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Analysis: COVID-19 comeback, hydrogen push may initiate South Korea's long-term crude import downtrend

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Analysis: COVID-19 comeback, hydrogen push may initiate South Korea's long-term crude import downtrend

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June crude imports rise 7.4% on year for third straight month of increase

But strict movement restrictions could hit Q3 refinery runs, fuel demand

Hydrogen projects may trigger gradual decline in crude imports

South Korea's crude oil imports rose for the third consecutive month in June amid a robust economic recovery, but a new wave of COVID-19 cases could put immediate brakes on the momentum, while refiners' growing focus on hydrogen may kick off a long-term downtrend in crude purchases.

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The world's fifth-biggest crude importer received 80.165 million barrels, or 2.67 million b/d, in June, up 7.4% from 74.659 million barrels a year earlier, showed latest data from state-run Korea National Oil Corp.

The country's refinery feedstock requirements and fuel demand increased in the second quarter as broad economic activity, including manufacturing, construction, goods and services exports and domestic travel, picked up rapidly following the rollout of a nationwide COVID-19 vaccination program in late February.

The Bank of Korea had raised May 27 the country's 2021 economic growth forecast to 4% from a 3% growth projection made in February.

However, the recent spike in infections would likely dampen the country's oil demand in the third quarter and early fourth quarter, potentially leading to low refinery runs and cuts in crude and condensate imports, an official at KNOC said.

South Korea has recorded a surge in infections over the past several weeks, with daily confirmed cases reaching a record high 1,842 on July 22. The Seoul metropolitan area has been under the strictest restrictions of the country's four-tier social distancing system since July 12, placing severe constraints on small businesses and population mobility.

Reflecting the downbeat consumer fuel demand outlook, the country's crude imports in the second half could be capped at 2.5 million b/d compared with 2.59 million b/d imported in the first half, according to feedstock managers at three major South Korean refiners and market research analysts at Korea Petroleum Association surveyed by S&P Global Platts.

In addition, four major refiners SK Energy, Hyundai Oilbank, S-Oil and GS Caltex will gradually shift focus from middle distillate production to clean energy fuels including hydrogen, paving the way for South Korea to slowly but gradually cut back on crude oil imports while raising natural gas purchases over the coming years, refinery officials told Platts.

Earlier this month, Hyundai Oilbank said it plans to reduce its mainstream refining business to 45% of total revenue by 2030 from 85% currently. Hyundai Oilbank has set a goal to produce 100,000 mt/year of blue hydrogen -- produced from fossil fuels with emissions captured -- by 2025.

In May, GS Caltex signed a memorandum of understanding with state-run Korea Gas Corp., or KOGAS, to build a liquid hydrogen factory.

KOGAS and GS Caltex would extract hydrogen from LNG and supply liquid hydrogen to charging stations. It would be the first use of waste cold energy from LNG regasification to liquefy hydrogen, KOGAS had said.

Top June crude suppliers

South Korea's crude imports from top supplier Saudi Arabia dropped 20.6% year on year to 22.911 million barrels in June, including 942,000 barrels from the Saudi-Kuwaiti Neutral Zone. It marks the fourth consecutive month of year-on-year decline since March.

However, the country received 11.377 million barrels from its second biggest supplier US in June, more than double the 5.033 million barrels received in the same month last year, the KNOC data showed.

This marked the biggest monthly US crude shipments since April last year. It also marked the third consecutive month of year-on-year increase after falling for 12 months in a row.

South Korea's crude imports from Kuwait dropped 40.3% year on year to 7.783 million barrels in June, while imports from the UAE also fell 32.2% year on year to 4.495 million barrels last month.

Crude imports from Australia almost doubled to 1.325 million barrels in June, compared with 682,000 barrels in the same month last year. South Korean refiners and petrochemical makers have been making rigorous efforts to secure ample supply of condensate, or ultra-light crude, from Australia and elsewhere to produce polypropylene and polyethylene, which are essential for making general plastic-based medical devices.

South Korea's top 10 crude suppliers:

(Unit: '000 barrels)

Country
Jun-21
Jun-20
Yearly change
May-21
Monthly change
Saudi Arabia
22,911
28,857
-20.6%
23,743
-3.5%
US
11,377
5,033
126%
9,287
22.5%
Kuwait
7,783
13,045
-40.3%
8,427
-7.6%
UAE
4,495
6,630
-32.2%
6,241
-28%
Qatar
4,475
4,279
4.6%
3,336
34.1%
Brazil
3,886
630
516.8%
2,923
32.9%
Iraq
3,872
4,065
-4.7%
4,818
-19.6%
Russia
3,195
2,242
42.5%
4,444
-28.1%
Mexico
2,935
4,876
-39.8%
3,998
-26.6%
Kazakhstan
2,934
1,052
178.9%
2,107
39.3%
Total*
80,165
74,659
7.4%
80,960
-1%
Country
Jan-Jun 2021
Jan-Jun 2020
% Change
Saudi Arabia
134,726
155,613
-13.4%
US
55,205
66,204
-16.6%
Kuwait
52,390
74,926
-30.1%
UAE
31,861
42,007
-24.2%
Iraq
28,630
40,463
-29.2%
Russia
28,132
25,040
12.3%
Mexico
26,604
22,340
19.1%
Qatar
25,364
28,149
-9.9%
Kazakhstan
15,661
8,398
86.5%
UK
13,615
2,057
561.9%
Total*
468,248
498,896
-6.1%

South Korea's oil products exports:

(Unit: '000 barrels)

Product
Jun-21
Jun-20
Yearly change
May-21
Monthly change
Gasoil
14,042
15,842
-11.4%
16,454
-14.7%
Jet Fuel
5,851
5,608
4.3%
6,856
-14.7%
Gasoline
7,032
4,079
72.4%
8,736
-19.5%
Naphtha
2,717
3,918
-30.7%
2,715
0.1%
Bunker C (Fuel Oil)
564
800
-29.5%
824
-31.6%
LPG
325
493
-34.1%
142
-26.6%
Kerosene
237
285
-16.8%
487
-51.3%
Others*
4,702
4,409
6.6%
3,817
23.2%
Total
35,488
35,434
0.2%
40,031
-11.3%
Product
Jan-Jun 2021
Jan-Jun 2020
% Change
Gasoil
87,382
99,649
-12.3%
Jet Fuel
28,821
48,849
-41%
Gasoline
43,606
36,999
17.9%
Naphtha
14,889
20,178
-26.2%
Bunker C (Fuel Oil)
2,701
8,807
-69.3%
LPG
1,485
3,343
-55.6%
Kerosene
4,247
3,444
23.3%
Others*
23,219
25,941
-10.5%
Total
206,260
247,210
-16.6%

*Total include other suppliers

Source: Korea National Oil Corp.

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