Economies of Scale in the South Korean Natural Gas Industry

Jeong-Joon Yu, Seung-Hoon Yoo () and Chulwoo Baek ()
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Jeong-Joon Yu: Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongreung-Ro, Nowon-Gu, Seoul 01811, Korea

Energies, 2019, vol. 12, issue 8, 1-10

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.

Keywords: natural gas; economies of scale; translog cost function; minimum efficient scale (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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