Seoul — South Korea's diesel and gasoline consumption likely fell in 2018 for the first time in several years as the government's cleaner energy initiatives gathered pace -- and a forecast surge in domestic electric vehicle production in coming years could pave the way for that downtrend to become a protracted one.
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South Korea consumed 151.95 million barrels of diesel over January-November last year, down 1.4% from 154.03 million barrels a year earlier, latest data from state-run Korea National Oil Corp showed. Gasoline consumption edged down 0.1% over the same period to 72.79 million barrels, the data showed.
KNOC is due to release December and January-December data later this month; industry officials and local energy market analysts expect it will show the country's consumption of auto fuels fell for the first time in at least seven years.
The last time South Korea's annual diesel consumption fell was in 2011, when the country consumed 134.16 million barrels, edging down 0.4% from 134.65 million barrels in 2010. Gasoline consumption last posted an annual decline, of 5.6%, in 2003, KNOC data showed.
Industry and government sources said the recent slip in diesel and gasoline consumption may prove to be the start of a lengthy downtrend as South Korea is planning huge investments in hydrogen fuel cell vehicles, while cracking down on diesel-powered cars, as part of efforts to embrace cleaner energy sources.
Under President Moon Jae-In's cleaner energy initiative, the country is tightening regulations on diesel-powered cars and closing ageing coal-fired power plants, which has increased the country's LNG demand for electricity generation.
Late last year, the government scrapped all benefits given to low-emission diesel vehicles in an effort to eventually take diesel-fueled cars off the roads.
It targets replacing all diesel-fueled cars owned by government and state entities with hydrogen power or battery electric vehicles by 2030.
"The push for hydrogen-powered vehicles would help decarbonize the country's transportation fleet and reduce its heavy reliance on imported oil," a Ministry of Trade, Industry and Energy official said.
Around 30% of the refined oil products consumed in South Korea is by the transport sector. The petrochemical sector uses 53%.
"The push for hydrogen power would eventually reduce the country's demand for diesel, which has already started to decrease," he said.
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HYDROGEN CAR MANUFACTURING
South Korea's Hyundai Motor Group, the world's fifth-biggest automaker, is betting on hydrogen fuel cell electric vehicle or FCEV technology -- a rival to internal combustion engines -- and has recently announced it will invest Won 7.6 trillion ($6.7 billion) along with local partners with the aim of producing 500,000 hydrogen-powered vehicles annually by 2030.
Under its FCEV Vision 2030, Hyundai Motor said it will expand its production capacity for vehicles using fuel cells that run on hydrogen gas to 11,000 units by 2020, up from 1,000 currently.
"We aim to produce 40,000 hydrogen-powered passenger and commercial vehicles in 2022 and increase the capacity to 130,000 units by 2025 and to 500,000 units in 2030," the company said in a statement.
To meet the goal, Hyundai Motor broke ground for its second fuel cell systems plant last month, with the aim to start commercial production early next year.
Hyundai Motor became the world's first mass-producer of hydrogen cars in 2013 when it launched the Tucson Fuel Cell model.
Hyundai, whose profits have tumbled due to its heavy reliance on internal combustion engines, hopes to turn around its fortunes by taking the lead in hydrogen car production.
Chung Eui-Sun, the head of the Hyundai Motor Group, has vowed to make Hyundai a "first mover" in hydrogen technology.
"On top of hydrogen cars, it is taking another step forward to transform hydrogen power into a main energy source," he said in a recent statement.
In line with Hyundai Motor, the South Korean government under a "hydrogen society road map" has vowed to offer broad subsidies and other incentives for hydrogen-powered cars.
It plans to buy 4,000 hydrogen-fueled cars in 2019 and establish 310 hydrogen fuel stations nationwide by 2022 -- up from 86 currently -- while offering other incentives for infrastructure and technologies for hydrogen cars.
The government will also lift regulations on hydrogen fuel stations, while providing more hydrogen fuel cell buses and taxis, according to the Ministry of Trade, Industry and Energy in a 2019 blueprint.
It plans to spend Won 142.1 billion this year on a hydrogen-fueled car project, after spending Won 48 billion in 2018, according to the blueprint.
Several municipal governments, such as Seoul Metropolitan City, have also promised to extend subsidies and benefits for hydrogen-fueled cars.
State-run Korea Gas Corp., one of the world's biggest LNG importers, and other companies have also launched projects to build hydrogen fuel stations.
Most hydrogen used in South Korea is created from LNG.
-- Gawoon Philip Vahn, Philip.Vahn@spglobal.com
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-- Edited by Wendy Wells, email@example.com