Role of Natural Gas Supply Sector in the National Economy: A Comparative Analysis between South Korea and Japan

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This work assesses and compares the respective economic effects of the same amount of production or investment in the natural gas supply sector in South Korea and Japan.

Abstract

This study examines the role of the natural gas supply sector in the national economy by applying input–output analysis to South Korea and Japan. Specifically, the production-inducing effect, value-added creation effect, wage-inducing effect, employment-inducing effect, supply shortage effect, and price-inducing effect were analyzed using an input–output table of South Korea and Japan. As a result, the production-inducing effect, value-added creation effect, and employment-inducing effect of same investment amount in the natural gas supply sector were greater in Japan than in South Korea. On the other hand, the wage-inducing effect of an investment of USD 1 in the natural gas supply sector was found to be greater in South Korea than in Japan. In addition, the supply shortage effect and price-inducing effect in the natural gas supply sector were greater in South Korea than in Japan. The causes of differences in analysis results for each country and their implications were discussed. The results of this study could be a useful reference for the government to establish policies related to natural gas supply in the future.

1. Introduction

The share of natural gas (NG) consumption among total fossil fuel consumption increased from 18.6% in 1971 to 29.7% in 2021 [1]. This is because greenhouse gas emissions from NG use are lower than those from coal or petroleum use to obtain the same amount of calorific value [2,3,4,5,6]. Therefore, not only heating fuel but also cooking fuel is being replaced with city gas that uses NG instead of coal and petroleum, and diesel buses are being replaced by NG buses [7,8]. In particular, NG-fired power generation has become more important in implementing the energy transition focused on expanding the use of renewable energy while reducing coal-fired and nuclear power generation [9,10,11,12]. This is because NG-fired power generation can mitigate the instability of the power supply caused by the intermittency and variability of renewable energy. Therefore, NG is expected to serve as a bridge energy for carbon neutrality. In addition, NG has been used mostly as a fuel for cooking and heating and as a raw material for industrial use, but it is expected to be used as a fuel for power generation and a raw material for hydrogen production in the future [13,14,15,16]. Therefore, the demand for NG is predicted to continue to increase, and it will be an important input factor for economic growth.

Accordingly, this study seeks to identify the role of the NG supply sector in the national economy by applying an input–output (IO) analysis. The IO analysis, which uses an IO table that aggregates a country’s economic flow into a single table, is considered a useful economic technique because it can be used to derive various economic effects [17,18,19,20,21]. IO analysis was developed by a Nobel prizewinner in economics, Wassily Leontief, and is widely used in the field of economics. More specifically, in this paper, three models have been applied: a demand-driven model, a supply-driven model, and the Leontief price model. For three reasons, South Korea and Japan were adopted as the spatial scope of application.

First, the role of NG as an energy source is very important in South Korea and Japan, two countries located in East Asia and geographically adjacent to each other. In particular, Japan imports 101.3 bcm of liquefied NG (LNG), and South Korea 64.1 bcm, making these countries the world’s second and third largest consumers of LNG, respectively [1]. There are two price indices used in the international LNG spot market: Title Transfer Facility (TTF) and Japan Korea Maker (JKM). In other words, these two countries are important players in the LNG market to the extent that there is an LNG international price index targeting South Korea and Japan. Although it has recently been reversed, as the JKM price index has traditionally been higher than the TTF price index, stable LNG imports have traditionally been treated as an important energy issue for countries [22].

Second, as NG supply conditions in South Korea and Japan are very similar, they are appropriate for comparison. If the conditions are different, the implications of the comparison will be limited. However, the two countries have in common that most of the NG consumed is imported from abroad, as NG is rarely produced domestically. Moreover, although Japan is an island country and South Korea is not an island country but a peninsular country, South Korea is militarily hostile to North Korea in the north. Thus, South Korea is no different from island countries when it comes to NG supply. Therefore, both countries have something in common with regard to the import of LNG, that is, it is not piped NG. The main destinations of LNG imports are countries in the Middle East, including Qatar and Oman.

Third, the uses of NG consumption in South Korea and Japan are similar. The amount of NG used for power generation and city gas in both countries is approximately the same [23,24]. Because the two countries are located at approximately the same latitude, there is little difference in NG consumption patterns for heating or cooling. Therefore, in the international LNG market, South Korea and Japan introduce LNG through fierce competition. In short, because South Korea and Japan have similarities in the NG consumption structure, introduction type, and supply structure, it seems appropriate to compare these two countries. Of course, there may be differences, but those can be interpreted as factors that cause differences in the comparison results.

Therefore, the most important purpose of this article is to derive implications by comparing the results of IO analysis on the NG supply sector in South Korea and Japan. Comparative studies between countries using IO analysis are quite available in the literature [25,26,27,28,29,30,31,32,33,34,35,36]. For example, Ilhan and Yaman [26] derived the respective construction sector performances of Turkey and the European Union through IO analysis and compared the results with each other. De Souza et al. [29] derived the effects of expanding the service sector in Brazil and the United States. Ali et al. [34] analyzed the respective economic effects of the construction sector in Bangladesh, Sri Lanka, and Nepal and compared the results. However, it is difficult to find examples of analysis on the NG supply sector in South Korea and Japan. In this respect, this study will be able to make a meaningful contribution to the literature.

The subsequent composition of this article is as follows. In the next section, the current state of the NG supply sector in South Korea and Japan is briefly reviewed. The IO analysis as a methodology is described in Section 3. Specifically, a basic IO model is explained, and models that can derive six economic effects—production-inducing effect, value-added creation effect, wage-inducing effect, employment-inducing effect, supply shortage effect, and price-inducing effect—are presented. The analysis of the results and a discussion of them are reported in Section 4. The last section contains the conclusions.

2. Current Status of Natural Gas Industry in South Korea and Japan

2.1. South Korea

After experiencing two oil crises in the 1970s, the South Korean government established the Korea Gas Corporation (KOGAS) in 1983 to diversify its energy sources. Retailing of NG has been carried out by individual city gas companies. KOGAS, a transmission system operator, has operated the import and wholesale business of NG exclusively. All NG imported into South Korea is traded in the form of LNG, as there are no pipelines connected to other countries. In 2005, the government allowed the direct import of LNG for private consumption, and as of 2020, 22% of total domestic LNG imports were imported directly without going through KOGAS. LNG accounts for the third largest share of South Korea’s primary energy supply. As of 2021, the NG imports in South Korea are about 46 million tons. Moreover, South Korea’s NG self-sufficiency rate is 0.6%, most of which depends on imports. Major LNG exporters are the Middle East (Qatar, Oman), Southeast Asia (Indonesia, Malaysia), Russia, Australia, and the United States. LNG imported into South Korea is stored at an LNG receiving terminal operated by KOGAS. KOGAS converts the LNG of the storage base back into a gaseous state and transports it to each city gas company and power plant through a nationwide network of NG pipelines [37].

About 45% of NG imported to South Korea is used for power generation. According to the Ministry of Trade, Industry and Energy, the government intends to phase out coal-fired power plants and replace them with LNG-fired power plants to reduce particulate matter and greenhouse gas emissions [38]. Therefore, the amount of NG used for power generation is expected to increase in the future. In addition, South Korea’s final consumption of NG is divided into industrial, building, and transportation sectors. Industrial NG is consumed in industries such as petrochemicals, assembly metals, and steel. Most of the NG for buildings is used as city gas for cooking and heating. Finally, NG for transportation is used mostly as fuel for compressed NG buses. In addition, the demand for NG in South Korea varies from season to season, and it is high in winter due to the increase in heating demand. For example, NG consumption from November to February, the coldest period of the year in South Korea, accounts for 45% of the total annual NG consumption [23].

2.2. Japan

In Japan, the energy market has undergone major structural changes. In 2016, the electricity market was completely liberalized, and in 2017, the gas retail liberalization policy was implemented. As a result, not only electric power companies entered the gas market, but also gas companies participated in the electricity market actively. It is possible for a single business operator to operate wholesale and retail businesses in the form of a vertically integrated business structure in the Japanese gas market. In addition, before the liberalization of the gas retail market, the market was in the form of a regional monopoly, but after the liberalization, it changed to a form of free competition. Demand for NG in Japan increased significantly as nuclear power plants were shut down after the Fukushima nuclear accident and the Great East Japan Earthquake in 2011. Specifically, total NG consumption in 2012 increased by 21% compared to 2010. According to the Japanese government, as of 2030, NG is expected to account for the third largest portion of primary energy supply [39,40]

This is because the Japanese government is investing in NG cogeneration facilities and fuel cells to replace coal power generation with NG power generation to reduce greenhouse gas emission. By 2050, the government aims to reduce greenhouse gas emissions by 80% compared to that of 2013. Japan’s NG self-sufficiency rate is 2%, and similar to South Korea, most of the NG consumed is imported. In addition, as Japan is an island country and there is no pipeline connecting it to other countries, all imported NG is in the form of LNG. One-third of the total amount of NG imported into Japan comes from Australia, and the rest comes from Malaysia, Qatar, and Russia. Of the LNG imported into Japan, 66% is consumed for power generation, and the rest is used as city gas. Most of the NG used for industrial use is consumed mainly in industries such as the steel industry and the chemical industry [24].

3. Methodology

3.1. IO Analysis

As mentioned earlier, this paper applies IO analysis to examine the respective roles of the NG supply sector in the national economy in South Korea and Japan and draw implications. IO analysis quantitatively deals with inter-industry correlation using the IO table, which is a statistical table that records inter-industry transaction relations over a certain period. The IO analysis can derive the quantitative economic effects of a certain sector on the entire national economy as well as on other sectors. To analyze the effects of the NG supply sector on the entire national economy and other industries, a process of exogenous specification of the NG supply sector is required. Exogenous specification means that when endogenous variables and exogenous variables are mixed, a variable that will be exogenous forces is given to the outside so that the effects of the variable on the endogenous economic sector can be examined. In other words, through exogenous specification, the NG supply sector can be analyzed with a focus on changes in total output, not final demand in the sector [41,42].

3.2. Demand-Side Model

In the IO table, the total output ($X_i$) of sector $i$ consists of the sum of intermediate demand ($z_{ij}$) and final demand ($Y_i$). Intermediate demand, $z_{ij}$, can be expressed as $a_{ij}{X}_j$ using $a_{ij}\left(=z_{ij}/X_j\right)$, which is called the input coefficient. Let $A$ be the matrix composed of input coefficients, $X$ be the matrix composed of total output, and $Y$ be the matrix consisted of final demand. If the identity matrix $I$ is included and a little manipulation is performed, the following equation, which is widely used in IO analysis, is derived.

$$X={\left(I-A\right)}^{-1}Y$$

(1)

The model represented by Equation (1) is called a demand-side model, and the output ($X$) to satisfy the final demand ($Y$) can be obtained through the model. ${\left(I-A\right)}^{-1}$ is called the Leontief inverse matrix or production-inducing coefficient matrix. This is because the components of the matrix are $a_{ij}=\partial X_i/\partial Y_j$, which represents how much the total output of sector $i$ changes due to the one-unit change in final demand for sector $j$. Through this model, the production-inducing effect, value-added creation effect, wage-inducing effect, and employment-inducing effect can be derived. In this study, as mentioned above, four effects of investment or production in the NG supply sector are obtained by the exogenous specification of the sector. The NG supply sector is referred to as $K$ for convenience. First, the production-inducing effect, which means the amount of production that one unit of production or investment in sector $K$ induces in other sectors, is derived as follows [43,44].

$$\mathsf{\Delta }{X}_e={\left(I-A_e\right)}^{-1}\left(A_K^e\mathsf{\Delta }{X}_K\right)$$

(2)

$\mathsf{\Delta }{X}_e$ refers to the amount of output change in other sectors due to the total output change of the sector $K$, $\mathsf{\Delta }{X}_K$. ${\left(I-A_e\right)}^{-1}$ is the Leontief inverse matrix created by excluding the column and row containing the sector $K$ in the input coefficient matrix [45]. $A_K^e$ is a column vector excluding elements of sector $K$ among column vectors representing sector $K$ in the input coefficient matrix ($A$), and $X_K$ represents the total output of sector $K$. In other words, ${\left(I-A_e\right)}^{-1}{A}_K^e$ represents the production-inducing effect of one unit of production or investment in sector $K$.

Second, the value-added creation effect refers to how much production or investment in one unit in the $K$ sector leads to value-added in other sectors. When the value-added coefficient matrix, which means the proportion of value-added in the total input, is multiplied by Equation (2), the value-added creation effect calculation formula is derived as follows.

$$\mathsf{\Delta }{V}_e=\widehat{A_e^V}{\left(I-A_e\right)}^{-1}\left(A_K\mathsf{\Delta }{X}_K\right)$$

(3)

$\mathsf{\Delta }{V}_e$ is a column vector consisting of changes in the value added in other sectors except for the sector $K$. $\widehat{A_e^V}$ is the diagonal matrix of the value-added coefficient matrix excluding sector $K$.

Third, the wage-inducing effect refers to wage changes caused by one unit of production or investment in the sector $K$ in other sectors. The wage coefficient ($w_i$) is defined as $w_i=W_i/X_i$, which is the wage amount ($W_i$) of the sector $i$ divided by the total output ($X_i$). By removing the row corresponding to sector $K$ from the wage coefficient matrix and multiplying the diagonalized matrix $\widehat{W_e}$ by Equation (2), an equation for calculating the wage-inducing effect of an increase in investment or output in sector $K$ on other sectors is derived as follows.

$$\mathsf{\Delta }{W}_e=\widehat{W_e}{\left(I-A_e\right)}^{-1}\left(A_K\mathsf{\Delta }{X}_K\right)$$

(4)

Fourth, the employment-inducing effect refers to the number of people employed in other sectors when the final demand for sector $K$ increases by KRW 1 billion. The column vector consisting of the employment coefficient ($n_i$), which means the number of employed people ($N_j$) per KRW 1 billion of total input ($X_j$), is called the employment coefficient matrix. By excluding elements corresponding to the sector $K$ in the employment coefficient matrix and multiplying the diagonalized matrix ($\widehat{n_e}$) by Equation (2), it is possible to analyze how much investment or increase in output in the sector $K$ causes employment in other sectors.

$$\mathsf{\Delta }{N}_e=\widehat{n_e}{\left(I-A_e\right)}^{-1}\left(A_K\mathsf{\Delta }{X}_K\right)$$

(5)

$\mathsf{\Delta }{N}_e$ refers to the amount of change in the number of employed people in other sectors except for the sector $K$. Because the units of the employment-inducing effect in South Korea and Japan are persons per KRW 1 billion and persons per JPY 1 billion, respectively, it is necessary to adjust the two units to be the same to compare the two results. To this end, the unit of employment-inducing effect in the two countries was equally corrected to USD 1 billion using the purchasing power parity (ppp) exchange rate.

3.3. Demand-Driven Model

Looking at the column sum in the IO table, total input ($X_j$) is the sum of intermediate input ($Z_{ij}$) and value added ($V_j$). In the demand-driven model, the output coefficient ($r_{ij}$), which is calculated as $r_{ij}=Z_{ij}/X_i$, is used; it is obtained by dividing the intermediate input ($Z_{ij}$) by the total output ($X_i$). Using the output coefficient, the total input is expressed as follows:

$$X_j={\displaystyle \sum }_{i=1}^n{r}_{ij}{X}_i+V_j$$

(6)

The output coefficient matrix is called R, and when Equation (6) is developed as a matrix equation, it can be expressed as Equation (7).

$$X^{\prime }=X^{\prime }R+V^{\prime }=V^{\prime }{\left(I-R\right)}^{-1}$$

(7)

${\left(I-R\right)}^{-1}$ is called an output inverse matrix, and each element is ${\beta }_{ij}=\partial X_j/\partial V_i$, which represents the total amount of change in output for one unit of value-added input. In other words, it becomes a supply multiplier that represents the total output change for the unit change of the primary input element, and using it makes it possible to determine the total production change that occurs when input is disrupted. Assuming that the $K$ sector is exogenously specified, and there is no change in value-added input in other sectors, the following equation is derived [46,47]:

$$\mathsf{\Delta }{X}_e^{\prime }=R_K\mathsf{\Delta }{X}_K{\left(I-R_e\right)}^{-1}$$

(8)

$R_K$ is a row vector that excludes sector $K$ elements from the output coefficient matrix ($R$), and ${\left(I-R_e\right)}^{-1}$ is an output inverse matrix obtained by exogenous sector $K$ elements from the output coefficient matrix. Through Equation (8), the ripple effect of the supply shortage in sector $K$ to other sectors, which is called the supply shortage effect, can be obtained [48,49].

3.4. Price-Side Model

Most IO tables are prepared in terms of amount rather than quantity. Assuming the IO table of the unit of quantity, the following basic equation is derived.

$$\begin{gathered} Q_i={\displaystyle \sum }_{j=1}^n{S}_{ij}+F_i={\displaystyle \sum }_{j=1}^n{d}_{ij}{Q}_i+F_i \\ {X}_i=P_i{Q}_i \\ {z}_{ij}=P_i{s}_{ij} \\ {Y}_i=P_i{F}_i \\ {V}_i=P_j^v{V}_j^p \end{gathered}$$

(9)

$Q_i$ is the total output of the unit of quantity in the sector $i$, $F_i$ is the final demand in the quantity unit to produce sector $i$ minus the import of the unit, and $s_{ij}$ is the input element of the sector $i$ purchased in the sector $j$. $P_i$ is the unit price of the total output of the sector $i$, $P_j^v$ is the unit price of the value-added in sector $j$, and $d_{ij}$ is the output coefficient of the unit of supply defined by $s_{ij}/Q_j$. Deriving Equation (9) as an expression for $P_j$ appears as follows.

$$P_j={\displaystyle \sum }_{i=1}^n{P}_i{d}_{ij}+P_j^v\frac{V_j^p}{Q_j}={\displaystyle \sum }_{i=1}^n{P}_i{d}_{ij}+P_i^v{d}_j^v$$

(10)

As mentioned earlier, because the IO table is prepared in units of amount, it is not possible to know the input coefficient $d_{ij}$ in real units. However, assuming the price of all outputs is KRW 1, $d_{ij}=a_{ij}$. In other words, it can be seen that the real unit input coefficient matrix and the amount unit input coefficient matrix match, and the price at this time can be viewed as a normalized price [42]. When Equation (10) is arranged in the form of a matrix, and all prices are normalized to 1, the following equation is derived.

$$\overline{P}={\left(I-A^{\prime }\right)}^{-1}\widehat{A^v}\overline{P^v}$$

(11)

Therefore, the price-inducing effect of the price change in the value-added sector is ${\left(I-A^{\prime }\right)}^{-1}\widehat{A^v}$. Therefore, even if the price level is not known, the price-inducing effect can be obtained through the normalized price. This is called Leontief price model. In Equation (11), if the sector of interest ($K$) is exogenous and there is no change in value-added input in other sectors, the following equation is derived [50,51,52].

$$\mathsf{\Delta }\overline{P_e}={\left(I-A_e{}^{\prime }\right)}^{-1}{A^{\prime }}_{Ke}\mathsf{\Delta }\overline{P_K}$$

(12)

where $\mathsf{\Delta }\overline{P_e}$ is the price change rate vector excluding sector $K$, and $\mathsf{\Delta }\overline{P_K}$ is the price change rate of sector $K$. Furthermore, ${A^{\prime }}_{Ke}$ means the row vector representing the sector $K$ in the input coefficient matrix $A$ excluding the elements of the sector $K$.

3.5. Industrial Linkage Effects

Industrial linkage effects are divided into forward linkage effect and backward linkage effect. The forward linkage effect indicates the sensitivity of dispersion and is called an index of the sensitivity of dispersion. It is defined by Equation (13) as the ratio of the average of all units produced by the sector $i$ to the increase in the final demand of all sectors by one unit [41,53].

$$F{L}_i=\frac{\frac{1}{n}{\sum }_{j=1}^n{a}_{ij}}{\frac{1}{n^2}{\sum }_{i=1}^n{\sum }_{j=1}^n{a}_{ij}}=\frac{n{\sum }_{j=1}^n{a}_{ij}}{{\sum }_{i=1}^n{\sum }_{j=1}^n{a}_{ij}}$$

(13)

The backward linkage effect indicates the power of dispersion and is called the index of the power of dispersion. It means the ratio of the production inducement coefficient for each sector to the average production inducement coefficient of all sectors. The index of the power of dispersion for the sector $j$ is defined by Equation (14) [54].

$$B{L}_j=\frac{\frac{1}{n}{\sum }_{i=1}^n{a}_{ij}}{\frac{1}{n^2}{\sum }_{i=1}^n{\sum }_{j=1}^n{a}_{ij}}=\frac{n{\sum }_{i=1}^n{a}_{ij}}{{\sum }_{i=1}^n{\sum }_{j=1}^n{a}_{ij}}$$

(14)

4. Results and Discussion

4.1. Reconstitution of IO Tables for Comparative Analysis

This study intends to utilize the most recently published IO tables in South Korea and Japan. In this respect, the IO tables in South Korea and Japan are for 2019 and 2015, respectively. The authors think that it can be possible and meaningful to compare the analysis results using IO tables for different years for the two countries in two points. First, because most of the results presented in this study mean the effect of a monetary unit caused by a change in monetary value by one unit, the results for one country can be compared with those for another country. In other words, as the results represent relative values, not absolute values, they can be compared with each other between countries. Although the employment-inducing effect and the price-pervasive effect are interpreted somewhat differently, they can be compared between countries because the currency unit is unified using the exchange rate, or the results mean the effect per unit. Second, the target years of the IO table are different in South Korea and Japan, but this does not make comparability difficult. What is finally dealt with in this study is not the input coefficient matrix, but the input inverse matrix. The former may not be stable over time, but the latter is known to be quite stable over time [41,55,56]. In addition, similar reasoning is possible for the output coefficient matrix and the output inverse matrix. Even if the target years of the IO table differ from each other as 2015 and 2019, a difference of about 4 years will not have a significant effect on the stability of the results. Therefore, the main analysis results for the two countries can be compared.

The category classification method of IO table in South Korea consists of four elements: basic-scale 381-sector, small-scale 165-sector, medium-scale 83-sector, and large-scale 33-sector. The category classification method of the IO table in Japan consists of three elements: small-scale 187-sector, medium-scale 107-sector, and large-scale 37-sector. In other words, sector classification methods are different for the two countries. However, for a comparative analysis, it is necessary to match the sector classification of the IO tables for the two countries. Therefore, this study reconstituted both the small-scale 187-sector in Japan and the small-scale 165-sector in South Korea based on the large-scale 33-sector in South Korea [57,58].

In the process of that reconstitution, attention was paid to two things. First, the NG supply sector, which is the subject of research in this study, was dealt with independently. It does not include any offshore activities and transportation and focuses on domestic infrastructure. Therefore, as the 33-sector classification method is adopted, the NG supply sector is added. Second, two sectors (“Transport equipment”, “manufacturing services and repair services of industrial equipment”) in the 33-sector classification method were integrated into a new sector called “Transport equipment, manufacturing services, and repair services of industrial equipment”. In the 33-sector classification method, as one sector increased and one sector decreased at the same time, the total number of sectors was eventually maintained at 33. The finally adopted category classification results are contained in

Table 1. Sector classification adopted in this study.

Sectors
1.	Agricultural, forest, and fishery goods
2.	Mined and quarried goods
3.	Food, beverages, and tobacco products
4.	Textile and leather products
5.	Wood, paper products, printing, and reproduction of recorded media
6.	Petroleum and coal products
7.	Chemical products
8.	Non-metallic mineral products
9.	Basic metal products
10.	Fabricated metal products, except machinery and furniture
11.	Computing machinery, electronic equipment, and optical instruments
12.	Electrical equipment
13.	Machinery and equipment
14.	Transport equipment, manufacturing services, and repair services of industrial equipment
15.	Other manufactured products
16.	Electricity and steam supply
17.	Water supply, sewage, waste treatment, and disposal services
18.	Construction
19.	Wholesale, retail trade, and commodity brokerage services
20.	Transportation
21.	Food services and accommodation
22.	Communications and broadcasting
23.	Finance and insurance
24.	Real estate services
25.	Professional, scientific, and technical services
26.	Business support services
27.	Public administration, defense, and social security services
28.	Education services
29.	Health and social care services
30.	Art, sports, and leisure services
31.	Other services
32.	Others
33.	Natural gas supply

. The respective, complete reconstitution maps of the two countries are shown in Appendix A.

4.2. Results

4.2.1. Production-Inducing Effects

South Korea and Japan are presented in

Table 2. Production-inducing effects of natural gas supply sector in South Korea and Japan.

Sectors		South Korea		Japan
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	0.00040	24	0.00043	27
2.	Mined and quarried goods	0.01690	1	0.46535	1
3.	Food, beverages, and tobacco products	0.00091	19	0.00020	29
4.	Textile and leather products	0.00044	23	0.00543	15
5.	Wood, paper products, printing, and reproduction of recorded media	0.00061	21	0.01162	12
6.	Petroleum and coal products	0.00202	13	0.04085	4
7.	Chemical products	0.00247	8	0.01026	14
8.	Non-metallic mineral products	0.00033	25	0.00191	20
9.	Basic metal products	0.00170	16	0.00540	16
10.	Fabricated metal products, except machinery and furniture	0.00210	11	0.00520	17
11.	Computing machinery, electronic equipment, and optical instruments	0.00143	17	0.00098	22
12.	Electrical equipment	0.00116	18	0.00066	26
13.	Machinery and equipment	0.00197	14	0.00142	21
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	0.00403	6	0.00336	19
15.	Other manufactured products	0.00017	31	0.00084	24
16.	Electricity and steam supply	0.00203	12	0.02011	8
17.	Water supply, sewage, waste treatment, and disposal services	0.00028	29	0.01127	13
18.	Construction	0.00030	27	0.02638	6
19.	Wholesale, retail trade, and commodity brokerage services	0.00232	10	0.03381	5
20.	Transportation	0.00437	4	0.08132	2
21.	Food services and accommodation	0.00234	9	0.00000	31
22.	Communications and broadcasting	0.00172	15	0.02305	7
23.	Finance and insurance	0.01402	2	0.01243	11
24.	Real estate services	0.00259	7	0.01324	10
25.	Professional, scientific, and technical services	0.00412	5	0.00000	32
26.	Business support services	0.00634	3	0.06718	3
27.	Public administration, defense, and social security services	0.00030	28	0.00086	23
28.	Education services	0.00005	32	0.00070	25
29.	Health and social care services	0.00027	30	0.00013	30
30.	Art, sports, and leisure services	0.00032	26	0.00022	28
31.	Other services	0.00068	20	0.01327	9
32.	Others	0.00048	22	0.00353	18
Sum (A)		0.07919		0.86142
Effect to own sector (B)		1.00000		1.00000
Total (A+B)		1.07919		1.86142

. It was demonstrated that a USD 1 investment in the NG supply sector in South Korea induces production of USD 0.07919 for other industries, USD 1 for its own industry, and a total of USD 1.07919. Meanwhile, in Japan, a USD 1 investment in the NG supply sector induces the production of USD 0.86142 in other industries and USD 1 in its own industry for a total of USD 1.86142. In other words, it was found that the production-inducing effects of the NG supply sector in Japan were about 1.7 times greater than those in South Korea.

In South Korea, the production-inducing effect of other industries due to investment in NG was high in the order of “2. Mined and quarried goods”, “23. Finance and insurance”, “26. Business support services”, and “20. Transportation”. In Japan, the production-inducing effect of other industries due to investment in NG was high in the order of “2. Mined and quarried goods”, “20. Transportation”, and “26. Business support services”. The production-inducing effect from investment in the NG supply sector was the largest in the “2. Mined and quarried goods” sector in both countries. It is believed that this is because NG is one of the products of the “2. Mined and quarried goods” sector. In addition, because LNG is imported through sea transportation in both countries, it is judged that the production-inducing effect was significant in the “20. Transportation” sector.

4.2.2. Value-Added Creation Effects

The results of analyzing value-added creation effects are showed in

Table 3. Value-added creation effects of natural gas supply sector in South Korea and Japan.

Sectors		South Korea		Japan
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	0.00021	22	0.00017	27
2.	Mined and quarried goods	0.00798	2	0.00971	8
3.	Food, beverages, and tobacco products	0.00023	20	0.00006	30
4.	Textile and leather products	0.00009	29	0.00084	18
5.	Wood, paper products, printing, and reproduction of recorded media	0.00020	23	0.00412	13
6.	Petroleum and coal products	0.00051	16	0.01026	7
7.	Chemical products	0.00068	12	0.00293	14
8.	Non-metallic mineral products	0.00010	28	0.00083	19
9.	Basic metal products	0.00032	18	0.00124	17
10.	Fabricated metal products, except machinery and furniture	0.00075	11	0.00211	15
11.	Computing machinery, electronic equipment, and optical instruments	0.00058	15	0.00023	24
12.	Electrical equipment	0.00033	17	0.00018	26
13.	Machinery and equipment	0.00061	14	0.00054	23
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	0.00113	8	0.00075	20
15.	Other manufactured products	0.00005	30	0.00021	25
16.	Electricity and steam supply	0.00064	13	0.00737	10
17.	Water supply, sewage, waste treatment, and disposal services	0.00016	25	0.00630	12
18.	Construction	0.00013	27	0.01236	4
19.	Wholesale, retail trade, and commodity brokerage services	0.00123	7	0.02358	3
20.	Transportation	0.00159	6	0.03932	2
21.	Food services and accommodation	0.00080	10	0.00000	31
22.	Communications and broadcasting	0.00097	9	0.01137	5
23.	Finance and insurance	0.00825	1	0.00808	9
24.	Real estate services	0.00190	5	0.01114	6
25.	Professional, scientific, and technical services	0.00207	4	0.00000	32
26.	Business support services	0.00429	3	0.04158	1
27.	Public administration, defense, and social security services	0.00023	21	0.00061	21
28.	Education services	0.00004	31	0.00057	22
29.	Health and social care services	0.00014	26	0.00008	29
30.	Art, sports, and leisure services	0.00018	24	0.00015	28
31.	Other services	0.00031	19	0.00734	11
32.	Others	0.00000	32	0.00144	16
Sum (A)		0.03668		0.20548
Effect to own sector (B)		0.16578		0.31443
Total (A+B)		0.20246		0.51990

. In South Korea, the value-added creation effects of other industries due to investment in the NG supply sector was high in the order of “23. Finance and insurance”, “2. Mined and quarried goods”, and “26. Business support services”. In Japan, the value-added creation effects of other industries due to investment in NG supply sector was high in the order of “26. Business support services”, “20. Transportation”, and “19. Wholesale, retail trade, and commodity brokerage services”. From the perspective of the overall national economy, an investment of USD 1 in the NG supply sector in South Korea induced a total of USD 0.20246 of value added: USD 0.03668 in other industries and USD 0.16578 in its own industry. On the other hand, in Japan, an investment of USD 1 in the NG supply sector induced a total of USD 0.51990 of value added: USD 0.20548 in other industries and USD 0.31443 in its own industry. In other words, it was found that the value-added creation effects of the NG supply sector in Japan were greater than those in South Korea.

4.2.3. Wage-Inducing Effects

Table 4. Wage-inducing effects of natural gas supply sector in South Korea and Japan.

Sectors		South Korea		Japan
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	0.00004	27	0.00001	23
2.	Mined and quarried goods	0.00341	1	0.00324	1
3.	Food, beverages, and tobacco products	0.00008	23	0.00000	28
4.	Textile and leather products	0.00004	28	0.00015	6
5.	Wood, paper products, printing, and reproduction of recorded media	0.00009	22	0.00021	4
6.	Petroleum and coal products	0.00002	31	0.00025	3
7.	Chemical products	0.00022	12	0.00018	5
8.	Non-metallic mineral products	0.00004	26	0.00006	15
9.	Basic metal products	0.00012	19	0.00006	13
10.	Fabricated metal products, except machinery and furniture	0.00036	10	0.00006	14
11.	Computing machinery, electronic equipment, and optical instruments	0.00014	16	0.00001	24
12.	Electrical equipment	0.00013	18	0.00001	25
13.	Machinery and equipment	0.00030	11	0.00003	18
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	0.00060	7	0.00002	20
15.	Other manufactured products	0.00003	30	0.00001	22
16.	Electricity and steam supply	0.00017	15	0.00012	10
17.	Water supply, sewage, waste treatment, and disposal services	0.00007	24	0.00014	8
18.	Construction	0.00009	21	0.00009	11
19.	Wholesale, retail trade, and commodity brokerage services	0.00065	6	0.00003	19
20.	Transportation	0.00093	5	0.00088	2
21.	Food services and accommodation	0.00047	8	0.00000	31
22.	Communications and broadcasting	0.00038	9	0.00013	9
23.	Finance and insurance	0.00338	2	0.00003	17
24.	Real estate services	0.00018	14	0.00002	21
25.	Professional, scientific, and technical services	0.00142	4	0.00000	32
26.	Business support services	0.00247	3	0.00015	7
27.	Public administration, defense, and social security services	0.00014	17	0.00000	26
28.	Education services	0.00003	29	0.00000	27
29.	Health and social care services	0.00010	20	0.00000	30
30.	Art, sports, and leisure services	0.00007	25	0.00000	29
31.	Other services	0.00020	13	0.00008	12
32.	Others	0.00000	32	0.00004	16
Sum (A)		0.01641		0.00603
Effect to own sector (B)		0.03033		0.01305
Total (A+B)		0.04674		0.01908

summarizes the results of the analysis of the wage-inducing effects of the NG supply sector. In South Korea, the wage-inducing effects of investment in the NG supply sector were great in the order of “2. Mined and quarried goods”, “23. Finance and insurance”, and “25. Professional, scientific, and technical services”. In Japan, the wage-inducing effects of investment in the NG supply sector were large in the order of “2. Mined and quarried goods”, “20. Transportation”, and “6. Petroleum and coal products”. From the perspective of the entire industry, the wage-inducing effects of an investment of USD 1 in the NG supply sector in Japan were USD 0.00603 in other industries and USD 0.01305 in its own industry, for a total of USD 0.01908. The wage-inducing effects of an investment of USD 1 in the NG supply sector in South Korea were USD 0.01641 in other industries and USD 0.03033 in its own industry, for a total of USD 0.04674.

4.2.4. Employment-Inducing Effects

The results of assessing the employment-inducing effects of the NG supply sector are presented in

Table 5. Employment-inducing effects of natural gas supply sector in South Korea and Japan.

Sectors		South Korea a		Japan a
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	7.04718	10	0.93201	23
2.	Mined and quarried goods	52.43603	2	335.33904	1
3.	Food, beverages, and tobacco products	1.90547	19	0.18853	28
4.	Textile and leather products	1.31504	25	15.90714	6
5.	Wood, paper products, printing, and reproduction of recorded media	1.83547	21	21.90539	4
6.	Petroleum and coal products	0.14298	31	25.48561	3
7.	Chemical products	3.33296	15	19.13516	5
8.	Non-metallic mineral products	0.70473	29	5.83271	15
9.	Basic metal products	1.29857	26	6.50092	13
10.	Fabricated metal products, except machinery and furniture	5.97458	12	6.46512	14
11.	Computing machinery, electronic equipment, and optical instruments	1.65686	23	0.88473	24
12.	Electrical equipment	2.18284	18	0.80861	25
13.	Machinery and equipment	4.85083	14	3.39811	18
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	10.87494	9	2.45047	20
15.	Other manufactured products	0.90818	28	1.05540	22
16.	Electricity and steam supply	1.16690	27	12.81871	10
17.	Water supply, sewage, waste treatment, and disposal services	1.50937	24	14.56837	8
18.	Construction	1.68820	22	9.73327	11
19.	Wholesale, retail trade, and commodity brokerage services	23.50186	5	2.65177	19
20.	Transportation	34.33145	4	91.24347	2
21.	Food services and accommodation	22.94662	7	0.00027	31
22.	Communications and broadcasting	6.77824	11	13.43847	9
23.	Finance and insurance	43.40135	3	3.43744	17
24.	Real estate services	5.64665	13	2.08931	21
25.	Professional, scientific, and technical services	23.32114	6	0.00000	32
26.	Business support services	63.64602	1	15.66219	7
27.	Public administration, defense, and social security services	1.84192	20	0.24728	26
28.	Education services	0.55961	30	0.24088	27
29.	Health and social care services	2.45062	17	0.02998	30
30.	Art, sports, and leisure services	2.67051	16	0.06241	29
31.	Other services	11.52405	8	7.78295	12
32.	Others	0.00000	32	3.75726	16
Sum (A)		343.45119		624.05294
Effect to own sector (B)		459.93194		1350.56913
Total (A+B)		803.38313		1974.62207

^a The unit is persons per USD 1.0 billion.

. In South Korea, the employment-inducing effect due to the investment of USD 1 billion in the NG supply sector was analyzed to be 343.5 people in other industries and 459.9 people in its own industry, for a total of 803.4 people. On the other hand, in Japan, the employment-inducing effects due to the investment of USD 1 billion in the NG supply sector were analyzed to be 624.1 people in other industries and 1350.6 people in its own industry, for a total of 1974.7 people. Specifically, in South Korea, the employment-inducing effects were large in the order of “26. Business support services”, “2. Mined and quarried goods”, and “23. Finance and insurance”. In Japan, it was analyzed that the employment inducing effects were high in the order of “2. Mined and quarried goods”, “20. Transportation”, and “6. Petroleum and coal products”.

4.2.5. Supply Shortage Effects

Table 6. Supply shortage effects of natural gas supply sector in South Korea and Japan.

Sectors		South Korea		Japan
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	0.01248	27	0.00516	27
2.	Mined and quarried goods	0.00126	32	0.00024	32
3.	Food, beverages, and tobacco products	0.03669	15	0.04267	7
4.	Textile and leather products	0.01647	25	0.00631	26
5.	Wood, paper products, printing, and reproduction of recorded media	0.02031	23	0.00939	24
6.	Petroleum and coal products	0.02272	19	0.00099	31
7.	Chemical products	0.09422	3	0.05353	6
8.	Non-metallic mineral products	0.02736	17	0.01208	20
9.	Basic metal products	0.10119	2	0.07038	5
10.	Fabricated metal products, except machinery and furniture	0.04660	11	0.01895	15
11.	Computing machinery, electronic equipment, and optical instruments	0.04354	13	0.01721	16
12.	Electrical equipment	0.03403	16	0.01310	19
13.	Machinery and equipment	0.04022	14	0.02896	13
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	0.07923	5	0.09890	3
15.	Other manufactured products	0.00688	30	0.00257	29
16.	Electricity and steam supply	0.43139	1	0.01590	17
17.	Water supply, sewage, waste treatment, and disposal services	0.01055	29	0.00986	23
18.	Construction	0.06646	8	0.04120	8
19.	Wholesale, retail trade, and commodity brokerage services	0.05707	9	0.10460	2
20.	Transportation	0.04650	12	0.01969	14
21.	Food services and accommodation	0.07215	7	0.14945	1
22.	Communications and broadcasting	0.02146	21	0.01561	18
23.	Finance and insurance	0.02220	20	0.00903	25
24.	Real estate services	0.02718	18	0.01071	22
25.	Professional, scientific, and technical services	0.09381	4	0.01193	21
26.	Business support services	0.01147	28	0.03170	11
27.	Public administration, defense, and social security services	0.02092	22	0.02975	12
28.	Education services	0.04959	10	0.03247	10
29.	Health and social care services	0.07555	6	0.07114	4
30.	Art, sports, and leisure services	0.01926	24	0.00424	28
31.	Other services	0.01621	26	0.03977	9
32.	Others	0.00226	31	0.00167	30
Sum(A)		1.62724		0.97915

shows the respective supply shortage effects of the NG supply sector in South Korea and Japan, as analyzed through the supply-driven model. The supply shortage effects refer to the decrease in production that occurs in other sectors due to a one-unit decrease in the output of the NG supply sector. The supply shortage effects of the NG supply sector were found to be 1.62724 and 0.97915 in South Korea and Japan, respectively. The loss to the national economy from supply disruptions in the NG supply sector was found to be greater in South Korea than in Japan. By sector, in South Korea, the impact of supply disruptions in the NG supply sector was significant in the order of “16. Electricity and steam supply”, “9. Basic metal products”, and “7. Chemical products”. In Japan, the impact of supply disruptions in the NG supply sector was large in the order of “21. Food services and accommodation”, “19. Wholesale, retail trade, and commodity brokerage services”, and “14. Transport equipment, manufacturing services, and repair services of industrial equipment”.

4.2.6. Price-Inducing Effects

The price-inducing effects of a 10% price increase in the NG supply sector on other sectors was analyzed using the Leontief price model. The price-inducing effect on the entire national economy was calculated through a weighted average considering the proportion of each sector’s output in total output. The results of the price-inducing effects are summarized in

Table 7. Impact of 10% increase in the price of natural gas supply sector in South Korea and Japan.

Sectors		South Korea a		Japan a
		Value	Rank	Value	Rank
1.	Agricultural, forest, and fishery goods	0.00544	25	0.00136	27
2.	Mined and quarried goods	0.00810	16	0.00005	32
3.	Food, beverages, and tobacco products	0.00730	20	0.00383	12
4.	Textile and leather products	0.00647	23	0.00256	18
5.	Wood, paper products, printing, and reproduction of recorded media	0.01196	8	0.00199	21
6.	Petroleum and coal products	0.00455	26	0.00020	31
7.	Chemical products	0.00927	13	0.00429	10
8.	Non-metallic mineral products	0.01770	3	0.00710	3
9.	Basic metal products	0.01953	2	0.00713	2
10.	Fabricated metal products, except machinery and furniture	0.01237	6	0.00605	5
11.	Computing machinery, electronic equipment, and optical instruments	0.00417	27	0.00241	20
12.	Electrical equipment	0.00853	14	0.00261	17
13.	Machinery and equipment	0.00778	17	0.00302	15
14.	Transport equipment, manufacturing services, and repair services of industrial equipment	0.00728	21	0.00683	4
15.	Other manufactured products	0.00774	18	0.00181	23
16.	Electricity and steam supply	0.17010	1	0.00321	13
17.	Water supply, sewage, waste treatment, and disposal services	0.01201	7	0.00391	11
18.	Construction	0.00663	22	0.00280	16
19.	Wholesale, retail trade, and commodity brokerage services	0.00549	24	0.00453	8
20.	Transportation	0.00822	15	0.00139	26
21.	Food services and accommodation	0.01156	9	0.01838	1
22.	Communications and broadcasting	0.00380	28	0.00124	28
23.	Finance and insurance	0.00330	30	0.00101	29
24.	Real estate services	0.00324	31	0.00055	30
25.	Professional, scientific, and technical services	0.01114	10	0.00242	19
26.	Business support services	0.00319	32	0.00192	22
27.	Public administration, defense, and social security services	0.00360	29	0.00310	14
28.	Education services	0.01047	12	0.00532	7
29.	Health and social care services	0.01239	5	0.00436	9
30.	Art, sports, and leisure services	0.01055	11	0.00178	24
31.	Other services	0.00751	19	0.00574	6
32.	Others	0.01373	4	0.00146	25
Sum (A)		0.43513		0.11434
Weighted average		0.10297		0.03634

^a The unit is percent.

. Based on the results of the price-inducing effects by sector due to the price increase in the NG supply sector in South Korea, the values were high in the order of “16. Electricity and steam supply”, “9. Basic metal products”, and “8. Non-metallic mineral products”. In Japan, the values were great in the order of “21. Food services and accommodation”, “9. Basic metal products”, and “8. Non-metallic mineral products”. A weighted average of the price-inducing effects of each sector shows that a 10% increase in output prices in the NG supply sector in South Korea and Japan results in inflation of 1.62724% and 0.97915%, respectively, in the overall national economy.

4.2.7. Forward and Backward Linkage Effects

The purpose of the forward linkage effect indicated by the sensitivity of dispersion is to identify the output of the NG supply sector as a raw material for production in other industries. The purpose of the backward linkage effect that can be confirmed by power of dispersion is to identify the output of other industries as a raw material for production in the NG supply sector. The average of power of dispersion and sensitivity of dispersion is 1. Therefore, if it is lower than 1, it is an industry that is lower than the average, and if it is higher than 1, it is an industry that is larger than the average. The respective analysis results of forward and backward linkage effects of the NG supply sector in South Korea and Japan are presented in

Table 8. Forward and backward linkage effects of natural gas supply sector in South Korea and Japan.

	South Korea	Japan
Forward linkage effect	0.77970	0.63836
Backward linkage effect	0.58638	1.06613

. The results of the sensitivity of dispersion show that 0.77970 and 0.63836 were found in South Korea and Japan, respectively; that is, the values are less than 1. This means that the NG supply sector in Korea and Japan has the characteristics of final demand. The results of power of dispersion were 0.58638 and 1.06613 in South Korea and Japan, respectively. Therefore, the NG supply industry in South Korea, the value of which is less than 1, is a basic industry type. On the other hand, in Japan, the NG supply industry is a manufacturing type because its value is greater than 1. In summary, the NG supply sector is the final demand basic industry type in South Korea, and it is the final demand manufacturing type in Japan.

4.3. Discussion of the Results

The results of the economic effects of the NG supply sector in South Korea and Japan are summarized in

Table 9. Summary of the economic effects of natural gas supply sectors in Korea and Japan.

	South Korea	Japan
Production-inducing effects Effects on other sectors Self-induced effect Total	0.07979 1.00000 1.07979	0.86142 1.00000 1.86142
Value-added creation effects Effects on other sectors Self-induced effect Total	0.03668 0.16578 0.20246	0.20548 0.31443 0.51990
Wage-inducing effects Effects on other sectors Self-induced effect Total	0.01641 0.03033 0.04674	0.00603 0.01305 0.01908
Employment-inducing effects a Effects on other sectors Self-induced effect Total	343.45119 459.93194 803.38313	624.05294 1350.56913 1974.62207

^a The unit is persons per USD 1.0 billion.

. Five major implications can be obtained from the results of this study. First, the production-inducing effects of the NG supply sector in South Korea and Japan were 1.07919 and 1.86142, respectively. The value-added creation effects were estimated to be 0.20246 and 0.51990 in South Korea and Japan, respectively. The production-inducing effects and value-added creation effects in Japan are 1.7 times and 2.6 times greater than those in South Korea, respectively. It means that the contribution of the NG supply sector in Japan to revitalizing the domestic industry is greater than that in South Korea.

South Korea and Japan have one thing in common: they import LNG from overseas. However, in South Korea, 80% of total LNG imports are traded through a public company, and only 20% are traded through private direct importers. On the other hand, Japan liberalized its gas retail market in 2017, and most LNG import transactions are conducted through private operators. In addition, as South Korea focuses on stable supply, most of its LNG import transactions are carried out through long-term import contracts. However, in Japan, most of LNG imports are traded through spot and short-term contracts. Long-term contracts have the advantage of securing supply stability but have the disadvantage of making it difficult to dispose of and utilize the surplus. On the other hand, spot and short-term contracts have the disadvantage that it is difficult to secure supply stability but have the advantage of improving value-added because they have fewer inventory problems and can be used for resale. In other words, the difference between the production-inducing effect and value-added creation effect in the NG supply sector of the two countries can be interpreted as the difference in the LNG import method. Therefore, South Korea can consider opening the LNG trading market and diversifying contract types to improve the production-inducing effects and value-added creation effects of the NG supply sector.

Second, the wage-inducing effects of the NG supply sector were 0.04674 and 0.01908 in South Korea and Japan, respectively, the former being 2.4 times that of the latter. In other words, the NG supply industry in South Korea can be judged to be a high-wage industry compared to that of Japan. On the other hand, the employment-inducing effects in the NG supply sector were 803.4 and 1974.6 in South Korea and Japan, respectively, with the latter being 2.5 times that of the former. In Japan, the electricity and gas market were completely opened, increasing the number of city gas companies from 40 in the past to 430. On the other hand, most of the NG supply in South Korea is still operated by one public company. Therefore, there are more jobs related to the NG supply industry in Japan than those in South Korea.

Third, the supply shortage effects in the NG supply sector in South Korea and Japan were 1.62724 and 0.97915, respectively, the former being 1.7 times larger than the latter. In other words, it means that the damage caused by NG supply disruptions is greater in South Korea than that in Japan. In the IO tables for South Korea and Japan, the proportions of intermediate demand in total output of the NG supply sector were 71% and 63%, respectively. In other words, the share of NG supply in South Korea as an intermediate product for the entire industry is greater than that in Japan. Therefore, the analysis results of the supply shortage effect are in line with the input form of the NG supply industry in both countries.

Fourth, the impact of a 10% price increase in the NG supply sector on the national price level in South Korea and Japan is 0.10297% and 0.03634%, respectively, the former being 2.8 times the latter. This means that the impact of changes in NG prices on national prices is greater in South Korea than that in Japan. Therefore, the stabilization of the NG supply price is important in South Korea. The South Korean government needs to design policies and action plans to predict and prepare for future changes in NG prices and their ripple effects on the national economy.

Finally, sectors in which investment or production in the NG supply sector in South Korea and Japan have substantial effects are explored. Overall, the production-inducing effect, value-added creation effect, and employment-inducing effect of one unit investment in South Korea’s NG supply sector are large in the “2. Mined and quarried goods”, “23. Finance and insurance”, and “26. Business support services” sectors. On the other hand, for Japan, the effects were large in the “2. Mined and quarried goods”, “6. Petroleum and coal products” and “20. Transportation” sectors. It is very difficult to pinpoint the reason for this difference between the two countries, but the reason seems to be due to the difference in the NG supply structure between the two countries. About 78% of South Korea’s NG supply sector is occupied by one public corporation, KOGAS. KOGAS is known as the world’s largest LNG importer. The South Korean government has strong control over KOGAS, and the Board of Audit and Inspection is also strengthening its audit of KOGAS. Therefore, KOGAS borrows heavily from financial institutions, subscribes to various forms of insurance, and is quite dependent on business services such as legal and consulting. On the other hand, Japan has a relatively low dependence on these sectors as NG supply is operated in a liberalized competitive market. In addition, liquefied petroleum gas, a type of petroleum product, is mixed with NG and supplied as city gas, and NG is transported by vehicle to areas without NG piping networks, which seems to have a significant impact on related sectors.

In South Korea, the supply shortage effect and price-inducing effect of the NG supply sector were large in the “9. Basic metal products” and “16. Electricity and steam supply” sectors. On the other hand, in Japan, the supply shortage effect and price-inducing effect of the NG supply sector were high in the “14. Transport equipment, manufacturing services, and repair services of industrial equipment” and “21. Food services and accommodation” sectors. In other words, the sectors in which the impact was significant in the two countries were different. The reason is that the main uses of NG are different in the two countries. Because the main fuel of the metal product creation process in South Korea is NG, and combined heat and power plant and gas for integrated energy consumption have recently increased, the impact seems to have been significant in the aforementioned two sectors. On the other hand, in Japan, it seems to have had a significant effect in the “21” sector as the dining culture is activated due to changes in the demographic structure and cooking culture.

In addition, the results of this study can be used as reference data to predict the economic effects of the hydrogen supply chain. This is because energy sources such as hydrogen are similar to NG in three respects [59,60]. First, several countries report the need for hydrogen imports. Therefore, the economic effects of imported hydrogen can be predicted by referring to the IO analysis results for the two countries that import most of NG. Second, among hydrogen transport methods, utilizing the NG grid is considered the most economical and feasible method. Therefore, NG grids are likely to be used for hydrogen transport. Third, the use of hydrogen in the future is similar to the use of NG imported to South Korea and Japan for power generation, industrial use, and transportation. As a result, it is possible to predict its economic effects by comparing whether the hydrogen import and transport method of a specific country is similar to that of South Korea or Japan.

5. Conclusions

In order to reduce greenhouse gas emissions, global consumption of NG has been increasing while the use of coal has been decreasing. In addition, NG is expected to act as a bridge energy in the move toward a carbon-neutral era. This study attempted to identify the impact of production or investment in the NG supply sector on the national economy using IO analysis. The area to be analyzed was not limited to South Korea only, but Japan, which imports most of the NG and has similar conditions to South Korea in terms of being an energy island, was also included. This study analyzed and compared the respective production-inducing effects, value-added creation effects, wage-inducing effects, employment-inducing effects, supply shortage effects, and price-inducing effects of NG supply sector in South Korea and Japan, using the most recent IO table.

The main results of this study are as follows. It was found that the production-inducing, value-added creation, and employment-inducing effects of an investment of USD 1 billion in the NG supply sector on the entire national economy were greater in Japan than those in South Korea. On the other hand, the wage-inducing effects of an investment of USD 1 billion in the NG supply sector were greater in South Korea than in Japan. In addition, both the supply-shortage effect and the price-inducing effect of the NG supply sector are greater in South Korea than in Japan. The results of this study can be useful information when the government establishes policies related to NG import and supply in the future. For example, liberalization of the domestic LNG market can be considered to improve the production-inducing effect and value-added creation effect of the NG supply industry. In addition, a management system should be established in preparation for NG supply disruptions. Additional measures for stable NG supply can be reviewed for industries that have a significant supply-disruption effect in the NG industry.

In addition, the results of this study can contribute to practitioners and society in South Korea. For example, rising international NG prices, increase of labor costs, and environmental regulations can cause domestic NG prices to rise. The results of this study can be useful in predicting the impact of the price increase in advance. In particular, because NG price effects are presented separately for each industry sector, it is possible to identify which sectors are more or less affected. Furthermore, if the market size of the NG supply industry is predicted, the size of the economic effect can be anticipated based on the size. In other words, because the production-inducing effect of KRW 1 of production or investment in the NG supply industry on the national economy is KRW 1.07919, if the market size grows by KRW 500 billion, it is expected to bring about a total production-inducing effect of KRW 539.60 billion for the entire country.

The authors attempt to mention four more things about the implications of the analysis results. First, the various economic effects presented above have their own potential uses. Therefore, it is difficult to judge whether one economic effect is more or less important than another. For example, it cannot be said that the price-pervasive effect is more important or less important than the wage-inducing effect. The price-pervasive effect only means how much a price change in the NG supply sector changes prices in other sectors, and the wage-inducing effect only means how much investment or production in the NG supply sector results in wages in other sectors.

Second, although a comparative analysis was conducted in this study, it cannot be judged that one country’s NG supply sector is superior or inferior to another country’s NG supply sector. The previously reported analysis results only indicate the characteristics and role of a country’s NG supply sector. For example, although the NG supply sector in South Korea generates relatively little employment due to its nature, the equivalent sector in Japan generates relatively more employment due to its nature. In other words, the results should be interpreted in and of themselves and should not be used as a basis for judging good or bad.

Third, the reason why the South Korean NG supply industry generally ranks lower in terms of dollar value effect than the Japanese NG supply industry needs to be addressed. In this regard, the authors note the differences in the NG supply sector in South Korea and Japan. In other words, it is judged that South Korea has a somewhat backward NG supply structure compared to Japan with respect to three points. The first point is that a public corporation, KOGAS, almost monopolizes about 78% of South Korea’s NG imports, whereas only the remaining 22% is covered by a small number of private operators. However, Japan’s NG import sector has been liberalized, with a number of companies competing with each other. The weak competition in the NG introduction sector seems to eventually reduce the size of various economic effects. A second point is the type of company that owns and operates the NG supply network. In South Korea, KOGAS exclusively owns and operates the network while importing NG. Even if other operators import NG, it is difficult to bring NG into the NG pipeline. Namely, network neutrality or fairness is not properly guaranteed, and competition itself is impossible in using the NG network. However, in Japan, a company that owns and operates the network exists independently without importing NG, and the network is operated fairly and transparently. The third point is that KOGAS and city gas operators in South Korea cannot concurrently engage in other services such as power generation and/or sales. It is difficult for business operators to operate concurrently because their services are regulated by separate laws such as the City Gas Business Act and the Electricity Business Act. On the other hand, Japanese city gas operators benefit from economies of scope because they are free to diversify, vertically integrate, and horizontally integrate by acquiring or constructing NG-fired power plants and even selling electricity.

Fourth, lessons that can be learnt from this exercise on evaluating the economic impact of the NG supply industry in other countries should be mentioned. The methodology and structure used in this study can be applied to other countries as much as possible. The results can be compared between countries, as well as widely used in policy decisions related to the NG supply sector. For example, the results of applying the demand-driven model can be used to predict various economic impacts of investment or production in the NG supply sector on other sectors and the national economy. The results obtained from the application of the supply-driven model can be used to diagnose the negative impact of production disruptions in the NG supply sector on other sectors and the national economy as a whole. The results derived from the application of the Leontief price model will be useful in examining the effect of price change in the NG supply sector on prices in other sectors or the price level of the national economy.