Gov’t refines its oil hub ambitions

The government yesterday unveiled a 2 trillion won ($1.9 billion) plan to make Korea the oil trade hub of Northeast Asia.

“The project will transform Korea into one of the four major oil trade hubs along with the United States, Northern Europe and Singapore,” said Kim Jun-dong, deputy minister of the energy and resources policy department at the Ministry of Trade, Industry and Energy.

As part of President Park Geun-hye’s campaign platform in the 2012 election, the plan was confirmed by the inter-ministerial trade and investment promotion committee meeting held at the Blue House.

As part of the strategy, the government will first invest about 2 trillion won in two new terminals in Ulsan that, when added to the existing terminal in Yeosu, will bring the total capacity of the three terminals to 36.6 million barrels. That is the equivalent of 7 percent of annual oil consumption of Korea, China and Japan. The government will also offer oil storage of 20 million barrels to private companies.

The total storage capacity of 56.6 million barrels would make Korea the world’s third-largest oil hub after the United States (109.6 million barrels) and the Northern European hubs in Belgium and the Netherlands (87.4 million barrels).

The Yeosu terminal started operating in March last year. One Ulsan terminal is under construction and is expected to be finished by 2016 and the second one is scheduled for completion in 2020.

In addition to beefing up storage capacity, the government will streamline the tax process. Currently, companies pay tax on all oil stored in the country and must submit paperwork to receive a refund on the amount that is eventually exported. The plan will tax only oil that stays in Korea.

Also, processing can be done only with oil for export, but the plan gradually allows processing for domestic use.

In the past, foreign oil ships had to report to the government 40 days prior to entering Korea. That will be cut to 20 days.

Another crucial part of the plan is the construction of oil-trade infrastructure.

Due to a shortage of oil traders, the government will make it easier for small foreign traders to be incorporated by reducing capacity requirements and offering tax incentives. New companies will be exempt from the 20 percent corporate tax for five years and, thereafter, will pay a rate of 10 percent. The government will also not tax foreign investment in new companies this year.

Under the plan announced yesterday, the government will pitch Korea branch offices to international oil price assessment companies like Platts and Argus and establish an oil futures exchange in 2016.

Asia is the world’s second-largest oil market, consuming 33 million barrels per day in 2013, just 1 million less than the North America continent. Europe used 16 million barrels per day and the Middle East 8 million during the same period.

Northeast Asia’s oil demand has been steadily increasing. While Korea consumed 2.5 million barrels per day in 2012, Chinese market used 10.2 million barrels a day and Japanese 4.7 million barrels.

According to a study by Boston Consulting Group last month, Korea will see an economic benefit of as much as 60 trillion won from the construction and management of the facilities in the government’s plan. As a service provider, the country will generate annual oil exports of about $25 billion annually.

The government says the location of Korea is more suitable for a hub than Japan and China, which saves shipping fees and port charges. The shipping fee to Korea is $1.37 per barrel, compared to $1.38 for China and $1.43 for Japan. Korea’s port charge is $20,157 per 50,000 tons of oil, compared to $32,882 in China and 35,501 in Japan.

The government also cited Korea’s refining technology and lower fees. Korea charges $2.33 per barrel for refining compared to China’s $6.12 and Japan’s $3.12.

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]