The effects of South Korea's conditional loan system in promoting foreign oil and gas exploration projects

Abstract

Since 1983, the South Korean government has implemented a conditional loan system to push private firms to participate in foreign oil and gas exploration projects, ultimately to secure the country's energy supply. In this study, we empirically investigate whether South Korea's conditional loan system successfully contributed to the promotion of foreign oil and gas exploration projects. First, we analyze how the amount of conditional loans has affected the number of exploration projects. Our empirical results show that a 1% increase in loans yielded both a 0.8% increase in the number of total exploration projects and a 0.5% increase in the number of newly launched exploration projects. The economic conditions of the exploration and production business have been insignificantly effective. Second, we analyze how the contribution of conditional loans to total investment has affected the number of exploration projects that have taken place. The empirical results show that the lower the contribution of conditional loans is, the greater the number of newly launched exploration projects. However, the contribution of conditional loans has significantly affected neither the number of total exploration projects nor the number of exploration projects that feature operational responsibility. © 2015 The Korean Society of Mineral and Energy Resources Engineers (KSMER).