Refiners remain cautious over switch to US crude

A map showing the Strait of Hormuz and a miniature model depicting U.S. President Donald Trump are seen in this March 23 photo. Reuters-Yonhap

U.S. President Donald Trump’s recent call for allies to buy crude from his country instead of the Middle East has been considered economically unfeasible from the perspective of Korean oil refiners.

Although Korea has been reducing its reliance on the Middle East by increasing imports from the United States, which has become the world’s largest oil producer, refiners cite facilities geared toward heavy crude oil and the longer shipping distance as major obstacles to a complete replacement.

“Most Korean refineries are optimized to process heavy crude from the Middle East, though they can blend in some light crude without damaging their facilities,” an official at one of Korea’s major refiners said on condition of anonymity.

“For companies to boost U.S. crude imports, they would need large-scale investments to remodel their plants, but that is an excessive burden under the current oil price cap system, which forces them to sell products at a loss.”

He added that transporting crude from inland or southern U.S. regions is more expensive.

Because very large crude carriers must travel around the Cape of Good Hope instead of using the Pacific route through the narrow Panama Canal, it takes at least 50 more days for U.S. oil to reach Korea compared with shipments from the Middle East.

“If refiners retrofit their plants for U.S. light crude, they would no longer be able to efficiently process heavy crude from the Middle East and would face higher costs,” the official said.

Crude oil pipes and equipment are seen with the U.S. and Texas flags flying nearby, at the Strategic Petroleum Reserve in Freeport, Texas, in this June 2016 photo. Reuters-Yonhap

Even so, the government has accelerated efforts to diversify crude import sources amid a severe oil shortage caused by disruptions in the Strait of Hormuz following the war in Iran.

“The share of U.S. crude in Korea’s total imports is already significant, and it is likely to grow further,” an official from the Ministry of Trade, Industry and Resources said.

Data from the Korea National Oil Corp. showed that U.S. crude accounted for 16.3 percent of Korea’s total imports last year, up sharply from 0.21 percent in 2016. The share of Middle Eastern crude dropped to 69.6 percent from 86 percent during the same period.

While Saudi Aramco-owned S-Oil reportedly remains dependent on Middle Eastern sources, HD Hyundai Oilbank and GS Caltex are mentioned as companies actively securing U.S. crude. SK Energy is also said to be pursuing U.S. oil imports.

“The increase in imports from a particular country is a result of reasonable pricing and economic feasibility,” an HD Hyundai Oilbank official said.

A GS Caltex official emphasized the company’s ongoing efforts to diversify crude origins, noting that light crude from the U.S. and other countries can be refined at its facilities, which are run jointly by Korea’s GS Group and Texas-based Chevron.

Still, both companies remained cautious about the prospect of fully switching to U.S. oil, acknowledging that Korean refineries are fundamentally designed for heavy crude from the Middle East.