South Korea’s SPR release to buy refiners ample time to find Russian crude alternatives

South Korea’s decision to release more than 4 million barrels of oil from its strategic petroleum reserves would provide local refiners plenty of time to find alternatives for light and medium sweet Russian crudes, with ample shipments of US and African crude expected over the coming trading cycles.

The government plans to release 4.42 million barrels of SPR to help bring down soaring oil prices and cope with any supply disruptions related to the escalating Ukraine-Russia tensions, the Ministry of Trade, Industry and Energy said March 7.
The SPR release volume is more than sufficient as South Korea has been buying on average 3.69 million barrels/month of Russian crude since 2019, feedstock managers at major South Korean refiners told S&P Global Commodity Insights.

“It wasn’t entirely necessary for the state to tap into the SPR because Russian oil makes up a very small portion of South Korea’s overall crude imports… nevertheless, the 4 million barrels of state reserve barrels would more than cover any shortfall in Russian crude intake in the near term and buy us enough time to fix other alternative supply deals,” a crude and condensate trading desk manager at a South Korean refiner said.

Major South Korean refiners including SK Innovation have said the country’s Russian crude imports could potentially come to a halt by May as purchasing Far East Russian sweet crudes ESPO, Sokol and Sakhalin Blend becomes extremely difficult and economically unviable due to surging insurance and shipping costs, on top of the increased legal, financial, administrative and logistical hurdles.

Still, South Korean refiners are not overly worried about the potential shortfall.

Around two additional VLCCs/month of WTI Midland and Eagle Ford crude imports from the US would comfortably make up for any gaps left by faltering Black Sea and Far East Russian crude intake, another feedstock manager at a major South Korean refiner told S&P Global earlier.

South Korea imported 15.09 million barrels of US crude in January, marking the highest ever monthly intake, data from state-run Korea National Oil Corp. showed.

In addition, refiners could pick up odd few cargoes of US Alaskan North Slope crude and Nigerian light sweet grades including Bonny Light to make up for any shortfall in Russian supplies, the feedstock managers at the refiners said.

The world’s fourth-biggest crude importer took 7.3 million barrels from Nigeria in 2021 and 9.3 million barrels in 2020, the KNOC data showed.

SPR update
The government’s decision to release 4.42 million barrels of oil from its SPR is in line with moves by member counties of the International Energy Agency to stabilize the global oil market, the energy ministry said in a statement.

Last week, 31 member nations of the IEA agreed to release 60 million barrels from their SPRs, with mounting concerns over a possible shortfall in global oil supplies and a further spike in prices due to Russia’s recent invasion of Ukraine.
Following consultations among the nations, the volume of SPRs to be released by South Korea was set at 4.42 million barrels, the ministry said.
“The decision aims to seek stability in the energy market both at home and abroad, and to express our solidarity with the US and other member nations by sending a message that energy resources cannot be used as a geopolitical tool,” the ministry said.

After this round of release, the country would still hold strategic reserves of more than the 90 days’ worth recommended by the IEA, which was enough to cope with any disruption crisis, it added.

South Korea had already promised to release 3.17 million barrels of SPRs –- 2.08 million barrels of crude oil and 1.09 million barrels of refined products –- from January until March this year, joining the US-led drive to bring down international crude oil prices and tame consumer inflation.

The ministry refused to disclose how many strategic reserves barrels were left in the country’s tanks. However, given the planned Q1 release of 3.17 million barrels, South Korea is believed to hold 93.83 million barrels currently, which means the country would have 89.41 million barrels after the new release of 4.42 million barrels.
Source: Platts