U.S.-Asia super tanker freight cost $80 million... SK Energy charter attempt failed
Dependence on Middle Eastern crude oil 62.3%... Despite government freight support, replacement procurement costs are burdensome
The domestic oil refining industry, which is trying to reduce its dependence on Middle Eastern crude oil, has been hindered by soaring sea freight rates. The freight rate for ultra-large oil tankers from the U.S. to Asia has risen more than five times since the beginning of the year, and SK Energy failed to secure a vessel even after offering $76 to $77 million. In the process of expanding import lines to regions other than the Middle East, crude oil procurement costs have emerged as a new burden.
According to Reuters on the 12th (local time), ministers of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries announced at a meeting held on the sidelines of the International Energy Forum (IEF) and the World Petroleum Congress (WPC) held in Saudi Arabia that the transportation and insurance costs of crude oil and petroleum products have exceeded one-third of the product value.
Oil-producing countries called for ensuring the safety of maritime transportation routes and pointed out that rising transportation costs are putting a burden on both energy producing and consuming countries and increasing inflationary pressure in the global economy.
Transportation cost per barrel is $40... SK Energy ships are also difficult to secure
According to data from shipping brokerage Simpson, Spence & Young (SSY), the November shipping freight rate for a very large crude oil carrier (VLCC), which transports 2 million barrels of crude oil from the U.S. Gulf of Mexico to China, reached $80 million. Compared to $10 million to $15 million at the beginning of the year, it has increased more than five times, and the transportation cost per barrel is about $40.
Due to navigation disruptions in the Strait of Hormuz, oil tankers were tied up for a long period of time as transhipment operations between ships in the Gulf of Oman to transport crude oil from the Middle East increased. As demand for transporting crude oil from the United States and other regions to Asia increased, the number of available ships further decreased.
SK Energy and Trafigura, a global raw materials trading company, reportedly attempted to charter a VLCC at $76 to $77 million each, but the contract was not concluded. Japanese oil refinery Cosmo Oil tentatively secured a VLCC for $81 million to ship U.S. crude oil in mid-November.
As transportation costs soar to $40 per barrel, the price competitiveness of American crude oil in the Asian market is weakening.
According to June Goh, senior crude oil market analyst at Sparta Commodities, VLCC freight rates on the U.S. Gulf of Mexico-Asia and Fujairah-Eastern routes have risen more than 300% since mid-August. This is due to an increase in transshipment between ships bypassing the Strait of Hormuz and an increase in the transportation of Atlantic crude oil to Asia, resulting in a decrease in the number of available ships.
Dependency on the Middle East 62.3%... Even if you change the import source, transportation costs are burdensome.
According to Korea National Oil Corporation statistics, the share of Middle Eastern crude oil in domestic crude oil imports in the first half of this year was 62.3%, down 6.4 percentage points from 68.7% in the same period last year. Although the diversification of import sources is underway, more than 60% of all crude oil is imported from the Middle East.
Domestic oil refineries are also adjusting their procurement strategies to reduce the proportion of Middle Eastern crude oil. SK Energy has proposed a long-term goal of lowering the proportion of Middle Eastern crude oil imported from the existing 70% to 50%.
Securing crude oil outside the Middle East can reduce dependence on supply disruptions in specific regions. However, when crude oil is imported from the Americas, the transportation distance becomes longer, and additional costs increase significantly during periods of rapid increases in tanker freight rates, such as the recent one. Even if the price of American crude oil is relatively low, the domestic arrival price, including transportation costs, may be more expensive than that of Middle Eastern crude oil.
On September 23, the government re-implemented measures to expand refunds of freight differences for crude oil imported from regions other than the Middle East. The support that was temporarily applied from April to June was re-implemented from September to December, raising the refund limit from approximately 25% to a maximum of 100%. The minimum import volume of 4 million barrels and the requirement for a long-term contract of more than one year were also waived.
Support is provided within the scope of the crude oil import levy paid by oil refineries. This is not a method of compensating the entire cost of crude oil transportation.
In securing crude oil supplies... Burden of prolonged high freight charges
At an emergency inspection meeting on the supply and demand situation of crude oil held by the Ministry of Trade, Industry and Energy on September 14, the oil refining industry announced that it had secured more than 100% of the crude oil import volume in July and August compared to the same period last year, and more than 90% of the volume in September and October.
Long-term transportation contracts signed by domestic oil refineries are partially alleviating the impact of short-term freight rate increases. If a vessel is operated under an existing contract, the recent surge in spot freight rates is not immediately reflected in costs.
The situation changes as the proportion of new charters or spot transportation increases. High freight rates are reflected in actual procurement costs, and there may be differences in profitability for each oil refinery depending on the crude oil import price and petroleum product sales price.
As the burden of transportation costs increases in the process of reducing dependence on Middle Eastern crude oil, the domestic oil refining industry is faced with two challenges: securing a stable supply chain and reducing procurement costs.
