Starting in Apr., the government will implement a "stockpile oil swap system" that lends stockpiled oil to refiners and gets it back when the alternative crude that refiners secure overseas arrives in Korea. With crude supply disrupted by the prolonged Middle East war, the aim is to delay releasing government stockpiles as much as possible while spurring refiners to secure alternative volumes.
Yang Ki-uk, head of the resource security office at the Ministry of Trade, Industry and Energy, said at a briefing of the response headquarters on the Middle East situation on the 31st that "the key is to prevent stockpiled oil from flowing to the private sector and getting locked up for a long period, and to give refiners an incentive to be more proactive in securing alternative volumes."
The stockpile oil swap system swaps government-held stockpiled oil with alternative volumes that refiners secure overseas. For example, a shipment that a refiner loads in Fujairah, United Arab Emirates (UAE), takes about 25 days to reach Korea. During that gap, the government first provides stockpiled oil, and when the alternative crude docks, Korea National Oil Corporation (KNOC) retrieves it to refill the stockpile base.
All four major domestic refiners—SK Energy, GS Caltex, S-Oil, and HD Hyundai Oilbank—took part in a demand survey ahead of the system's launch, and demand for Apr.–May is estimated to exceed 20 million barrels. The operating period is two months, Apr.–May, and it can be extended in one-month increments with approval from the Minister of the Ministry of Trade and Industry (MOTI).
Settlement takes place at the end of the month by adding the price difference between crude grades to the base lending fee. If the crude grade that the refiner repays matches the government's stockpiled crude (from the Middle East), the refiner pays only the lending fee; if the grade differs, the refiner pays the difference between the month's average spot price of Middle Eastern crude and the refiner's actual purchase price. In other words, this is not a structure in which the government subsidizes the import expense. Still, for refiners, the advantage is access to Middle Eastern crude that is hard to obtain in the market even at a premium, and the ability to cover the supply gap of several dozen days until the alternative crude arrives.
Deputy Minister Yang said, "We are lending Middle Eastern crude that corporations cannot bring in—even if they want to pay high market prices, they cannot buy it," adding, "Companies can swap it with products brought from elsewhere to run their facilities more efficiently."
The government says it can manage crude supplies through the end of June by combining this swap system with releases of stockpiled oil under the International Energy Agency (IEA) agreement. Under the IEA agreement, the release obligation deadline is June 9, and the government plans to decide the timing and method of release in consultation with refiners between late Apr. and May.