South Korea's dependence on Middle Eastern crude grades is expected to grow further in 2017 after rising in 2016, led by strong demand for Iranian condensate and price competitiveness of heavier crude grades from the region.
South Korea made a concerted effort to cut its reliance on Middle Eastern crude and managed to lower their share in the country's overall crude imports to 82.4% in 2015 from 87% in 2011.
But the trend reversed this year, led partly by aggressive efforts by countries such as Saudi Arabia and Kuwait to boost market share and the return of Iran to the world oil markets, and is expected to continue next year.
South Korea's major petrochemical companies and refiners have already secured a minimum of 340,000 b/d of Iranian South Pars condensate for 2017, potentially boosting the country's imports of Iranian oil for next year by at least 21%, S&P Global Platts reported earlier.
South Korea imported an average 296,182 b/d of crude oil and condensate from Iran over the first 11 months of 2016, up 144% from the same period last year.
The jump has been led by a sharp increase in buying from Hyundai Chemical and Hanwha Total Petrochemical for their condensate splitters.
MIDDLE EAST PRODUCERS MAKE EFFORT
Middle East supplies accounted for 86.2% of total imports in the first 11 months of 2016, according to data from state-run Korea National Oil Corp. This marked the highest since 2011 when its share was 87.1%.
"South Korea's crude imports have increased this year from almost all suppliers from the Middle East, resulting in more than 10% rise from a year earlier," a KNOC official said.
"Imports from Iran more than doubled following the lifting of sanctions [in January 2016], while [other] major suppliers such as Saudi Arabia and Kuwait have [worked hard] to [boost] their market share," the official said.
Saudi Arabia's oil minister, Khalid al-Falih visited South Korea in late June, just two months after his appointment, in an apparent bid to court the country's crude oil importers.
Prior to that in May, Kuwait sent a high-profile delegation led by Prime Minister Sheikh Jaber al-Mubarak al-Hamad al-Sabah and Deputy Prime Minister and Acting Oil Minister Anas Khalid al-Saleh to South Korea.
The visits paid off as South Korea's crude oil imports from Saudi Arabia climbed 5.2% year on year over January-November 2016 to 294.97 million barrels.
Import from Kuwait rose 14% to 146.35 million barrels over the same period.
"South Korea's purchase of more Middle East crude was also driven by lower prices," the KNOC official said.
According to KNOC data, South Korea paid an average $40.20/b for Iranian crude over January-November 2016, $35.60/b for Iraqi grades, $40.90/b for Saudi crudes, and $39.20/b for Kuwaiti grades, compared with $42.40/b for Australian barrels and $44.70/b for Russian grades.
Due largely to the price factor, South Korea's imports of Russian crude fell 21.4% year on year to 35.96 million barrels over January-November, and overall imports from Asia, including Russia, fell 32.2% year on year to 65.06 million barrels.
The share of Asian crude in the overall crude imports fell to 6.7% compared with 10.3% a year earlier.
South Korea imported 29.46 million barrels from Africa over January-November, up 27.3% year on year.
The share of African crude climbed to 3% so far this year from 2.5% a year earlier.
US SHALE
The country's crude imports from the US also rose 17.1% year on year to 26.07 million barrels, or 2.7% of its total imports, which was higher than 2.4% a year earlier.
But US imports will be analyzed on a cargo-by-cargo basis, sources close to the refiners said.
South Korea's second-biggest refiner GS Caltex imported 2 million barrels of US Eagle Ford crude over November and December, which marked South Korea's first purchase of American crude -- other than condensate and Alaskan crude -- since Washington lifted a 40-year restriction on crude oil exports late last year.
GS Caltex is not looking to the US as a new strategic supplier, but is monitoring costs and economics on a per cargo basis, sources said. Other refiners also remain cautious about importing American light crude due to prices and shipping costs.
Hyundai Oilbank, which is the only South Korean refiner that can run very heavy, sour crudes such as Basrah Heavy without the need for blending, is focused on procuring heavy grades and is not interested in light sweet crudes. The refiner depends heavily on Middle East crude, mostly from Iran, Iraq and Kuwait, and imports only small volumes from Mexico and Indonesia.
Hyundai Oilbank may consider importing Eagle Ford from the US for the condensate splitter if it can be co-loaded with Mexican Maya, sources said.
It has a term deal with Pemex to import Mexican Maya crude with volumes around 50,000 to 60,000 b/d.
