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Economies of Scale in the South Korean Natural Gas Industry

1
Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongreung-Ro, Nowon-Gu, Seoul 01811, Korea
2
Department of International Trade, Duksung Women’s University, 33 Samyang-Ro 144 Gil, Dobong-Gu, Seoul 01369, Korea
*
Author to whom correspondence should be addressed.
Energies 2019, 12(8), 1557; https://doi.org/10.3390/en12081557
Received: 30 March 2019 / Revised: 18 April 2019 / Accepted: 19 April 2019 / Published: 24 April 2019
(This article belongs to the Special Issue Energy Policy in South Korea)
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Abstract

The South Korean natural gas (NG) import volume in 2017 was 33.7 million tonnes per annum (13.1%), making it the second-largest NG-importing country in the world after Japan. Nevertheless, the NG wholesale market in South Korea has remained monopolistic since the Korea Gas Corporation (KOGAS) was established in 1983. Thus, the purpose of this study is to determine whether the NG wholesale market in South Korea has economies of scale by estimating the translog cost function and estimating the minimum efficient scale (MES) using robust linear regression. We used quarterly business reports of KOGAS from the first quarter of 2000 to the second quarter of 2018 to construct the data. The results showed that diseconomies of scale existed in all the years in the first and fourth quarters, and the second quarter showed the same result during 2010–2014. From 2011, the production quantity of all the quarters has exceeded the MES (5.81 million tons). The reason for these results is that the demand for NG power generation and city gas has surged since 2000, while the monopolistic structure of the past has been maintained. This study implies that it would be more efficient to allocate some of KOGAS’s additional import volume to the existing private NG companies and mitigate the regulation on resale. View Full-Text
Keywords: natural gas; economies of scale; translog cost function; minimum efficient scale natural gas; economies of scale; translog cost function; minimum efficient scale
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Yu, J.-J.; Yoo, S.-H.; Baek, C. Economies of Scale in the South Korean Natural Gas Industry. Energies 2019, 12, 1557.

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