South Korea set to register record volume of Norwegian crude imports in 2021

South Korea is set to receive a record volume of Norwegian crude of close to 20 million barrels for the full year 2021 as major refiners extend efforts to reduce their carbon footprint from feedstock procurement by fixing regular shipments of carbon-neutral Johan Sverdrup crude oil.

Asia's fifth biggest crude importer received 14.9 million barrels of crude oil from Norway over January-October, and around 70% of the shipments were medium sour Johan Sverdrup crude certified as carbon neutral at the point of production, according to latest data from state-run Korea National Oil Corp. and industry sources based in Yeosu and Ulsan refinery complexes with knowledge of the matter.

South Korea is expected to receive one or two more VLCCs of the carbon-neutral Norwegian crude before the end of the year, if not by January 2022, according to trading sources at major South Korean refiners with knowledge of the spot purchases. The sources declined to be identified, while price details could not be reported due to the sensitive nature of corporate trading relationships.

This could mean South Korea's total feedstock imports from Norway in 2021 could reach near 20 million barrels, its highest annual volume on record from the Northern European producer.

Its Norwegian crude and condensate shipments totaled 8.6 million barrels in 2020, surging from 700,000 barrels in 2019, the KNOC data showed.

Johan Sverdrup crude is rapidly establishing itself as a popular crude grade in South Korea's refining sectory as the companies enhance their ESG profiles.

In July, South Korea's second biggest refiner GS Caltex purchased its first cargo of Johan Sverdrup crude; 2 million barrels that arrived in September, and has since purchased cargoes of the medium sour carbon-neutral crude on a regular basis.

Other major South Korean refiners and petrochemical makers, including SK Innovation, have also been regularly buying low carbon crude cargoes, including Johan Sverdrup and Australia's Ichthys condensate, over recent trading cycles.

Sweden's Lundin Energy, a partner in Norway's giant Johan Sverdrup oil field, said June 16 that all future net production from Johan Sverdrup would be certified as carbon neutrally produced by Intertek under its CarbonZero standard.

Extra cost

Low carbon crude and condensate cargoes come at a cost for South Korean refiners and petrochemical makers, but the companies said this wouldn't deter their ambitiosn to further embrace feedstocks with a low carbon footprint.

"It's the additional premiums that the South Korean companies are willing to pay to promote and play a part in green business practice," said a senior market research analyst at Korea Petroleum Association based in Seoul.

"We are constantly keeping in touch with trading companies and producers offering crude, condensate and naphtha with a significant carbon offset... soon or later, it could become an industry practice where refiners must take a certain proportion of the feedstock basket with carbon-neutral crude," said a trading and operations source at Hanwha Total.

Over January-October, South Korean refiners paid an average $70.56/b for 14.6 million barrels imported from Norway, while 19 million barrels from Australia over the period cost an average$71.04/b, the KNOC data showed.

In comparison, Saudi Arabian crude shipments over the same period averaged $69.16/b, while shipments from the UAE averaged $64.47/b, which was more than $5/b cheaper than Norwegian and Australian supplies, the KNOC data showed.

KNOC's import costs include freight, insurance, tax and other administrative and port charges.