In the wake of new sanctions against Iran, South Korean refineries are struggling to find alternative sources of condensate supply to replace the sizeable volume previously imported from Iran. The ultra-light oil is prized by the country’s refiners as an essential raw material for its petrochemicals industry. The hidden cost of substituting for US condensate will not be small and Seoul must encourage its conservative oil refineries to be open to diversifying supply sources.
According to the US Energy Information Administration, in 2017 South Korea imported approximately 3 million barrels per day (mb/d) of crude oil and condensate, making it the fifth-largest importer in the world. South Korea also consumed 2.7 mb/d of petroleum and other liquids. Three of the 10 largest crude oil refineries in the world are located in South Korea, making it one of Asia’s largest petroleum product exporters. Due to its domestic oil production capacity, South Korea is highly dependent on the Middle East’s oil supply and the region accounted for more than 82 per cent of South Korea’s 2017 crude oil imports.
To comply with US sanctions, South Korea had to adjust its crude oil import volume. Crude oil imports from Iran were reduced from 10 per cent in 2011 to 4 per cent by 2015. South Korea’s lost imports from Iran were replaced by Russia and Middle Eastern suppliers such as Iraq, Qatar and the United Arab Emirates.
When sanctions on Iran were lifted in 2016, South Korea began increasing shipments of condensate again. Iranian crude oil and condensate rebounded to 12 per cent of South Korea’s imports by 2017. But South Korea was forced to reduce its imports from Iran again during the first half of 2018, partly because Iranian production temporarily declined. South Korea has no choice but to seek alternative sources of global condensates as feedstock for its condensate splitters and petrochemical industry.
In May 2019, the United States halted oil sanction waivers for countries — including major customers in China, India, South Korea and Japan — that had been allowed to buy Iranian barrels despite the US ban on exports. As a result, Iran’s oil exports have fallen sharply from nearly 2 mb/d in March to as low as 0.4 mb/d in May, the bulk of which is heading to Asia.