South Korea's SK Energy embraces Australian Ichthys condensate for low-carbon push

South Korea's top refiner SK Energy recently purchased low-carbon Australian Ichthys condensate despite lofty spot premiums for Oceania ultra-light grades, showing that the company is working to reduce its carbon footprint from the feedstock procurement front and speed up its ambition to achieve net-zero emissions by 2050.

The refiner bought 650,000 barrels of Ichthys condensate, or ultra-light crude, for loading in October at an undisclosed premium to Dated Brent, according to sweet crude trading sources and feedstock managers based in Singapore and South Korea with close knowledge of the deal. Details of the seller could not be confirmed.

SK Energy and its trading arm SK Trading International declined to comment when asked whether the October cargo was its first ever purchase of the low-carbon Australian ultra-light crude.

However, SK Energy will seek to purchase more cargoes of carbon-neutral crude oil or condensate, a company official told S&P Global Platts Sept. 13.

The purchase of Ichthys condensate is part of the company's efforts to reduce carbon footprint under its Less Carbon, More Green initiative, the official added.

Ichthys field operator INPEX expanded its portfolio of carbon-neutral products at the project in Australia using carbon credits to include condensate and LPG, after arranging its maiden carbon-neutral LNG cargo shipment in July.

INPEX is the major equity holder of the Ichthys project with a 66.07% interest, while TotalEnergies E&P Australia holds a 30% interest.

Net-zero ambition

SK Energy's parent company SK Innovation has said the conglomerate will identify and implement specific action plans to achieve net-zero by 2050, and identify various options that accelerate the time of achievement.

SK Innovation said it aims to achieve the zero emissions target by 2050 in three phases. For the first two stages, the company would focus on direct reduction at business sites, which involves improvement of process efficiency, adoption of low carbon raw materials, operational optimization, as well as carbon capture, utilization and storage.

The company's efforts to reduce carbon emissions are in line with the country's drive toward carbon neutrality.

In October last year, President Moon Jae-in said South Korea will achieve carbon neutrality by 2050, which has been followed by announcements of major energy-intensive companies including oil refiners, chemical makers and steelmakers to reduce carbon emissions and push for measures to help offset emissions, such as carbon capture and storage and increased trading of carbon-neutral products.

Ample Australian imports

Australian condensate typically commands a premium over other regional ultra-light grades, but South Korea's refinery feedstock imports from the producer is poised to increase as major refiners aim to enhance their environmental, social and governance profiles on the feedstock procurement front.

In the first seven months, South Korea imported 11.4 million barrels of crude oil and condensate from Australia, more than double the 4.9 million barrels received in the same period a year earlier and 4 million barrels imported in January-July 2019, showed latest data from state-run Korea National Oil Corp.

With more and regular inflows of Ichthys condensate expected over the coming trading cycles, South Korea could import more than 12 million barrels of refinery feedstock from Australia in the second half of 2021, up from 9.35 million barrels in the first half and 10.62 million barrels in H2 2020, according to multiple South Korean refinery and trading sources surveyed by Platts.

Despite the higher import costs and the wide Brent-Dubai price spread that typically makes low-carbon Australian and European crudes much more expensive than Middle Eastern barrels, South Korean refiners are keen to enhance their ESG profiles, said a condensate trading manager at a South Korean refining and petrochemical company.

Australia's flagship North West Shelf condensate was assessed at an average premium of $1.10/b to Qatar's flagship ultra-light crude Deodorized Field Condensate to date in 2021, Platts data showed.

Platts has proposed to begin publishing daily price assessments for Ichthys condensate from Nov. 9.

Platts assessment of Ichthys condensate would reflect 650,000-barrel cargoes loading two months from the date of publication, on an FOB basis from an FPSO off Western Australia.