It’s getting tough out there for those countries that rely on energy imports for the majority of their supply. For once, I won’t be talking about U.S. oil consumption, though I’ve got tons of fodder for those who want an earful.

No, there are actually some countries that are worse off than we are in terms of energy imports.

Japan and South Korea import nearly all their fuel -- oil and natural gas, that is. I’m talking about imports in the high 90s percentage-wise, and that certainly trumps U.S. imports around 66%.

We’ve been watching both Japan and South Korea deal with these high energy costs in different ways, and I have to tell you, there’s a world of difference between the two.

Why is this important? Should you even care how another country gets its fuel?

Yes, absolutely. And I’ll tell you why.

I don’t mean you have to keep track of who’s dealing with who, and how much each contract is worth, and for how long. But here’s what you want to know: which country has secured energy supplies, and which country hasn’t.

It’s that simple. Now, here’s why you want to know.

Live Long and Prosper

You’re going to want to invest in one of these countries, and you’ll want to make sure its economy isn’t on the verge of a recession due to high energy prices. (Just to reiterate, I’m still not talking about the U.S. here.)

To be fair, both Japan and South Korea have energy contracts with a number of suppliers around the world -- places like Malaysia, Qatar, Indonesia and Australia. But we think South Korea has a bit of an edge over Japan.

South Korea has just announced that it has cut city gas prices in response to lower LNG import costs. Korean Gas Corp. (Kogas) said that wholesale gas prices were cut 2.8% and retail gas prices were cut 2.6% starting January 1, 2008.

A Kogas official told Platts, “LNG import costs have dipped by Won 20.02, or 3.8%, per cubic meter because of the start of [new] contractual supplies under a deal signed in 2005.”

This deal included 20 years of supplies from Malaysia, Yemen and Russia’s Sakhalin 2 LNG project.

An Unbalanced Scale

On the other hand, Japan’s been buying up LNG cargoes at top prices. Tokyo Electric Power Company bought two extra LNG shipments in mid-December for prices at very high levels -- at $13 per MMBtu. Since then, Japan’s been keen on buying up as much supply as it can ahead of winter demand, and prices have recently climbed to $18 per MMBtu on Japanese buying.

Japan’s haste and willingness to pay more for LNG shipments could be because of ongoing nuclear generation problems and strong winter storms plaguing northern Japan.

But Japan is also competing with South Korea for the same supplies, and the Asian market has been extremely tight.

This tight market (and high oil prices affecting parity) is allowing suppliers to negotiate for higher terms for contracts, as Australia is now doing with Japan.

The old agreement had Japan buying LNG at $6/MMBtu when oil was at $70. A readjustment of the agreement’s terms has Japan paying $9/MMBtu -- a hefty increase, but still a steal for what it’s paying on the spot market.

And that’s the difference: Japan with increasing costs versus South Korea with decreasing costs.

Turning Concepts Into Clams

Now, this is the point where you say, “Okay, I get it. Now what’s in it for me?” Let’s look at a chart.

This is a comparison of the two easiest ways to invest in Japan and South Korea. The red line is the iShares MSCI South Korea Index ETF (EWY) and the blue line is, of course, the iShares MSCI Japan Index ETF (EWJ).

Could you play ADRs against each other? Sure, but these ETFs give you access to a broad slice of the countries’ economies and are therefore more representative of how each country is performing.

I think this comparison shows that not all Asian countries are performing the same, though there are some factors that affect each country similarly -- like how the U.S. economy is holding up.

That’s why you’re seeing some volatility in South Korea right now. But there’s a change in the wind, particularly for South Korean businesses and energy policy.

For the first time ever, a business tycoon has been elected South Korea’s president. Lee Myung-Bak is the former head of Hyundai Corp., and he wants to roll back regulations on business to invite foreign investment and slash energy taxes by 10% while privatizing much of South Korea’s energy complex and increasing overseas projects and interests.

Whew, that’s a mouthful, but you only have to remember two things: He starts February 1, 2008… and the oil industry’s behind him. This could be a big boon for South Korean businesses, and it could mean a welcome bounce in its economy.

Here’s what I suggest…

Because of the recent volatility, it would be prudent to wait until this ETF found some technical support before diving in. A true upside breakout would occur once the ETF climbs past $65, but if you’re not interested in waiting that long, be aware of a possible breakdown if prices dip below $55 or so.

An upside move would easily take the ETF to its old all-time high of $75.05 with room to spare in its long-term uptrend.