Home' Trinidad and Tobago Guardian : November 6th 2014 Contents BG8 | ENERGY
BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 2014 • WEEK ONE
The 800-mile Trans-Alaska
pipeline snakes it way
across the tundra north of
Fairbanks, Alaska. For
signs of how the US shale
boom is transforming the
global flow of oil, look
halfway across the world
at South Korea. The Asian nation, which relies
on the Middle East for about 86 per cent of
its oil imports, is benefiting as new output
from Texas to North Dakota displaces the
crudes that fed US refineries for decades. South
Korea received this month a shipment of
Alaskan oil for the first time in at least eight
years and may buy more, the importing com-
pany said. The country was one of the first to
receive a cargo of the ultralight US oil known
as condensate after export rules were eased.
The US shale revolution has driven oil output
to the highest in more than three decades,
reducing America s need for overseas purchases
and sinking global prices into a bear market.
South Korea is seeking to reduce its dependence
on Middle East crude just as OPEC s biggest
members discount supplies to protect market
share and Goldman Sachs Group Inc predicts
the group is losing influence.
"The import burden for the US has come
down over the last few years," Virendra
Chauhan, a London-based analyst at Energy
Aspects Ltd, said by phone October 29. "A lot
more crudes have become available to flow
east into countries such as Korea."
South Korea, which imports about 97 per
cent of the supplies used to satisfy its energy
needs, receives more than a third of its oil from
Saudi Arabia, the world s biggest crude exporter
and the largest member in the Organisation
of Petroleum Exporting Countries.
Its purchases from other OPEC members
are declining. Crude imports from Iran fell to
four million barrels last month, 27 per cent
below the five-year average, according to data
from Korea National Oil Corp. compiled by
Bloomberg. Libyan supplies declined 55 per
cent last month from August, while shipments
from Iraq dropped by 16 per cent.
"The need for diversifying supplies grew
more than ever as the Middle East turned into
a region full of instabilities," Oh Sae Sin, an
associate research fellow at Korea Energy Eco-
nomics Institute, a government-funded
researcher, said by phone on October 27. "South
Korea is laying the groundwork for a relation-
ship with the U.S."
The Middle East and North Africa, home
to eight OPEC members, have been rife with
political instability and potential threats to oil
supplies since 2011. Libyan leader Muammar
Qaddafi was ousted and an uprising against
Syrian leader Bashar al-Assad began in that
year. In 2014, Islamic State militants routed
the Iraqi army in the north, raising concern
they were a danger to oil fields in the country s
The US imported 7.6 million barrels a day
in July, 9.7 per cent below the five-year average,
according to the Energy Department. The
country will export more energy than it imports
by 2025, Wood Mackenzie Ltd. said this month.
As shipments from traditional suppliers
shrink, crudes from the Americas and Africa
are making their way to South Korea. Bogota,
Colombia-based Ecopetrol SA sold its first
cargo of Castilla Blend crude to South Korea
this month and the country s refiners this year
imported the first Ecuadorean oil since at least
Starting next year South Korean refiners can
receive a tax rebate of as much as 16 won (2
cents) per liter (0.26 gallon) of refined fuel
sold domestically derived from non-Middle
East crude, according to the Petroleum and
Petroleum-Alternative Business Act signed
into law in September by President Park Geun
"South Korean refiners are testing different
crudes to cut their expenses as their profits
are suffering," Lee Chung Jae, an analyst at
KTB Securities Company in Seoul, said by
phone on October 28. "Refiners will need to
figure out if the subsidies they get will take
away the additional costs they needed to pay
to get crude from outside the Middle East."
The US Commerce Department in June
opened the door to more US oil exports as
long as the crude is lightly processed, tempering
the impact of a law that s banned most overseas
petroleum shipments for the last four decades.
Condensates have been abundant in shale for-
mations during the drilling boom, leading to
oversupply on the US Gulf Coast.
SK Innovation Company, South Korea s
largest refiner, bought 400,000 barrels of the
US condensate for delivery next month from
Mitsui & Company and is seeking to purchase
more, a company official said on October 2.
"Companies need to get qualified products,"
Kim Seung Woo, a senior analyst at Samsung
Securities Company, said by phone on October
28. "But as long as the prices are right and
there s a guarantee that companies are getting
the products they need, they will want to diver-
sify supplies to reduce risks."
GS Caltex Corp, which unloaded 800,000
barrels of Alaskan North Slope crude this
month is considering whether to buy more of
the grade, according to a company official. US
West refineries, traditional buyers of Alaskan
oil, are turning to other North American crudes.
To defend market share, Arab producers are
cutting prices instead of reducing output
because their ability to influence the value of
benchmark crudes is waning as US shale pro-
duction boosts global supplies, according to
Goldman Sachs. The bank cut forecasts for
Brent and West Texas Intermediate last week,
saying a decline in benchmark US prices would
need to fall to US$75 a barrel to slow the growth
State-owned Saudi Arabian Oil Company,
the largest crude exporter, on October 1 cut
its Arab Light price differential for shipments
to Asia to the lowest since December 2008.
The company holds the largest stake in S-Oil
Corp, South Korea s third-largest oil refiner.
The joint venture helps ensure a market for
Saudi oil and limits the amount of new crudes
and suppliers refiners can choose from, Ehsan
Ul-Haq, a senior market consultant at KBC
Energy Economics in Walton-on-Thames, Eng-
land, said by phone on October 27.
The hunt for more oil suppliers goes on.
Crude may flow from Canada to South Korea
after the two signed a free-trade agreement
in September that removed a three per cent
import duty on oil. JBC Energy GmbH said
last month the Asian nation s refiners were
beginning to show interest in Canadian grades.
"It is because of huge demand for crude in
Korea," International Energy Agency executive
director Maria van der Hoeven said October
27 in Singapore. "They would like to diversify
their sources and that s a very legitimate wish."
Shale boom redraws oil routes
as Alaskans ship to Korea
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