As forecasts emerge that U.S. airstrikes on Iran could disrupt supplies of Middle Eastern crude oil and liquefied natural gas (LNG), attention is also turning to when the government might release strategic petroleum reserves.
The refining industry believes the government may release strategic reserves if the war drags on for more than four weeks. The release of strategic reserves held by the Korea National Oil Corporation (KNOC) is carried out at the decision of the Ministry of Trade, Industry and Resources and is supplied to the four domestic refiners.
Beyond receiving government strategic reserves, the refining industry is also considering buying crude on the spot market, where delivery occurs over a short period.
For LNG, the Middle East accounts for a little over 20% of total imports, a relatively small share, so many expect no major supply disruptions for now.
On the 4th, according to the government and the refining industry, the release of strategic reserves is conducted under the Petroleum and Alternative Fuels Business Act. There are three main types of strategic reserve releases: emergency lending requested by refiners, policy lending carried out at the government's discretion, and emergency lending to stabilize supplies due to external situations such as U.S. airstrikes on Iran.
Strategic reserve releases proceed as physical lending. The Ministry of Trade, Industry and Resources decides the volume and timing of the release and lends refiners crude or refined petroleum products. The lending volume is determined by considering each refiner's daily crude processing capacity and the amount of supply disrupted.
Refiners return the borrowed crude or refined petroleum to the government within 60 days to one year. If strategic reserves are released due to U.S. airstrikes on Iran, refiners must return the lent volumes within one year.
The government decided to release strategic reserves five times over the 32 years from 1990 to 2022.
From Aug. 1990 to Nov. 1991, during the Gulf War, 4.94 million barrels were released. From Sept. 2005 to Sept. 2006, when Hurricane Katrina struck the southeastern United States, 2.92 million barrels were released. From July 2011 to June 2012, during the Libya crisis, 3.47 million barrels were supplied to the market.
There was also a case where strategic reserves were released at the request of the U.S. government. As international oil prices rose when oil-producing countries refused to increase output amid a surge in crude demand caused by COVID-19, the Joe Biden U.S. administration asked Korea, Japan and China to conduct a joint release of reserves to stabilize prices. At that time, 3.2 million barrels were released between Jan. 2022 and Mar. 2023.
The most recent release of strategic reserves was due to Russia's invasion of Ukraine. Between Mar. 2022 and Aug. 2023, 11.65 million barrels of strategic reserves were released.
According to the Korea National Oil Corporation (KNOC), the government's oil reserves amount to 100 million barrels. KNOC has nine storage bases in Yeosu, Geoje, Ulsan and Seosan, among other locations. Based on International Energy Agency (IEA) standards, the stockpile covers 117 days.
In addition, the energy industry assesses that combining the inventories of the four refiners would allow Korea to hold out for about 208 days. Under the Petroleum and Alternative Fuels Business Act, the four refiners keep their own inventories for about four to five weeks. Therefore, if U.S. airstrikes on Iran continue for more than four weeks, a release of strategic reserves is likely.
A refining industry official said, "It takes three to four weeks to ship Middle Eastern crude if it goes through the Strait of Hormuz," adding, "With the strait effectively blocked as it is now, a release of strategic reserves will begin when the volumes stockpiled by private refiners are exhausted." The official added, "In the past, releases also began about four weeks after a situation erupted."
An official at a refiner said, "Refiners complete crude purchases three months in advance and usually hold two months of reserves," adding, "If the war between the United States and Iran ends within a month, there will be no crude supply issues, but if it turns into a prolonged war, we will likely have to buy crude on the spot market."
Another refiner official also said, "Even if strategic reserves are released due to a prolonged war, they will not give us everything we need at once," adding, "If the war continues for more than a month, we will have to reduce operating rates or secure crude from regions outside the Middle East."
The official added, "Even for Middle Eastern crude, we are checking whether it is possible to load at ports that can pass through the Red Sea rather than the Arabian Sea via the Strait of Hormuz."
There are no officially disclosed figures for LNG reserves held by the Korea Gas Corporation (KOGAS). Given the characteristics of the natural gas market, if reserve volumes are disclosed, selling countries may raise prices.
However, KOGAS is liquefying natural gas at minus 162 degrees and storing it in special facilities at the Incheon, Pyeongtaek, Tongyeong, Samcheok and Jeju bases. The storage level is known to be not at a level that would cause immediate problems.
According to tariff service data, as of 2024, LNG imported into Korea totals 40 million to 45 million tons, of which KOGAS imports around 35 million tons. The rest is imported by private direct importers. In particular, LNG that KOGAS imports from the Middle East is around 20% of the total, so it is expected to be less affected by Iran's threat to close the Strait of Hormuz.
According to KOGAS, as of last year, Qatari LNG accounted for 14.91% of the total, Oman 4.11% and the United Arab Emirates 0.53%, bringing LNG imported from the Middle East to 19.55% of the total.
A KOGAS official said, "About 20% of volumes pass through the Strait of Hormuz, and LNG imported from other countries arrives every day," adding, "We also have equity investments in Australia and Canada, so there will be no major impact on LNG supply."
Meanwhile, according to the Korea International Trade Association, Korea brings in 70.7% of its crude oil and 20.4% of its LNG from the Middle East. Most Middle Eastern crude and LNG pass through the Strait of Hormuz before entering Korea.