Emergency supply review held as refiners secure 90% of Sept.–Oct. crude needs; Saudi pipeline disruption, $110 Brent add urgency

Saudi pipeline disruption rattles supply chain as international crude briefly hits $110 a barrel

LNG prices surge alongside oil, pushing August wholesale power price benchmark to 147.88 won per kWh

A gas station in Seoul displays fuel prices as international crude oil surpasses $100 a barrel amid escalating geopolitical tensions between the United States and Iran. [Yonhap]
A gas station in Seoul displays fuel prices as international crude oil surpasses $100 a barrel amid escalating geopolitical tensions between the United States and Iran. [Yonhap]

South Korea's domestic crude supply faces no immediate disruption despite rising energy supply chain instability stemming from the escalating US-Iran conflict. The country's refining industry has secured more than 90 percent of its planned crude imports for September and October compared with the same period last year. However, with international oil prices surging past $100 a barrel, the government said it would deploy every available policy tool — including strategic petroleum reserve swaps, alternative shipping route support and expanded freight cost subsidies.

The Ministry of Trade, Industry and Energy convened an emergency crude supply review meeting Monday at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul, chaired by Vice Minister Moon Shin-hak. Officials reviewed the current state of domestic crude supply and oil tanker traffic, and discussed joint public-private response measures.

The government's assessment that short-term supply is stable rests on the refining industry's advance procurement. At the meeting, industry representatives said crude imports for July and August had exceeded year-earlier levels by more than 100 percent, and that volumes for September and October had already been secured at more than 90 percent of last year's levels.

The meeting was called in response to the risk that disruptions to Saudi Arabia's crude transport network — the world's largest oil exporter — could affect South Korea's supply. According to Reuters, drone strikes targeting the Riyadh and Medina regions of Saudi Arabia on Thursday (local time) halted operations on the East-West Pipeline, a critical crude artery.

Saudi crude exports had already fallen sharply. According to maritime data firm Kpler, Saudi crude exports last month dropped to 3.2 million barrels per day, the lowest level in 13 years — less than half the roughly 7 million barrels per day shipped before the war.

International oil prices have surged as a result. According to The New York Times, Brent crude, the international benchmark, briefly spiked to around $110 a barrel on Friday. Dubai crude, the benchmark for oil South Korea primarily imports, rose $14.40 from the previous week to $114.70 a barrel. International gasoline prices climbed $9.90 to $131.20, while international diesel prices rose $5.60 to $170.40.

Changes in international oil prices typically feed through to domestic pump prices with a lag of two to three weeks. To prevent the price surge from passing through to consumer prices, the government has maintained a petroleum product price cap introduced in late February, shortly after the Middle East war broke out.

On Aug. 21, the government set the ninth round of petroleum price caps at the same levels as the eighth round. Current ceilings stand at 1,784 won per liter for gasoline, 1,773 won for diesel and 1,380 won for kerosene. The 10th round of price caps is scheduled to be announced later this month. With international crude again topping $100 a barrel, analysts say an extension of the regime and an increase in the ceiling prices are all but inevitable.

Even with crude procurement on track, the government said it would mobilize its full range of supply chain tools in case the Middle East situation drags on. It plans to continue monitoring whether the Saudi pipeline resumes operations, support a shift to alternative routes such as the Suez Canal, and make active use of the strategic petroleum reserve swap program reinstated on Aug. 24.

"The government, along with the refining and shipping industries, will maintain close communication and thoroughly monitor supply trends to ensure there is no disruption to people's daily lives," Vice Minister Moon said. "In addition to the strategic reserve swap program, we plan to actively coordinate with related ministries to expand freight cost subsidies for supply diversification."

He added that the government would "support our industry in smoothly securing alternative volumes and continue to sustain the current level of crude import diversification."

Separately from crude supply, there are clear signs that rising energy prices are spreading into the electricity market. Surging LNG prices driven by the US-Iran war have pushed up the system marginal price, the benchmark for South Korea's wholesale electricity market. A higher SMP raises revenue for power generators while increasing electricity procurement costs for Korea Electric Power Corporation.

According to the Korea Power Exchange, the peak hourly SMP this year reached 195.43 won per kilowatt-hour at 7 p.m. on Sept. 3. The monthly average land-based SMP climbed from the 102–110 won range early this year to 118–121 won in April and May, before dipping to around 113 won in June, then surging again from July. The July average rose 17.3 percent from the previous month to around 133 won, and August saw a further 11.1 percent increase to 147.88 won. The average for Sept. 1–8 eased slightly to 143.85 won, but remains about 40 percent above the level seen at the start of the year.


oskymoon@heraldcorp.com