South Korea trading houses eye overseas petro dollars

South Korean trading houses are betting on bullish energy prices by venturing into overseas oil and gas fields, a trend that could bring returns by 2008, but firms may need partners to help fend off competition.
Daewoo International and other trading firms are following the path of Japanese peers such as Mitsubishi Corp, whose transformation from middlemen netting commissions to full-fledged investors in energy assets brought them record profits in recent years.
Driving the boom is South Korea's policy of financing up to 80 percent of private firms' overseas energy development costs, as part of its push to produce 18 percent of the country's oil needs from Korea-owned oilfields by 2013, against 4 percent now.
But South Korea's road to petrodollars may be less profitable than past Japanese investments because the latest commodities boom means higher asset prices. The South Koreans also face increasing competition from China, which is determined to secure natural resources for its booming economy.
In making forays into less developed areas such as Russia or Central Asia in search for niche assets at a time of rising energy nationalism, they could also face political risks.
"The firms are going down the right track. Their aggressive investments could return profits starting around 2008-2009," said Hwang Kyu-won, analyst at TongYang Investment Bank.
"Windfall profits seen in the past are hard to come by though, because strong energy prices are driving competition for assets. Again, the key is whether they win blockbuster deals."
Daewoo International, which earned a $19.8 million profit from its energy development in 2005 and forecast at least $20 million this year, expects profits to jump to at least $150 million in 2009 when production starts at its Myanmar gas fields.
LG International expects its recent investments in oil and gas fields will help double its recurring profit from the sector to more than $16 million in 2008 from 2006.
South Korea's total spending on overseas energy development more than doubled to $1.1 billion in 2005 from 2003, half of which private companies account for, government data showed.