ALTERNATIVES FOR THE STORAGE OF GAS AT THE EXAMPLE OF KOREA:

THE STORAGE OF LPG IN THE UNDERGROUND ROCK CAVERN

Kim, Tae Moon, Advisor, the Korean Institute of Gas, Republic of Korea

1. DEVELOPMENT OF LPG MARKET IN KOREA

Korean LPG market grew steadily until 1981 from 1964 when domestic production started
along with the operation of the first-established refinery. But a substantial demand growth was possible
from the early 1982 when the first-established importer, Jungwoo Energy Co.(now, LG-Caltex Gas
Co.), began to import LPG from Saudi Arabia using the refrigerated VLGCs(very large gas carrier)
carrying 43-45 thousand tons. Such import contributed to lowering the domestic price and for growing
demand as well. In the beginning, Jungwoo Energy operated a VLGC as floating storage for a year
and half until they completed the construction of their Yeosu LPG import terminal having large
underground storage(UGS) rock caverns.

Reviewing demand and supply of LPG for the last 20 years, demand has grown sharply as
shown in Fig.1 amounting to 7.3 million tons in 2001 with production growing slowly on the contrary.
Consequently, the import to make up the gap has grown significantly to about 4 million tons in 2001
and is expected to stay at that level for the couple of years to come. It is mainly due to the recent
moderate growth of demand coupled with the sharp increase in production, which amounts to 3.5
million tons in 2001.

Fig.1. Demand and production of LPG in Korea

Million ton

'01

99

97

95

93

91

89

87

85

83

81

d em a nd
prod uction

79

77

8
7
6
5
4
3
2
1
0

We can again divide the past 20 years by two periods, each of them showing a different
demand growth pattern: the earlier period shows a fast growing demand and the later a maturing
demand. During the earlier decade of 1982 to 1992, demand grew very fast and accordingly import
grew much faster due to the relatively slow growth of domestic production. During this period, demand
grew 7.2 times from 0.63 to 4.56 million tons, while domestic production grew 3 times from 0.44 to

1.30 million tons. Consequently, import from the Middle East grew 15 times from 0.22 to 3.30 million
tons. In the late 1987, the second-established importer, Yukong Gas Co.(now, SK Gas Co.) began to
import LPG from Kuwait through their Ulsan import terminal, which is also equipped with large
underground rock caverns.

During the later period of 1992 to 2001, LPG demand grew rather moderately, but domestic
production increased much faster. Consequently, import requirement got less. Demand grew 1.6 times
from 4.56 to 7.30 million tons while production increased 2.7 times from 1.30 to 3.50 million tons. As a
result, net import, i.e. import minus re-export, grew 10 percent only from 3.24(=3.30-0.06) to
3.64(=4.06-0.42) million tons. In addition, demand pattern in the last decade changed significantly as
shown in Table 1. Especially, demand for transportation (mainly butane) grew from 1.18 to 3.35 million
tons to make it the leading demand sector, while the traditional leading sectors of residential and
commercial (mainly propane) grew only from 2.01 to 2.38 million tons. The number of LPG cars
reached 1.43 million, 11% of total 12.91 million cars, consisting of 0.23 million taxis and 1.2 million
recreational vehicles by the end of 2001. As a result, the consumption ratio of C3/C4 was changed
from 62/38 to 46/54%.

Table 1. Trend of LPG consumption

Unit: thousand tons
Total
C3
C4
Residen. & comm.*
Transportation
Industry
City gas
Chemic. feedstock

92
4563( 100%)
2851( 62%)
1712( 38%)
2015( 44%)
1178( 26%)
203( 4%)
524( 11%)
643( 14%)

97
6036( 100%)
3972( 66%)
2064( 34%)
2379( 39%)
1685( 28%)
654( 11%)
635( 11%)
683( 11%)

01
7296( 100%)
3330( 46%)
3966( 54%)
2378( 33%)
3345( 46%)
1051( 14%)
152( 2%)
371( 5%)

* Residen. & comm.: Residential and commercial

Now, LPG competes with city gas using LNG in the residential and industrial sectors to a
large extent, but it does not so in the other sectors like transportation and chemical feedstock.
Recently for the environmental reasons Korean government set a strong policy to gradually substitute
many buses and trucks using diesel by gas fuel in big cities. Already about three thousand buses
using CNG were introduced and we may see more CNG-fueled buses and many LPG-fueled garbage
trucks in the near future.

Meantime, Korean gas industry experienced a significant growth as a whole thanks to the big
scale imports both of LPG and LNG, which began in the 1980s. The growth of gas demand is shown
in Fig. 2.

Fig. 2. Growth of gas demand for the last 20 years in Korea

Units: Million tons(LNG, LPG), billion m3(city gas)
18
16
14
12
10
8
6
4
2
0
'00

98

96

94

92

90

88

86

84

82

80

LNG
LPG
city g as

Remark: HCV of city gas 10,500 kcal/m3

During that period, city gas consumption grew surprisingly from nil to 12.9 billion m3(HCV of
10,500 kcal/m3) in 2001. Sufficient supply of LPG contributed to develop city gas demand as the only
feedstock in the early years. But propane whose use as city gas feedstock reached 1.02 million tons in
1996 was gradually substituted by LNG as LNG trunk lines extended nationwide later. LNG
consumption grew from 1.62 million tons in 1987 to 3.52 and 15.99 million in 1992 and 2001
respectively.

For the past 20 years, I am sure that air quality in the metropolitan area and big provincial
cities in Korea improved significantly in accordance with the increased share of gas fuel, LPG and
LNG in the total primary energy consumption. The share of gas (LPG+LNG) grew progressively from
1.6% in 1982 to 8.6(=4.7+3.9)% in 1992 and 15.0(=4.4+10.6)% in 2001.

2. CONSTRUCTION OF THE UNDERGROUND ROCK CAVERNS

There are four LPG import terminals owned by the two commercial importers and one
stockpiling terminal owned by KNOC(Korea National Oil Co.) as shown in Table 2. and Fig. 3(location
map).

Table 2. LPG storages in Korea

Unit: thousand tons
Owner
LG Gas

Location
Yeosu
Incheon
Total

C3
83
170
253

C4
69
70
139

Total
152
240
392

Start-up
Jul., 1983
Jul., 2000

Investment**
50BW( 64M$)
180BW(161M$)

Ulsan
Pyeongtaek
Total
Pyeongtaek
(expansion)
Total

SK Gas

KNOC
Grand total

140
136
276
90
200
290
819

130
40*
170*
70
70
379*

270
176*
446*
160
200
360
1,198*

Dec., 1987
Jul., 1999

67BW( 85M$)
150BW(124M$)

Jan., 1990
Dec., 1996

Remark: * AGS(above-ground storage) of 40 thousand ton capacity are included.

Investment**: BW=Billion won converted to M US$ at different rates.

Seoul
Incheon
Pyeongtaek

Ulsan
Busan
Yeosu

Fig.3. Location of LPG Import Terminals

All LPG terminals in Table 2 have UGS rock caverns to make the aggregated storage
capacity of nearly 1.2 million tons to be the worlds largest for a country. As for the construction of four
import terminals, a French engineering company - Geostock - participated in the site survey, feasibility
studies, basic design and site supervision of excavation.

Originally Jungwoo Energy Co.(now, LG Gas Co.) planned to build their Yeosu import
terminal having only AGS tanks. But they changed their plan to construct UGS rock caverns due to a
number of merits, and finally completed the terminal with a total capacity of 157 thousand tons(or 290
thousand m3) to be commissioned in July 1983. As the construction and operation of Yeosu terminal
proved to be much economical as well as quite satisfactory, it became a common practice in Korea to
build LPG import terminals in the type of UGS rock caverns.

In December 1987, the second-established importer, Yukong Gas Co.(now, SK Gas),

commissioned their Ulsan import terminal having 270 thousand ton(or 500 thousand m3) capacity to
serve the domestic market. Then in 1990, KNOC commissioned their Pyeongtaek terminal for the
strategic stockpiling of LPG with UGS capacity of 160 thousand tons. They expanded UGS capacity of
propane by 200 thousand tons in 1996.

Recently, in spite of the slow growth of import, two importers, LG Gas and SK Gas,
recognized that they need their second import terminals at the western coast adjacent to Seoul
metropolitan area. In the past, they had to move the major portion of the imported LPG from the import
terminals at the southern or southeastern coast (Yeosu and Ulsan) to their secondary terminals at the
western coast (Incheon) near Seoul by small coastal tankers. So, the transportation cost was high,
and to make the matters worse, transportation was not smooth from time to time due to bad weather
during winter, which is the most demand-high season. In addition, regulation changed to impose a
higher obligatory stock level of 30 days, which had been 15 days till then, upon the importers.

At last, respectively in 1999 and 2000, SK Gas and LG Gas commissioned their second
import terminals located along the western coast (Pyeongtaek and Incheon) near the Seoul
metropolitan area. For these terminals, except for the two AGS butane tanks in Pyeongtaek having 20
thousand ton storage capacity each, all the other storage spaces were constructed in the UGS type.

3. THE CHANGE OF STORAGE SYSTEM AT YEOSU TERMINAL

In the early 1980s, Yeosu terminal was initially planned to have the four uniform AGS
refrigerated tanks having a capacity of 60 thousand m3 respectively, two for propane and the other two
for butane. Jungwoo Energy Co. was about to sign the purchase and construction contract with a
Japanese engineering and construction company C, which included the terms on the supply of tank
materials, pumps, etc.

At that time, Jungwoo Energy made a very important decision to choose UGS rock cavern
instead of AGS based on the attractive proposal by Geostock specializing in the underground storage
technology. They persuaded Jungwoo to choose UGS having various advantages such as substantial
cost saving of 30~50% and much higher safety level. Although their explanation was so attractive, it
was quite difficult to believe immediately. As Jungwoo didnt have much time to hesitate, Mr. B.W. Kim,
the companys president having mechanical engineering background, flew to France to confirm the
existence of LPG import terminals with UGS in operation without major problems for nearly ten years.
Then, he agreed to invite a French geologist to Yeosu site. Upon confirmation of the suitable rock
mass in the site, Mr. Kim made a final decision to go with UGS instead of AGS.

Jungwoo Energy carried out the construction of Yeosu terminal with UGS for 2 years
including 3 months test. The major part of the construction was the excavation of the underground
rock caverns having an increased storage capacity eventually of 290(C3+C4=170+120) thousand m3
or 152(=83+69) thousand tons. It took 20 months. Jungwoo expanded propane storage by 50
thousand m3 during construction period with a relatively small extra cost. Total project cost was finally
50 billion won(64 million US$ at 1$=777 won).

Whereas the total project cost was originally estimated to be 80 billion won(103 million US$)
for AGS of 240 thousand m3 or 130 thousand tons based on the initial quotation, Yeosu import terminal
was completed with larger UGS rock caverns at about 62% of the initially estimated cost. So, the
eventual saving amounts to 30 billion won(39 million US$) or 38% of the initial estimation.

Since the commissioning of Yeosu terminal there wasnt any major problem in terms of
operation, maintenance, safety, environment, etc. Therefore, many people began to think UGS rock
caverns as the eventual solution for the LPG storage in Korea as it was not only economical but also
favorable in many other aspects. It simply explains the reason why all the LPG import terminals in
Korea later adopted UGS rock caverns.

4. COMPARISON OF UGS VS. AGS FOR LPG

Frankly speaking, I am not well positioned to compare UGS and AGS in detail, as my job
experience is limited to that of the director in charge of LPG import terminal projects with UGS for a
couple of years from planning to construction and operation stage, firstly at Yeosu for Jungwoo Energy
Co.(now, LG Gas) and secondly at Ulsan for Yukong Gas Co.(now, SK Gas). I have some information
on four LPG import terminals owned by two importers such as investment cost and consumption of
electricity and fuel gas under the normal operation. But I dont have similar information on AGS, except
for the past cost estimation for Yeosu terminal proposed by a Japanese company as I explained
previously. So, I would like to quote some general information covering from cost estimation to various
other aspects as follows.

4.1. Project investment

Actual investment costs for four import terminals in Korea are shown in Table 2. These costs
include everything from the construction of storage and ancillaries to the purchase of land and interest
during construction period. They can be converted into unit costs of 217(Yeosu) or 170(Ulsan) in
1980s and 354(Pyeongtaek) or 337(Incheon) USD/m3 recently. Assuming net construction cost of

storage excluding all indirect costs to be about two third or less of total cost, these figures can be rewritten as 145 or 113 in 1980s and 236 or 225 USD/m3 recently.

In case of a project to build LPG import terminal with UGS rock cavern, it is preferable to have
larger storage capacity if geological conditions allow. Extra cost and time necessary for such
expansion during construction period is relatively small and it is very difficult to expand later for the
same site. Of course, the storage size should be decided in accordance with the market situation, but
the availability of large storage can stimulate the market to grow faster than expected by allowing
more aggressive marketing activities.

According to the French company, some reference costs in European conditions(year 2000)
to cover the construction of storage can be summarized as follows:
100-200 USD/m3

leached salt caverns:

10,000 m3

rock mined caverns:

800-1200 USD/m3

50,000 m3

340-580 USD/m3

100,000 m3

300-500 USD/m3

500,000 m3

180-280 USD/m3

mounded storage(2000-4000 m3)

pressurized spheres
refrigerated tanks

800-1600 USD/m3
600-800 USD/m3
600-800 USD/m3

4.2. Operation and maintenance

According to the two LPG importers, LG Gas and SK Gas, the operation and maintenance of
UGS has been quite simple and smooth without any major problem. Normally, they operate a number
of submersible pumps installed at the bottom of the caverns to deliver LPG and seepage water outside.
In addition, they use fuel gas(i.e. LPG) in a heater to warm refrigerated propane from 42 C to 2 C
for unloading it from VLGC to the caverns.

Consumption of both electricity and fuel gas is the major part of operation costs. Actual
figures of consumption for electricity is 3-5.6 kWh/ton of LPG delivered and for fuel gas is 2-2.8 kg
LPG/ton of propane unloaded.

4.3. Environment and safety

With UGS we need only small flat land area to build on-shore unloading facilities which is
also necessary in case of AGS. Instead, with AGS large flat land area is necessary to install a number
of large refrigerated tanks and ancillaries. Large UGS rock caverns can be excavated in the suitable

rock mass located either below a hill(e.g. Yeosu and Ulsan), a lake(e.g. Pyeongtaek) or under the
sea(e.g. Incheon) to minimize the destruction of landscape.

Regarding safety, UGS is the best solution against risk of leakage, fire or explosion. LPG is
hydraulically confined deep below ground, the only visible parts being the operating shaft-head.
Moreover, sub-surface safety valves are installed in all pipes connecting the cavern to the facilities on
the ground, and in case of leakage they are automatically shut to isolate the cavern. Furthermore, the
underground storage caverns are much less vulnerable than aboveground facilities in case of
earthquakes.

In addition, during the construction period the blasting excavation of UGS rock caverns could
be managed so effectively that it caused no identifiable vibration problem to the nearby power station
and chemical plant in operation. So, the UGS is thought to be a good way to limit the public opposition
to the minimum level.

5. PROSPECT OF UGS IN ASIA

It is not expected that any additional LPG storage will be built in Korea in the near future.
On the other hand, a number of projects to build UGS rock caverns for LPG are in progress in
Asia. Recently, UGS rock caverns were built in China and Australia and are planned in India and
Japan. Table 3 shows recent UGS projects for LPG in Asia.

Table 3. Recent UGS projects for LPG in Asia

Unit: thousand m3
Country
China
Australia
India
Japan

Owner
COGEL
BPNH
Elgas
SALPG
JNOC/JLPS
JNOC/JLPS

Location
Shantou
Ningbo
Sydney
Visakhapatnam
Kurashiki
Namikata

Volume
C3
C4
100
100
250
250
130
Mixed
800
600
245

Status
Total
200
500
130
130
800
845

In operation(2000)
In operation(2002)
In operation(2002)
Selected contractor
To start construction
during 2002