New underground storage facility adds 10 million barrels of capacity
Private sector advises to wait for oil prices to cool before adding new stocks
Refiners say SPR should only be used in state emergencies
South Korea recently increased its national crude oil reserve capacity to nearly 150 million barrels after the completion of a new underground storage facility, but participants from the country’s refining industry said on the 26th. November that Seoul is expected to wait for lower oil prices before adding new inventories.
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The Ministry of Commerce, Industry and Energy and the state-run Korea National Oil Corp, or KNOC, recently completed construction of a new underground crude oil storage facility in Ulsan, located on the south-eastern coast of the country.
The new storage facility can hold 10.3 million barrels of crude, bringing the total storage capacity of the country’s strategic reserves to 146 million barrels, a senior Energy Ministry official said.
South Korea currently holds 96.01 million barrels of strategic reserves, or 82.43 million barrels of crude and 13.58 million barrels of petroleum products, equivalent to about 106 days of domestic demand, according to the recommendations of the International Energy Agency, according to the ministry and the KNOC.
The country’s private sector currently holds a combined total of around 103.11 million barrels – 38.9 million barrels of crude and 64.21 million barrels of petroleum products – allowing South Korea to go 200 days without import of oil in case of emergency.
The new storage tanks managed by KNOC will help boost South Korea’s energy security, the energy ministry official said. The oil storage facility is particularly important as South Korea, the world’s fifth-largest importer of crude, has to import all of its crude oil needs from abroad, he added.
Of the total, 116 million barrels, or 80% of the state’s total storage capacity, are tunnel-like underground facilities, which are safer and more environmental, according to the ministry. With the addition of the new underground storage facility, KNOC now manages a total of nine state-run storage bases.
Not ideal for adding new inventory now
Given high crude oil prices and the shift in market structure, the government should ideally wait for market dynamics to change before considering building up its strategic reserves to maximize the storage economy, crude oil traders. , naphtha and middle distillate in major South Korean markets refiners and petrochemical manufacturers told S&P Global Platts.
“The newly increased capacity could encourage the state to add new stocks to its reserves, but the timing is horrible right now and state officials and policymakers should wait for oil prices to drop or the structure of the market. The market is shifting to contango, ”said an acid crude trade official at a major South Korean refiner.
“Offset is bad omen for storage games… in simple terms, avoid buying high and selling low,” said a condensate trader at Hanwha Total. The spread between first-line and third-line Dubai crude swaps moved into positive territory at 10 cents / bbl in November 2020, and the decline in Dubai’s price structure has persisted so far this year, l The spread was last valued at $ 2.18 / bbl on November 25. , Platts data showed.
A shift in the structure of the crude market represents lower prices for month-to-month futures than the current spot price. Essentially, backlash occurs when market participants expect future prices to be lower than advertised prices, so there is little incentive to store oil for later use.
SPR version is also not an option
Earlier in the week, the Energy Ministry said South Korea would release crude oil from its strategic oil reserve as part of a joint effort with the United States to mitigate rising oil prices. and control consumer inflation. However, Seoul did not provide specific details, including the exact timing and volume of the country’s SPR that would be released.
The country’s private sector, especially major refiners, including SK Innovation and S-Oil, stressed that the state’s SPR should be used during critical events such as drastic supply disruptions due to events. major geopolitics like war, and not for commercial reasons like high prices.
In addition, the country’s private sector holds more oil in reserves than the state, while there is no guarantee that crude in national reserves can immediately supply local refineries as each plant has a configuration of. Very specific feedstock and the required crude specification changes weekly, depending on the plant. the operations managers and engineers of the major refiners.
At the most, South Korea could release around 4% of the country’s SPR, which equates to around 3.8 million barrels, as it has done in the past, a source at the Ministry of Foreign Affairs told Platts. ‘Energy. South Korea took out 3.467 million barrels of its SPR during the Libyan crisis in 2011, which was about 4% of the state’s reserves at the time.