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ANALYSIS: South Korean refiners slash Middle East crudes to chase margins, low-carbon feed

Energia | Petróleo

Platts Global Alert - Oil

ANALYSIS: South Korean refiners slash Middle East crudes to chase margins, low-carbon feed

Destaques

Middle East crude share in Jan-Jul tumbles to 36-year low

Hyundai Oilbank able to efficiently process S American crude

Regular inflow of low-carbon Norwegian crude to continue

The share of Middle Eastern crude in South Korea's 2021 refinery feedstock import basket could fall to the lowest level in more than three decades, as the world's fifth biggest importer favors South American grades for higher margins while local refiners also turn to European suppliers for low-carbon feedstocks.

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In the first seven months of the year, South Korea imported 321.17 million barrels of crude oil from the Middle East, making up 58.8% of total crude imports of 546.28 million barrels over the same period, showed latest data from state-run Korea National Oil Corp.

At such a rate, the share of Middle Eastern supply is on course to hit the lowest ratio since 57% in 1985, according to S&P Global Platts calculation based on the KNOC data. In 2016, the Persian Gulf suppliers' market share was more than 80%.

A sharp increase in South Korea's crude purchases from Central and South Americas, especially Brazil, was one of the main factors behind the loss of Middle Eastern suppliers' market share. This showed that highly sophisticated domestic refineries are capable of processing heavy and extra heavy crude oil at maximum efficiency, thanks to rigorous plant upgrades conducted in the last few years, according to industry sources and market analysts based in Seoul.

Central and South American suppliers export mostly heavy density crude grades to the Far East.

The number of Asian end-users able to process those grades are rather limited as the feedstocks are often difficult to crack, and the heavy crudes yield mostly low value products such as fuel oil, asphalt and bunker fuel, unless blended with much lighter grades, according to crude traders and refinery feedstock managers in Singapore, China, Japan and South Korea.

Still, South Korean refineries' ability to efficiently crack extra heavy crudes into high value and clean fuel products like low sulfur marine gasoil has opened up a new sales avenue for South American suppliers, industry and trade participants said.

Brazil successfully sold its first cargo of heavy sweet crudes, including Buzios and Sururu, to South Korea early in 2020. The South American producer has been selling on average around 2 million b/month to the northeast Asian buyer since then, according to KNOC data and a marketing source at Brazil's state-run Petrobras.

Hyundai Oilbank maximize efficiency

Hyundai Oilbank has been leading by example in terms of maximizing margins and efficiency, as the refiner took full advantage of its state-of-the-art facilities to crack South American heavy crude oil.

Hyundai Oilbank could garner better margins when processing heavy South American crudes than Middle Eastern grades, a company official said.

The refiner operates heavy oil upgraders with a combined capacity of 211,000 b/d, which accounts for 40.6% of its crude distillation unit capacity. This marks the biggest upgrader capacity among South Korean refiners, the official said.

The company had successfully built a solvent deasphalting unit, or SDA, with a capacity of 80,000 b/d in 2018.

Technologies like the SDA are used for upgrading residue. They remove contaminants such as metals, sulfur and nitrogen that cause harmful emissions.

These technologies allow refineries to process larger quantities of heavy, high sulfur, lower priced crudes for a maximum output of cleaner and value added middle distillate products, according to plant operation managers and engineers at South Korea's refining complexes in Ulsan and Daesan.

"Armed with the upgraders, we can use more extra heavy grades, which are cheaper but more difficult to refine," the company official said.

Extra heavy grades have accounted for more than 30% of Hyundai Oilbank's total crude feedstock. The refiner has used around 160,000 b/d of ultra heavy grades so far this year, up from 135,000 b/d averaged in 2020, the official added.

Regular inflow of Norwegian crude

In addition, South Korea is poised to ramp up carbon-neutral crude oil purchases from Norway as major refiners including GS Caltex aim to enhance their environmental, social and governance profiles on the feedstock procurement front.

The country received 6.8 million barrels of crude from Norway during January-July, up almost threefold from 2.5 million barrels in the same period a year earlier.

GS Caltex announced in July that it bought 2 million barrels of Johan Sverdrup crude certified as carbon neutral at the point of production. The shipment is expected to arrive later in September.

The country is poised to regularly receive Norwegian cargoes as GS Caltex President and CEO Hur Sae-hong has said that the refiner strives to reduce its carbon footprint as part of its commitment to good ESG practices.

Other major South Korean refiners and petrochemical makers are also considering picking up low-carbon crude cargoes, including Johan Sverdrup, on a regular basis, according to the refinery sources.

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 will be certified as carbon neutral produced by Intertek, under its CarbonZero standard.