The Korean government has decided to expand joint crude oil stockpiling programs with Middle Eastern countries as the prolonged Strait of Hormuz blockade continues to disrupt crude oil and naphtha supplies. The move aligns Korea's need to quickly secure alternative oil supplies with oil-producing nations' interest in establishing reserve bases in Korea, which boasts world-class refining facilities. The government plans to strengthen cooperation with Middle Eastern countries while raising domestic naphtha plant utilization rates to 70% to stabilize supply chains.
"With the Strait of Hormuz blocked for more than 40 days, many Middle Eastern countries including Saudi Arabia and the United Arab Emirates are considering using offshore oil reserve bases," Yang Ki-wook, Director General for Industrial Resources Security at the Ministry of Trade, Industry and Energy, said at a daily briefing of the Middle East War Response Headquarters on the 14th. "We are in discussions with countries other than the UAE, which has already been reported."
The international joint stockpiling program stores oil from producing countries at idle reserve facilities of the Korea National Oil Corporation. The arrangement provides rental income during normal times and gives the Korean government priority purchasing rights to these supplies during supply crises.
Middle Eastern countries are showing interest in the joint stockpiling program because geopolitical risks such as the Strait of Hormuz blockade keep recurring. For Middle Eastern nations whose primary exports are crude oil, storing some oil outside the strait can reduce risks from emergencies such as blockades. "Oil-exporting countries like Saudi Arabia, the UAE, and Kuwait would be hit harder than Korea if the Strait of Hormuz is blocked," Yang said. "More countries want to use Korea's reserve bases."
The oil reserve sharing program with producing countries has also helped Korea quickly secure alternative supplies. "Joint stockpiling was not a condition for securing alternative supplies, but it is true that counterpart countries made such requests," Yang said. "In the case of the UAE in particular, I believe the joint stockpiling program helped in securing alternative crude supplies."
In fact, of the 6 million barrels of crude oil secured from the UAE on the 6th of last month, shortly after the Middle East war broke out, 2 million barrels were UAE international joint stockpile reserves stored domestically. "While jointly stockpiled supplies would not count as Korea's reserves, domestic refiners have demand for those reserves, so there would be an effect of substantially expanding domestic stockpiles," Yang added.
The government plans to allocate 3 billion won from the supplementary budget for oil reserve base repairs and expand facilities to store an additional 20 million barrels. Current capacity allows stockpiling up to 140 million barrels, and the government aims to increase this further. The supplementary budget also includes 155.4 billion won to purchase an additional 1.04 million barrels of reserve oil. "We have secured approximately 118 million barrels of alternative crude through May," Yang said. "Refiners are working to quickly secure supplies for June as well."
The government also plans to strengthen efforts to secure naphtha, which has faced domestic supply disruptions. First, the government decided to raise the utilization rate of naphtha cracking centers (NCCs) at domestic petrochemical companies from 55%, where it fell briefly last month after the war, to 70%. "NCC utilization was around 80% last year, so basically we plan to raise it to pre-March levels as much as possible," Yang said. "However, since domestic naphtha supply has fallen more than 10% compared to normal times, we will secure additional supplies through imports." The government plans to allocate 674.4 billion won in supplementary budget to subsidize 50% of the increased naphtha import costs for petrochemical companies.
Domestic supply chain management will also be strengthened. "We will implement anti-hoarding measures and emergency supply adjustment measures for basic feedstocks including ethylene, propylene, butadiene, benzene, toluene, and xylene within this week," Yang said. The government explained that downstream products such as polypropylene (PP) and polyethylene (PE) have such a wide range of uses and producers that controlling entire products is difficult, so it has targeted basic feedstocks for management.
