South Korea will provide financial benefits to local refiners that import crude oil from sources other than the Middle East as part of it efforts to diversify following political uncertainties in the region, the energy ministry said Friday.
Energy-poor South Korea, the world’s fifth-largest crude importer, is extremely vulnerable to oil price fluctuations. Around 85% of South Korea’s imported oil comes from the Middle East and most of it is transported through the Straits of Malacca, a region plagued by piracy.
“The government has decided to provide benefits to refiners to help cut their transportation costs when they import crude far away from the Middle East,” an official from the Ministry of Trade, Industry and Energy said. The government had approved revised bills for these fresh incentives, he added.
Under the new measures, the government will provide subsidies to refiners to import crude oil from the Americas, Africa and Europe to compensate for freight differentials between the Persian Gulf and other regions, the official said.
“With the benefits, refiners would be tempted to import crude from non-Middle Eastern countries,” the ministry official said.
Currently, South Korea’s refiners pay a tariff of Won 1,600 ($1.60) per 100 liters of imported crude oil and get a similar amount of rebate on oil product exports.
“Importers of non-Middle East crude can continue to enjoy the tax refund as well,” the official said. “This means refiners importing crude other than from the Middle East could enjoy double benefits — subsidies for transportation costs and tax rebates.”
Refiners said they were encouraged by the new measures to seek more crude oil from other countries. GS Caltex, South Korea’s largest importer of Iraqi crude, said it would look to alternate sources for crude oil imports.
“We will try to diversify crude supply sources to South America and Africa so as to reduce dependence on Iraq and the Middle East,” a GS Caltex official said.
GS Caltex imports 4 million-6 million barrels of crude oil a month from Iraq, which accounts for 20-25% its imports. It bought 2 million barrels from Saudi Arabia in June to make up for the drop in volumes from Iraq, the official said.
SK Innovation and Hyundai Oilbank import few volumes from Iraq and S-Oil buys none at all.
“We are pushing for more imports from Australia, Russia and Indonesia,” SK Innovation spokesman Yoo Jung-Min said. “But we have refining facilities more suitable for Middle Eastern crude, and importing crude from faraway areas poses risks other than transportation costs.”
SK Innovation and Hyundai Oilbank are also the country’s sole buyers of Iranian crude and have suffered losses from disruptions due to international sanctions.
South Korea imported 790.58 million barrels of crude from the Middle East in 2013, accounting for 86.4% of the country’s total imports of 915.08 million barrels, according to data from state-owned Korea National Oil Corp. The proportion was up from 85.6% in 2012 when it imported 811.25 million barrels from the Middle East, out of 947.29 million barrels in total.
In the first five months of the year, South Korea imported 308.78 million barrels from the Middle East, 83.0% of the total purchase of 372.08 million barrels.