Japanese diesel quietly expands its market share

While the price competition among local gas stations has been getting tougher since the second half of last year, Japanese diesel is expanding its market share in Korea without fanfare.

According to an analysis by Petronet, an agency operated by the Korea National Oil Corporation that provides information on domestic and international oil prices, the number of barrels of Japanese diesel imported in 2010 was just 756,000, skyrocketing to 4.65 million as of last November.

The report said the market share of Japanese diesel in the country increased from 2.6 percent in 2010 to 8.1 percent last year.

The JoongAng Ilbo exclusively obtained the document and found that the government has had a hand in the expansion of Japanese diesel, which critics say is inferior in quality to Korean diesel.

“About 95 to 97 percent of imported diesel is from Japan,” said a source who requested anonymity. “One of the reasons that the country is importing Japanese diesel is because the logistical cost is relatively low. The overall product quality and competitiveness of Korean diesel is much better than Japanese, and that is why insiders in the industry are blaming the government for losing its market share because of a bad policy.”

The price competitiveness of Japanese diesel in the country has been strengthening in the past few years thanks to subsidies given by the Korean government.

Since July 2012, the government has allowed electronic commerce for crude as part of its plans to lower oil prices. For every liter transacted through e-commerce, the government offered 16 won ($0.01) in tax benefits.

As the policy was criticized by Korean industry insiders, the government halved the benefit from July last year, but about 7.9 billion won in tax benefits was still given to Japanese diesel importers in the second half.

Japanese diesel importers have received 31.5 billion won in tax benefits since the e-commerce policy was launched in 2012.

Diesel is one of the best-selling types of crude for Korean companies. Last year, Korean oil refineries produced 314.5 million barrels of diesel, of which 174.14 were exported.

From this number, 59.75 million barrels were sold to Japan, the third-largest country Korea exports diesel to.

The reason Korea exports so much diesel is because it has strong global competitiveness in this area. Most oil-refining facilities in Korea are larger than those in Japan, and the bigger the
facility, the higher the profits generated.

One reason Korean diesel is considered a better product than its Japanese counterpart is because the standard for the cold filter plugging point (CFPP) in Korea is minus 18 degrees Celsius (minus 0.4 degrees Fahrenheit).

The CFPP is the lowest temperature at which diesel can still pass through a specific filter in a certain amount of time when it is cooled.

Most Korean oil-refining companies produce diesel that can even endure under minus 23 degrees Celsius in order to prevent any potential engine breakage and malfunctions in cold temperatures.

But most Japanese products barely pass the standard.

In order to lower the CFPP, several chemical substances such as WAFI need to be added, increasing production costs.

“If a product passes the CFPP standard, not many problems occur,” said a spokesman of Korea Petroleum Quality the Distribution Authority. “But it could be a problem in cold regions like Gangwon, where it sometimes falls below the standard. An engine malfunction might occur.”

An additional problem is that there is no way for consumers to know whether they are buying Japanese or Korean oil because the government abolished the pole sign rule, which informs what kind of oil is being sold at a station, in 2008.

BY LEE SOO-KI [sakwon80@joongang.co.kr]