S. Korea extends crude oil swap system to July amid Middle East crisis

SEOUL, April 30 (Yonhap) -- The government is considering extending its crude oil swap system with private firms, introduced to stabilize the domestic fuel supply, until July amid persisting demand from the corporate side, an industry ministry official said Thursday.

Yang Ghi-wuk, deputy minister for trade, industry and resource security, made the remarks in a regular briefing on South Korea's energy supply amid the Middle Eastern crisis.

"We have decided to extend the strategic oil stockpile swap system until June, and are reviewing extending the scheme to July," Yang told reporters, noting that the government may operate the system for a longer period of time if corporate demand continues.

Under the system introduced this month, the government is lending some of the crude stockpiles from its oil reserves, mostly Middle Eastern crude, to oil refineries and will later restore the stock with alternative supplies secured by the companies.

The system was initially set for a two-month operation until the end of May.

Regarding South Korea's pledge to release 22.46 million barrels of oil from its reserves as part of an agreement among International Energy Agency (IEA) members, Yang said the government will first check whether companies need the oil release with the swap system in place.

Last month, Seoul agreed to make the crude stock release by June 9 under a collective action by IEA member nations in a bid to stabilize the global oil market amid persisting conflict in the Middle East.

On the status of supplies of naphtha, a key industrial feedstock used across various industries, the deputy minister said the United States has become the largest exporter of naphtha to South Korea following the outbreak of the Iran conflict.

South Korea currently imports the biggest share, or 24.7 percent, of naphtha from the U.S., with imports from India, Algeria, the United Arab Emirates (UAE) and Greece following at 23.2 percent, 14.5 percent, 10.2 percent and 4.5 percent, respectively, according to the Ministry of Trade, Industry and Resources.

Before the war between the U.S. and Iran broke out in late February, the U.S. ranked seventh in terms of South Korea's naphtha imports, with the UAE in the top spot, Algeria at No. 2, Qatar at No. 3, Kuwait at No. 4 and India at No. 5.

"The U.S. has emerged as the largest import source because it was easier to secure supplies from the country in terms of availability," Yang said.

Asked whether this signals a fundamental shift in Korea's naphtha supply chain, Yang took a cautious stance, saying it is still too early to determine a structural change as the naphtha market is highly sensitive to prices.

Yang said domestic supplies of naphtha, an industrial feedstock widely used across the petrochemical and other industries, will likely stabilize next month in light of continued efforts for import diversification and policy support measures.

South Korea is expected to secure up to 90 percent of its pre-Iran war naphtha supplies for May, with major petrochemical companies here expanding their plant operations in line with inbound supplies, according to the ministry.

"The equivalent volume of naphtha contracts signed over the entire month of March was matched within just half a month in April," Yang said, adding that Seoul has also been importing a significant amount of basic petrochemical feedstock from China.