March 24, 2023 [S&PGlobal] – South Korea recently received 2 million barrels of crude oil produced in the UAE, with another batch of Abu Dhabi crude expected to arrive in the coming days, as the two nations launched a joint storage project, enhancing Seoul’s energy security, officials at state-run Korea National Oil Corp. said March 22-23.
The 2 million-barrel cargo, which arrived in South Korea’s Yeosu port March 21, has been stored at the world’s single largest oil storage facility in the southern port city which can hold up to 52.2 million barrels.
This is the first shipment from Abu Dhabi National Oil Co. for joint storage with Korea National Oil Corp. and another 2 million barrels will arrive soon and be stored at the Yeosu tanks as well, a KNOC official said.
ADNOC had signed an agreement with KNOC to use tanks in South Korea to store 4 million barrels of crude on the sidelines of summit talks between South Korean President Yoon Suk-yeol and UAE President Mohamed bin Zayed Al Nahyan in January.
KNOC will receive leasing fees and hold the right to gain priority access to the oil for domestic release in case of an emergency situation, according to the KNOC official.
The 4 million barrels of UAE crude are light in gravity with relatively low sulfur content compared to other typical Persian Gulf sour grades, the official said without elaborating.
“It’s primarily Abu Dhabi’s flagship Murban crude,” said a feedstock manager at a major South Korean refiner with close knowledge of the matter. Murban crude has 40.5 API gravity and 0.79% sulfur content.
KNOC operates nine storage bases that can hold a total 146 million barrels of crude and oil products, including tunnel-type underground tanks and the world’s single largest oil storage base. Of the total storage capacity, 131.1 million barrels of space is reserved for crude, 14.9 million barrels for refined products and 6.2 million barrels for LPG.
KNOC currently holds around 96.6 million barrels in its tanks, excluding foreign ownership oil.
ADNOC’s Asian trade management
ADNOC’s access to South Korea’s Yeosu oil tanks would help the major Middle Eastern crude producer to expand its storage footprint in Asia beyond India, a strategic push that supports the firm to ensure unhindered supplies to its key customers in the event of any trade flow disruptions, refinery sources and sour crude traders said.
“ADNOC has lease storage spaces in Asia’s most important demand centers to play with. In the event of another demand destruction or global economic crisis for example, ADNOC could flexibly move and manage any access barrels,” said a trading desk manager at a Western trading house who regularly buys Abu Dhabi Murban and Upper Zakum crude.
ADNOC currently stores close to six million barrels at the Mangalore SPR facility in India.
When COVID-19 decimated domestic demand in 2020 due to the pandemic, ADNOC urged the Indian government that it be allowed to export some volumes from the caverns.
As a result, India’s petroleum ministry allowed ADNOC, which is the only overseas producer that has oil stored in the caverns in southern India, can re-export the crude to other countries, “with the first right of refusal” retained by the government.
The policy change to allow re-exports has brought India in line with major Asian oil consumers like Japan and South Korea, where international oil producers store oil as well as re-export from those facilities.
Before the policy change, overseas companies looking to store oil in Indian SPRs were permitted to sell only 35% of their volumes commercially, and only to domestic refiners.
South Korea’s reliance on Middle East
Major South Korean refiners indicated that it’s crucial to secure ample Middle Eastern crude as the world’s fourth biggest crude importer has completely stopped purchasing Russian oil.
In addition, there’s growing possibility that benchmark crude prices could trend below $70/b, taking into account fragile global economic and financial market conditions, which means it’s prudent to stock up in case the big OPEC members decide to slash the group’s output to shore up prices, according to industry analysts and feedstock managers at two major refiners based in Seoul and Ulsan.
The South Korean government has been stepping up efforts in recent months to strengthen diplomatic and economic ties with major Middle Eastern crude producers to further enhance its energy security.
Senior officials at key South Korean government ministries including the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance visited Riyadh in February to resume free trade agreement negotiations with representatives from the Gulf Cooperation Council member nations.
Seoul has also stepped up efforts toward stronger oil ties with UAE. In October last year, KNOC brought 362,000 barrels of Murban crude produced at the UAE’s Haliba field.
The onshore field is 60% owned by ADNOC, 30% by KNOC and 10% by South Korea’s energy developer GS Energy.
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