role in many decision-making problems [
26]. Thus, this study more accurately reflects the tangible and intangible factors by using weights based on the results calculated from the fuzzy AHP.
Finally, we evaluated the optimal LNG portfolio derived from the models using Lefèvre’s [
27] energy security index. The energy security index showed that the optimal portfolio improves the energy security quantitatively compared to the actual LNG portfolio.
The remaining sections of the paper are organized as follows. The second section proposes a two-step portfolio framework. The third section presents the data to be calculated. The fourth section presents the results and discussion based on the optimal portfolio strategy. Finally, the fifth section concludes the paper and presents the policy implications.
4. Results and Discussion
4.1. MV Portfolio Result
The optimal purchase ratio was calculated using the MV portfolio model considering the price level and correlation between long-term and spot contracts. The optimal purchase ratio was selected using the efficient frontier.
Figure 3 shows the efficient frontier and selected optimal portfolio. According to the analysis results, the optimal ratios for long-term and spot contracts were 89.72% and 10.28%, respectively.
4.2. Fuzzy AHP Results
As mentioned in the introduction, the weights derived by fuzzy AHP were applied as the weights for the economic, national, marine transportation, and natural disaster risks. Since we calculated the weight elements based on the KOGAS expert results, we were able to develop a model that more accurately reflects Korea’s situation. The fuzzy AHP results are shown in
Table 8.
4.3. Optimal LNG Portfolio
Using the results of the fuzzy AHP and the optimal purchase ratio, we constructed the optimum LNG portfolio for each country. The results were compared with Korea’s actual LNG portfolio for 2012.
Figure 4 and
Table 9 show the optimal LNG portfolio.
Also, we analyzed our portfolio using the analytical results on a regional basis because marine transportation, political, and natural disaster risks are not limited to the supplier country; the results have an interconnected effect on countries in the same region, as shown in
Table 10 and
Figure 5.
As shown in
Table 10 and
Figure 5, 49.12% of Korea’s total LNG imports come from the Middle East and 34.31% are imported from Southeast Asia. This means that natural gas imports depend heavily on specific regions. More particularly, Qatar and Indonesia account for 49% of the total amount of imported natural gas. This high dependence on specific countries means that Korea should make policy efforts to diversify its import sources. A two-step portfolio model was developed in this study that considers a comprehensive energy security perspective and a value chain. The optimal portfolio derived from the model has results that differ to the current supply policy of Korea.
The proposed supply plan derived from the two-step portfolio shows that the supply volume from the Middle East and Southeast Asian regions decreases while that of the Far East and Oceania significantly increases. This is because the LNG unit price, national risk, and marine transportation risk in the Middle East are high. The supply volume from Southeast Asia is lower in the proposed plan than in the current supply policy because the risks of marine transportation and natural disasters are relatively high. In contrast, the supply volume from the Far East and Oceania, including Russia and Australia, considerably increases in the proposed supply plan because the risk of marine transportation and the unit price in these regions are lower than those in the Middle East and Southeast Asian regions. More specifically, the supply volume from all countries in the Middle East decreases. In Southeast Asia, the supply volume from Indonesia decreases significantly. This is because Malaysia’s supply price and maritime transport risks are lower than those in Indonesia. Brunei’s supply volume is slightly reduced. The supply volume from Latin America also increases. This is because the risk of marine transportation for countries in this region through the Pacific Ocean is much lower than that from countries in the Middle East, Southeast Asia, and Africa, which use high-risk sea routes. The opening of the Panama Canal has improved the region’s competitiveness. Considering this situation, the prediction of an increasing supply volume from Latin America is reasonable. In Africa, there are also high levels of political and marine transportation risk; however, the import unit price is lower than that in the Middle East, resulting in a slight decrease in the supply volume in the optimal portfolio. Currently, KOGAS participates in gas field development and the acquisition of equity in Mozambique.
The supply volume of Australia is predicted to increase significantly in the optimal portfolio. Australia is expected to provide sufficient capacity because it has the world’s largest liquefaction plant. Consequently, imports from Australia could be an excellent solution to the continually increasing demand for natural gas. In addition, since its marine transportation and political risks are low, it may be necessary to increase the supply volume from Australia, as indicated by the optimal portfolio. Russia is expanding its infrastructure capacity to increase LNG exports to Korea and Japan. Therefore, increasing the Russian supply ratio, as in the optimal portfolio, is a reasonable alternative.
According to the optimal portfolio, which considers tangible and intangible costs, the maldistribution of LNG supply in specific regions decreases compared to the current supply policy. To check the quantitative improvement from a security perspective, we used the natural gas security index model to evaluate the optimal portfolio. The model was proposed by Lefèvre [
27]. The results of the comparisons are shown in
Figure 6.
The results shown in
Figure 6 represent the level of energy security evaluated in terms of diversification. A lower value means a higher level of energy security. By applying the current supply policy in Korea, the natural gas security index is shown to be 2.16. The result derived from the optimal portfolio is 1.67. These results indicate that the optimal portfolio has improved the energy security.
5. Conclusions
Korea has started to develop a new energy transition policy [
13], and the policy has increased the importance of natural gas in the energy mix. Therefore, having stable LNG security is important. Considering the policy perspective, we developed a two-step portfolio model that reflects the price level, the correlation between long-term and spot contracts, and tangible and intangible costs based on the LNG value chain.
The optimal LNG portfolio calculated in this study has significant policy implications. The actual supply ratio of the Middle East and Southeast Asia (83%) significantly decreased to 30% in the optimal portfolio. This is because the tangible and intangible costs in these regions, such as maritime transportation and political risks, are higher than those in other regions. In contrast, the supply ratios of the Far East and Oceania increased sharply in the optimal portfolio. Accordingly, Korea’s natural gas security index decreased significantly, indicating that the analytical results offer a crucial policy viewpoint. Indeed, the policy proposal derived from the optimal portfolio is consistent with the supply diversification policy that the Korean government has promoted. We propose that the Korean government consider the following policy directions.
Diversification: Improving the LNG importation portfolio considering the economic and intangible risk.
Increasing the flexibility of conditions for long-term contracts through cooperation with major LNG exporting countries.
Utilization of spot and direct import to manage efficient supply and demand.
The analytical framework and results proposed by this study provide a solution to these policy goals. We suggest a diversification strategy and the optimal spot importation volume. In order to achieve comprehensive natural gas supply stabilization, the Korean government should increase its political action, such as through energy diplomacy that includes quota participation and the strengthening of their negotiating capability.
However, because long-term contracts dominate the natural gas market in Korea, it is not possible to change the LNG portfolio in the short run. Nevertheless, the findings of this study can be applied to formulate an LNG policy in the long run to significantly improve security policies and reduce the tangible and intangible costs incurred [
57]. Therefore, the novel analytical framework proposed in this study offers an effective tool for making decisions about the optimal LNG portfolio.