Korean oil refiners expect benefits from US control of Venezuela
Chinese firms face setback in importing inexpensive crude oil
A man walks past a mural depicting an oil pumpjack on a national flag in Caracas, Venezuela, Jan. 15. AFP-Yonhap
U.S. President Donald Trump’s recent control of Venezuela’s oil revenues after the capture of the South American country's President Nicolas Maduro has turned out to be a boon for Korea’s oil refining industry, rather than a risk to the sector.
As it has become virtually impossible for Chinese companies to secure low-cost crude from Venezuela, refiners here expect the oversupply to ease.
“Once Venezuelan crude is shipped to the United States instead of China and Iran’s crude exports decline, Chinese firms will struggle to source cheap oil,” an S-Oil official said during a recent earnings conference call for last year’s fourth quarter. “That will lower Chinese refiners’ capacity utilization, which will have a positive impact on refining margins across Asia.”
According to industry officials, small Chinese refiners have been importing large amounts of Venezuelan oil through so-called “shadow fleets,” informal tanker fleets that evade international sanctions by turning off tracking systems, changing ship names, transferring oil between vessels at sea and switching national flags.
Venezuelan crude imported by Chinese companies is reportedly up to $20 per barrel cheaper than Dubai crude, on which Korean refiners are heavily reliant.
The U.S. intervention in Venezuela is therefore expected to force Chinese refiners to depend on relatively expensive crude from Russia and the Middle East, increasing their production costs.
“The latest development could disrupt oil procurement for China, the main buyer of Venezuelan crude,” Hana Securities analyst Yoon Jae-sung said.
Immediately after the U.S. raid on Venezuela last month, Korean petroleum firms were initially cautious of potential volatility in global oil prices, although most industry insiders said the impact would likely be limited.
Later, cautious optimism grew that Korean refiners could gain stronger bargaining power against Middle Eastern suppliers once the U.S. begins purchasing Venezuelan crude.
“The Middle East will have no choice but to reduce exports to the U.S. and increase supply to Asia,” Yoon said. “If Venezuelan crude reaches Asia, the market will have more options.”
Still, Korean companies would need to upgrade their refining facilities if they want to process Venezuela’s extra-heavy, viscous crude. Because Korea has not imported Venezuelan oil in more than two decades, local plants are optimized for heavy crude from the Middle East.
Some observers have suggested GS Caltex as the Korean refiner most likely to utilize Venezuelan oil, noting that one of its major shareholders is Chevron, the only U.S. oil company producing crude in the South American nation.
Under a special license from the U.S. government, Chevron produces about 250,000 barrels per day through joint ventures with Venezuela’s state-owned oil company, Petroleos de Venezuela.