The plan to make South Korea the world’s fourth-largest oil trading hub was finalized at a meeting of the trade-investment promotion committee presided over by President Park Geun-Hye.

Under the plan, major oil traders doing business in South Korea will be exempt from the country’s 22% corporate tax for five years and then benefit from a 50% cut for an additional two years, according the Ministry of Trade, Industry and Energy.

The government will also provide other incentives for oil traders, such as benefits in residence and education for their families, it said.

The plan also calls for the country to establish platforms for oil trade-related financial services and for trading of oil derivatives, the ministry said, noting it would disclose further details later.

“The government will ease financial regulations for major oil traders and improve financial infrastructure so as to build a regional oil hub in South Korea,” it said. “The government will also seek to invite … price assessments agencies to help develop a benchmark price in Northeast Asia,” it added.

The government will ease regulations for oil blending, storage facility and shipping, and improve the tariff formula to facilitate the inflows of crude and oil products, the ministry said.

Under the current law, any foreign oil trader who wants to trade in South Korea must secure at least 5,000 kiloliters of storage capacity. But the law will be revised so such restrictions are removed, the ministry said.

The government will also lease around 20 million barrels of storage capacity to the private sector so that the country’s total capacity for commercial storage rises to 56.6 million barrels, more than Singapore’s 52 million barrels.

Storage Terminals

State-run Korean National Oil Corp. has recently started work to build an oil storage terminal with a capacity of 9.9 million barrels of refined products by 2017 in Ulsan on the country’s southeast coast. In January, KNOC formed a joint-venture with independent tank storage provider Vopak and South Korean refiner S-Oil for the storage terminal project which is estimated to cost Won 622.2 billion ($581 million).

When completed in 2017, it would be South Korea’s second commercial oil storage terminal. Its first commercial terminal in Yeosu, west of Ulsan, was put online in April last year with a capacity of 8.2 million barrels – 3.5 million barrels of crude and 4.7 million barrels of refined products.

South Korea also plans to build a third commercial oil storage terminal in Ulsan with a capacity of 18.5 million barrels of crude by 2020, which would boost the country’s total commercial storage capacity to 36.6 million barrels.

The southern coast is home to the country’s top refiner SK Innovation in Ulsan, and No. 2 refiner GS Caltex in Yeosu and third-largest S-Oil in Onsan.

The government has nine storage bases across the country that can hold 146 million barrels of crude and oil products, including the world’s largest oil storage facility in Yeosu which can hold 49.7 million barrels. A total 134.2 million barrels of crude and refined oil products are currently stored at those facilities, including 44.3 million barrels of foreign oil, which means the government should reduce its stockpile if it plans to lease 20 million barrels of storage capacity to the private sector.

“The measure would not reduce the country’s strategic oil reserves because the government is only seeking to utilize excessive capacity while maintaining a level recommended by the international community,” Kim Jun-Dong, the ministry’s director-general for energy and resources policy, said.

South Korea’s current strategic oil reserves can meet demand for 123 days, well above the 90 days’ worth as recommended by the International Energy Agency, Kim said.

“Given surging oil consumption and trading in Northeast Asia, the oil hub project can make South Korea, with its massive storage facilities and geographical location between China and Japan, the center of oil trading in the region,” he said.

South Korea, China and Japan consume 16.3 million b/d, accounting for 19% of global consumption. Among the three countries, South Korea is most competitive in terms of shipping and oil refining costs, which currently stand at $1.37/barrel and $2.33/b, respectively. They compare with China’s at $1.38/b and $6.12/b and Japan’s at $1.43/b and $3.12/b for shipping and refining, according to the ministry.

“With the advantages, South Korea’s southern coast could be the world’s fourth-largest oil hub, following the US Gulf Coast, Europe’s ARA (Antwerp, Rotterdam, Amsterdam) and Singapore’s Jurong,” the statement said.