Record flow of North Sea oil importedAn unprecedented 24 million barrels of North Sea crude have been exported to Korea since December after a free trade agreement with the European Union opened the 16,500-mile (26,500-kilometer) arbitrage trade.
Twelve very large crude carriers (VLCC) have been booked to transport the oil to Korea since mid-December, the most on record over a five-month period, according to tanker reports and ship-tracking data.
The FTA, which started in July 2011, gives Korean refiners a per-barrel discount of about $3 compared to supplies from other countries.
“There has been a significant increase in volumes of North Sea crude being shipped to Asia since December,” Bob Knight, managing director of tankers at London-based Clarkson, the world’s biggest shipbroker, said on Thursday. “The FTA agreement has been one of the contributing factors in this increase.”
The agreement, the world’s second-largest after the U.S., Canada and Mexico pact in 1994, was signed in October 2010 and approved by the EU and Korean lawmakers in February and May last year, respectively. The accord expands their 70 billion-euro ($88 billion) trade relationship by scrapping import duties and other barriers, making 99 percent of commerce duty-free within five years.
Korean refineries have been exempt from a 3 percent import tax on crude imports from the EU as of July 1, according to the deal.
One VLCC typically holds 2 million barrels of crude. Based on current prices, the 3 percent tax benefit would save buyers at least $6 million, enough to pay for a supertanker to transport the oil from Europe to Korea.
“This is how you can defend the arbitrage down to South Korea,” Torbjoern Kjus, senior oil market analyst at DnB NOR ASA in Oslo, said. “Had that FTA not been in place, you probably would not see so much cargo leaving for [Korea].”
Most North Sea oil fields are located offshore of the U.K. and Norway. While Norway is not a member of the EU, it has an FTA with Korea through the European Free Trade Agreement, which comprises Norway, Switzerland, Lichtenstein and Iceland, said Svein Michelsen from Norway’s Foreign Ministry. He added that the accord with Korea includes oil and gas.
About 15 million barrels, or 60 percent of the North Sea crude shipped to Korea from December to May, is Forties blend. This is used to set Dated Brent, the benchmark for more than half of all world oil.