South Korea Increases Strategic Oil Storage and Clean Fuel Production Capacity

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). Asian states that are dependent on oil imports for a major portion of their energy requirements have been increasing the pace and scope of deals to secure future supplies. In particular, these deals are aimed to combine the long-term supplies from oil rich countries with joint ventures and government agreements.

A Memorandum of Understanding (MoU) has been signed between the Korea National Oil Corporation (KNOC) and the state refining company in Kuwait, National Petroleum Company, for the storage of Kuwaiti crude in South Korea. The MoU was signed during a visit of the South Korean Prime Minister Lee Hae-Chan.

The Energy Ministry of South Korea said that the country imports 100% of its crude oil supplies and will charge storage fees and at the same time secure an immediate source of supply in the event of contingencies. “South Korea will secure storage income and a priority purchasing right in emergencies, while the oil producing nation will establish a forward sales post in the Northeast Asian market,” the ministry said.

Kuwait will become the first Middle East country to store crude oil in South Korea. Currently, South Korea stores a total of 19.9 million barrels of crude for Norway and Algeria. The country has a current capacity for 22 million barrels of oil storage. KNOC is planning to raise the capacity to around 40 million barrels of storage in 2008.

In another move, which will reinforce South Korea’s strategic fuel security, the energy ministry has reported that Saudi Arabia could invest up to $3.5 billion in a plant to refine and process more profitable clean fuels. There are moves throughout Asia to meet new and tighter clean fuel standards. By 2010, most of Asia will have put higher fuel specifications in place and a survey found that by the end of 2007 over 50% of the continents 24 million barrels per day oil demand will have moved to lower sulfur emission standards.

Saudi Aramco (Riyadh) has a 35% interest in South Korea’s third largest oil refiner, S-Oil (Seoul, South Korea). But there has bee no confirmation that the new plant project investment will be a joint venture between the two companies. S-Oil currently has a Bunker-C cracking plant with a 290,000 barrels per day capacity and its clean fuel processing capacity exceeds that of its largest domestic rivals.

SK Corp (Seoul) and GS Caltex (Seoul) are both expanding their capacity for cleaner fuel production. SK will decide in early 2006 whether to invest $2 billion in a second fluidized catalytic cracker to process 60,000 barrels per day of heavy oil into value added light products. GS Caltex is planning a $1.16 billion investment for a hydrocracker with diesel output and a daily processing capacity of up to 60,000 barrels per day.

Saudi Aramco is currently in talks concerning joint venture refining projects in the U.S. and China, in addition to South Korea. With a refining capacity of four million barrels per day it is also planning to build two new 400,000 barrels per day refineries in Saudi Arabia.

But the Saudi company says it is not aiming to become a swing supplier of oil products with spare refining capacity, a spokesman said. Saudi Aramco will maintain spare crude production capacity to give consumers a cushion in the event of supply shocks, but sees no value in doing the same in its downstream business.

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