Korean energy industry is experiencing a radical paradigm shift. Vertically integrated monopoly is being dismantled while state-owned energy companies are privatized. The industry is in transition from extensive government control to more flexible and market-oriented operation. Along with the task of successfully implementing these structural changes, Korea is now faced with challenges of addressing energy security with the decentralized supply system. This paper discusses ongoing efforts to transform electric power and natural gas industries in Korea, and then explores possible schemes for regional energy cooperation that will enhance efficiency and supply security.