A combination of low prices and extreme weather has seen South Korea's demand for fuel oil, locally known as Bunker-C, rise by almost 40% to 27.91 million barrels in the first seven months of 2016.
And with the heat wave showing no signs of abating, it is likely that demand for the fuel, which has fallen out of favor in other top Asian oil consumers such as China and Japan, will continue to remain strong in South Korea.
Apparent demand for fuel oil in China fell nearly 21% year on year to an average 749,000 b/d over January-July 2016, and Japan's demand fell 23% to an average 242,139 b/d in the same period, latest data from S&P Global Platts and Japan's Ministry of Economic, Trade and Industry showed.
But South Korea's fuel oil demand in July nearly doubled to 3.81 million barrels from 1.95 million barrels a year earlier, led by a heat wave that has swept the country, according to data from state-run Korea National Oil Corp.
Fuel oil demand for power generation, which has accounted for nearly half of the country's total fuel oil demand, soared more than 10 times to 1.56 million barrels in July, from 153,000 barrels a year earlier, KNOC's data showed.
According to KNOC, the proportion of Bunker-C in total feedstock for power generation has steadily increased to 10% in June from 4.3% a year earlier.
"As South Korea has been suffering from scorching heat in August and temperatures for September are forecast to be higher than usual, the country's Bunker-C oil demand for power plants is expected to stay strong for the time being," a KNOC official said.
GROWING USE
South Korean power utilities use nuclear and coal-fired power plants for base load power generation.
As power demand grows, power plants turn to using more expensive feedstocks such as Bunker-C oil and natural gas to meet peak demand. Bunker-C demand for power generation stood at 12.5 million barrels over January-July compared with 6 million barrels in the same period last year, according to KNOC data.
The stronger demand for Bunker-C fuel can also be attributed to low domestic prices.
According to KNOC, Bunker-C prices averaged Won 491/liter ($0.44/liter) in the first seven months of 2016 compared with Won 645/liter in the same period last year and Won 933/liter over January-July 2014.
"With Bunker-C fuel prices falling, many local factories have switched from natural gas to fuel oil, which also contributed to strong demand for Bunker-C oil," the KNOC official said.
South Korea's LNG sales have dropped 2.8% year on year to 16.75 million mt in H1 2016, data from Korea Gas Corp. showed.
TOP SUPPLIERS
The country's fuel oil demand which reached as much as 160.37 million barrels in 1997 had long been on the decrease due to environmental regulations and relatively high prices.
Fuel oil demand fell 29% year on year to 31.09 million barrels in 2014 after sliding 15.2% to 43.79 million barrels in 2013.
The 2014 consumption of 31.09 million barrels was the smallest yearly volume of fuel oil consumed in the country.
South Korea's fuel oil demand recovered to grow 15.5% to 35.91 million barrels in 2015 on lower prices in line with the plunge in crude oil prices in late 2014.
As demand has grown, South Korea's fuel oil imports have also risen.
The country imported 30.41 million barrels of fuel oil over January-July 2016, up 39% year on year.
Fuel oil exports rose 6.3% year on year to 5.89 million barrels in the period.
Malaysia and Singapore have accounted for a bulk of South Korea's fuel oil supplies.
Malaysia supplied 15.72 million barrels to South Korea over January-July 2016, double compared with 7.5 million barrels supplied in the same period the previous year.
Singapore supplied 11.67 million barrels, also more than double compared with 4.58 million barrels supplied over January-July 2015.
