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A proposed free trade agreement between Canada and South Korea would remove the current 3% to 8% tariff that Canadian oil and gas producers have to pay for exports into that Asian nation, a Canadian government spokeswoman said Monday.

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Claude Rochon, a spokeswoman with Foreign Affairs and International Trade Canada, said crude oil and LNG exports -- with current duties of 3% -- would become "duty-free immediately" upon implementation of the FTA.

A duty of up to 8% imposed by the South Korean government on imports of Canadian refined products would be removed in stages, she said, noting 96% would be "free" right away with the FTA coming into effect and the remaining 4% over the next five years.


Canada is not known to export large volumes of crude oil to South Korea, but Rochon said the deal would significantly improve market access for the Canadian oil and gas sector in Asia.

"Canada's average annual exports of petroleum products to South Korea between 2011 and 2013 totaled about C$700,000 [$620,000]," she said in an email from Ottawa. "But that market is becoming increasingly important as Canada's energy trade matures."

Significantly, the FTA with South Korea "does not differentiate between different production and extraction methods" of heavy oil, Rochon said, unlike a free trade deal that Canada is pursuing with the European Union, where the latter has spoken of imposing a compliance fee of $6-11/barrel on Canadian heavy oil exports into Europe due to its high greenhouse gas intensity levels.

"Asian buyers are not picky at this time about carbon levels, as energy security and diversity of crude oil supplies is of bigger concern," Gordon Houlden, director of China Institute at the University of Alberta, said Monday, adding South Korea is heavily reliant on the Middle East for its crude oil needs.

"It has been [South Korea's] dream to access Russian oil and gas resources by building pipelines. But the geopolitical uncertainty there is making them look towards North America," Houlden said.

Terming the FTA with South Korea as the first in Asia and one that would serve as a gateway to the wider Asia-Pacific region, Rochon said the deal would provide increased and preferential access for Canadian businesses to South Korea, the fourth-largest economy in that region.

RE-EXPORT THROUGH US GULF COAST

Some South Korean oil and gas majors, like Korea National Oil Corp. and Korea Gas Corp., have already invested in Western Canada.

While KNOC-owned Harvest Operations Corp. is aiming complete the 10,000 b/d first phase development of its BlackGold oil sands facility in Alberta in late 2014, Kogas holds a 15% stake in a grassroots LNG facility planned by Shell in neighboring British Columbia.

The BlackGold facility is 6 miles southeast of Conklin and has 259 million barrels of proved and probable bitumen resources.

"The first choice for [South] Korea will be to take their equity oil from the Canadian Pacific Coast through the planned Northern Gateway pipeline. But another option has also been opened up by Alberta's producers of re-exporting through the US Gulf Coast, utilizing a planned expansion of the Panama Canal," Houlden said.

Meanwhile, the FTA -- which was tabled in the Canadian Parliament on June 12 -- is expected to be signed in the coming months, Rochon said, without setting a deadline.

"When [the Canadian] Prime Minister Stephen Harper and South Korean President Park [Geun-hye] announced the conclusion of the negotiations on March 11, they stated their mutual intention to have the agreement enter into force as soon as possible," she said.

--Ashok Dutta, newsdesk@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com