Seoul — The South Korean government granted freight incentives for refiners buying crude oil from regions other than the Middle East until 2021 to support companies looking for alternatives to Iranian crude and condensate, an energy ministry official said Tuesday.
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Register NowThe freight incentive scheme was supposed to have been terminated at the end of last year as the country's dependence on Middle Eastern crude oil has been easing, while imports from the US, Kazakhstan and other non-OPEC producers rose sharply over the past couple of years.
However, the South Korean government has temporarily postponed the termination date after the US re-imposed economic sanctions on Iran in November last year.
Following Washington's decision to call an end to sanctions waivers for Iranian oil imports as of May 2, Seoul made a final decision to extend freight incentives for three years until the end of 2021, according to the Ministry of Trade, Industry and Energy.
Under the arrangement initially designed to help reduce the country's reliance on Middle Eastern crude, shipments from the Americas, Africa and Europe are entitled to a freight rebate of up to Won 16 ($0.014) per liter for the cost difference between lifting Persian Gulf grades.
"This is a part of government initiatives to help local crude buyers cope with the loss of Iranian supplies ... [The freight rebate] would help local importers diversify crude supply sources," the ministry official said.
MIDDLE EASTERN CRUDE IMPORTS
The sanctions against Tehran, in conjunction with the extended freight incentives scheme, will likely lead to a sharp reduction in South Korea's crude imports from the Middle Eastern market in H2, industry sources said.
Iran had long been a major crude supplier for South Korea, with Asia's fourth biggest oil consumer importing around 12 million barrels/month on average from the Persian Gulf producer over the past decade, accounting for about 10% of Seoul's total refinery feedstock imports.
"The extension of freight incentives is expected to continue reducing the country's heavy reliance on Middle Eastern crude," the official said.
South Korea imported 202.12 million barrels of crude from the Middle East in Q1, which accounted for 72.5% of its total imports of 278.69 million barrels, according to the latest data from the state-run Korea National Oil Corp.
This was down from 77.6% for the same period last year when the country imported 215.05 million barrels from the Middle East, out of total imports of 277.11 million barrels.
The portion of Middle Eastern crude intake has previously exceeded 80% of South Korea's total imports but the ratio has been trending lower in the wake of OPEC's commitment to cut production.
In addition, South Korean refiners have been relentlessly diversifying their supply sources over the past few years, ramping up light sweet crude and condensate purchases from the US, Kazakhstan and countries in Africa.
South Korea imported 29.08 million barrels of crude and condensate from the US in Q1, up almost fivefold from 5.85 million barrels received during the same period a year earlier, KNOC data showed.
Imports of Kazakhstan's light sweet CPC Blend crude almost doubled year on year to 15.74 million barrels in the first three months this year.
-- Charles Lee, newsdesk@spglobal.com
-- Gawoon Philip Vahn, philip.vahn@spglobal.com
-- Edited by Claudia Carpenter, claudia.carpenter@spglobal.com