The oil supply chain in South Korea is facing significant disruptions as the Strait of Hormuz and the Red Sea are threatened with blockades. Refineries are grappling with supply shortages and increased transportation costs, prompting them to diversify their sources of crude oil.
According to industry sources, GS Caltex recently imported Venezuelan crude oil, a product that South Korean refiners had avoided for over 20 years due to transportation distance and economic concerns. The urgency of the current supply situation has led to this reconsideration.
South Korea relies heavily on imported oil, with approximately 70% of its crude coming from the Middle East before the outbreak of conflict in the region. A significant portion of this oil passes through the Strait of Hormuz.
With the ongoing conflict, access to oil from major producers like Saudi Arabia, the United Arab Emirates, and Kuwait has become increasingly difficult. Additionally, attacks by Houthi rebels on oil tankers in the Red Sea and a blockade of Saudi vessels have further complicated alternative shipping routes.
As both exits of the Middle Eastern oil supply chain face threats, tankers heading to Asia must now navigate around the Cape of Good Hope via the Suez Canal. This detour can more than double fuel costs and add approximately $1 million in tolls per vessel.
Potential alternative supply sources for South Korean refiners are limited to the United States, the North Sea, and Venezuela. Brent crude from the North Sea is primarily allocated for European demand, making it difficult for South Korean refiners to secure large quantities at competitive prices.
U.S. crude oil is lighter, making it challenging to fully replace Middle Eastern supplies. South Korean refiners, who have focused on processing heavy crude into high-value products, may face operational difficulties if they increase their reliance on U.S. light crude.
Venezuelan heavy crude could help address the limitations of U.S. light crude. By blending the two types of oil, refiners could potentially create a more economically viable supply chain that mitigates the issues stemming from Middle Eastern disruptions.
While S-Oil, which is majority-owned by Aramco, faces restrictions on importing non-Middle Eastern crude, SK Energy and HD Hyundai Oilbank are likely to expand discussions on Venezuelan imports if the risks in the Middle East persist. The results of GS Caltex's refining tests will likely influence the decisions of these two companies.
This conflict has prompted a significant reevaluation of the supply chain structure for South Korean refiners, who have relied on Middle Eastern oil for about 70% of their needs. Even if the Middle East remains a primary supplier, there is an increasing push to enhance the share of non-Middle Eastern crude from sources like the U.S., Canada, and Venezuela to establish a reliable alternative supply network for emergencies.
Kim Tae-hwang, a professor of international trade at Myongji University, stated, "The import of Venezuelan crude oil is not about replacing existing Middle Eastern and U.S. supplies but rather securing a complementary option to prepare for supply chain instability. South Korea possesses the refining technology and facilities to convert heavy and extra-heavy crude into high-value products, making it competitive in this regard."
* This article has been translated by AI.
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