Oil refiners seek imports from outside Mideast

In the oil industry, all eyes will be on the tanker BW Zambesi this morning when the ship arrives at Yeosu Port in South Jeolla for Korea’s second-largest refiner GS Caltex.

The vessel is carrying about 400,000 barrels of condensate from Texas, a volume that’s just over half of GS Caltex’s daily refining capacity of 775,000 barrels. It’s the first time in 40 years that GS Caltex has imported unrefined oil from the U.S. But industry insiders say that there is a bigger meaning behind the shipment, as Korean oil companies look to diversify their imports of crude away from the Middle East.

Condensate is a hydrocarbon liquid that is considered ultralight oil. From condensate, refiners can extract gasoline or diesel as well as paraxylene, which is used in plastics.

GS Caltex’s import of condensate from the United States comes after the government there eased export regulations in June. The U.S. Congress instated a crude oil export ban in 1975 but the U.S. Department of Commerce ruled in June that condensate is no longer considered crude oil. The department gave permission to two Texas energy companies to sell condensate. Japanese trader Mitsui & Co. bought some of the condensate and GS Caltex, a joint venture between Korean conglomerate GS Group and American oil giant Chevron, purchased the it from Mitsui.

“We can’t say how much we paid for it, but considering transportation fee and other costs, it is cheaper than [condensate from] the Middle East,” said a GS Caltex spokesman.

The local oil industry sees the import of American condensate as one way to minimize Korean refiners’ dependency on Middle East. From the 2012 oil embargo on Iran to recent violence from the jihadist group ISIS, oil supply from the Middle East has come with high risks.

Although SK Innovation’s dependency on crude oil from the Middle East is relatively low compared to other companies, the holding company of SK Group’s energy affiliates, is looking to Africa instead. In the first half of this year, the company imported 11 million barrels of oil from African nations. Now, 7 percent of its total crude imports come from the continent, more than triple last year’s imports.

Even expensive Brent Crude from the North Sea is seeing sales increase following the Korea-European Union Free Trade Agreement (FTA), which abolished the 3 percent tariff on the oil.

S-Oil, the nation’s third-largest refiner, bought 3 million barrels of crude from Europe, accounting for 2.8 percent of its first-half imports. The company imports 88.6 percent of crude from Saudi Arabia because its parent company is Saudi Aramco.

Hyundai Oilbank, a refiner under shipbuilding conglomerate Hyundai Heavy Industries, has benefitted from diversifying its import channels. The company was the only Korean refiner in the black in the second quarter after bringing in some of its crude oil from Southeast Asia and South America.

“Diversifying import channels is a part of the refiners’ effort to obtain crude oil for a cheap price,” said Park Jin-ho, a manager at Korea Petroleum Association. “More local refiners will be looking for new suppliers in order to reduce import and material costs.”

BY LEE HYUN-TAEK [kjoo@joongang.co.kr]