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Factbox: South Korean refiners could help quench North Korea's thirst for fuel

Singapore (Platts)--12 Jun 2018 238 am EDT/638 GMT


The fast warming relationship between North Korea and the US as well as Pyongyang's looming rapprochement with South Korea could speed up the inter-Korean economic projects later this year, possibly providing major refiners in the South with an opportunity to supply crude and refined oil products to the North.

The positive outcome from the historical US-North Korea summit in Singapore Tuesday, with leaders Donald Trump and Kim Jong Un exchanging warm, progressive and conciliatory rhetoric, has boosted hopes for a gradual relaxation of international sanctions on Pyongyang. This would allow the hermit republic to import much needed fuel and export some of its rich minerals.

"We are extremely happy to leave the past behind and move forward ... I would like to express my gratitude to President Trump for making this [historical summit] happen," Kim Jong Un said.

North Korea energy statistics

North Korea has long been suffering from fuel shortages and the energy-starved economy would be keen to import refined petroleum products in the event that the United Nations eases sanctions on Pyongyang, Seoul-based Korea Petroleum Association's managing director Kim Hyun Chul said.

South Korea holds ample crude oil and refined product stockpiles, placing the world's fifth biggest middle distillates exporter in a good position to help fulfill North Korea's fuel needs.

South Korea's crude stockpiles rose 18.4% year on year to 47.71 million barrels as of end-March, according to latest data from state-run Korea National Oil Corp. South Korean stockpiles of oil products had also increased 5.2% year on year to 63.15 million barrels at end-March.

South Korean refiners would be more than keen to venture into the new North Korean market, and help resolve Pyongyang's fuel shortage issue, the KPA's Kim said.

Geopolitical experts and financial market analysts in Seoul noted that North Korean leader Kim Jong Un seemed very determined to make efforts to improve its relationship with Washington as it strived to boost its stagnant economy.

Pyongyang indicated on numerous occasions in the last few weeks that it was more than keen to work with Seoul to put the inter-Korea road and railway projects into practice, a strong gesture that Kim's regime aimed to speed up transport infrastructure projects that would lay the core foundation for oil and commodities trades between the two sides going forward, industry officials in Seoul said.

In this factbox, S&P Global Platts takes a look at the latest known details on North Korea's refining capacity and the country's fuel and power demand estimates.


NORTH KOREAN REFINERIES


Refinery 1: Pongwha Chemical Factory

Location: Sinuiju, North Pyong-an province, near the Northwestern border with China

Overall Capacity: 30,000 b/d

Notes: Built in 1975, Pongwha refinery was designed to receive crude from China's Daqing oil field through an underground pipeline. Pongwha's run rate was estimated at around 33%, given it has received some 50,000 mt/year, or 10,000 b/d, from China over the past years.

Refinery 2: Sungri Chemical Factory

Location: Sonbong in the Rason Special Economic Zone on the northeastern border with Russia. The refinery is 148km south west from Far East Russia's Vladivostok, close to ESPO Blend crude loading port of Kozmino.

Overall Capacity: 40,000 b/d

Ownership: Mongolia's HBOil JSC reportedly acquired a 20% stake in 2013, while the North Korea Oil Exploration Corp International controls 80%.

Notes: Built in 1979, Sungri refinery was designed to receive crude from the Soviet Union through railway or vessels. Sungri was said to have been almost shut in 1990 due to suspension of crude supplies with the collapse of the Soviet Union.

Sources: Korea Energy Economics Institute (KEEI), Korea Trade-Investment Promotion Agency (KOTRA)

Almost all of North Korea's crude imports in the past decade or so were from China, and mostly from the Daqing oil field. Daqing is a medium sweet crude with gravity of API 32.2 and sulfur content of 0.11%.

North Korea has limited technology to crack residue-rich crude grades and the countries two refining complexes have no heavy crude oil upgraders.

Accordingly, the two refineries cannot produce enough light and middle distillate products, such as LPG, gasoline, jet fuel and gasoil.

As a result, in the event that international society decides to relax sanctions on Kim's regime, North Korea will likely be keen to import clean oil products, especially gasoline, gasoil and kerosene, from the South, industry officials and energy sector analysts based in Seoul said.


AUTO FUEL DEMAND


There's no official data on North Korea's auto fuel demand, but close estimates could be made based on data from South Korea's Trade and Transport Ministries showing that the North had around 285,000 vehicles as of 2016.

This could mean that North Korea may need approximately 3.5 million barrels/year of gasoline and diesel alone, based on South Korea's 2.03 million gasoline- or diesel-powered vehicles that consume a total of around 250 million barrels of gasoline and diesel a year, according to Platts' calculation.

North Korean trades


CRUDE OIL IMPORTS


North Korea's annual crude oil imports came in at about 4 million barrels in recent years, mostly coming from China that has been providing some 500,000 mt, or 3.7 million barrels a year, according to data from the Bank of Korea and Statistics.

During 2014-2016, North Korea's crude imports averaged at about 3.89 million barrels, and stood at 4.24 million barrels in 2013, and 3.83 million barrels in 2012.

The North had imported as much as 18.47 million barrels in 1990, and 13.85 million barrels in 1991, but the volume had sharply declined to under 3 million barrels in the late-1990s following the aftermaths of its worst ever economic crisis and less patronages from Russia and China.

North Korea's crude imports had climbed to around 4 million barrels since 2001, driven by the country's economic recovery on the back of support from China, the North's only remaining socialist ally.

North Korea has been relying on China for more than 90% of its total trades over the last decade and Beijing has been aiding North Korea by sending very small volumes of crude oil from the Daqing block through a pipeline, senior Chinese trade sources said previously.

The sole pipeline for crude oil exports in China is some 30 km long and links China's border city of Dandong in Niaoning province with the Pongwha refinery in North Korea. China sends Daqing crude from the Daqing block in Heilongjiang province by train to Dandong.


OIL PRODUCTS, ELECTRICITY


North Korea had received on average of around 4 million barrels/year of crude oil and 4.5 million barrels/year of refined oil products in the past decade or so, according to South Korea's Ministry of Foreign Affairs and Ministry of Trade, Industry and Energy.

However, the UN sanctions (No. 2397) imposed on December 2017 had capped international oil products exports into North Korea at 500,000 barrels/year, though crude exports remained unchanged at 4 million barrels/year.

As a result, North Korea's overall imports of crude and refined oil products could tumble to around 4.5 million barrels/year in 2018, from around 8.5 million barrels/year in the prior years.

Since the collapse of the Soviet block in the early-1990s, North Korea that imported all of its oil requirements had reduced its reliance on liquid fuel, while increasing its focus on abundant coal and hydraulic power instead.

The North has transformed its transportation systems and factories into more electricity intensive. As a result, oil accounted for just 11.8% of North Korea's total energy demand in 2016, with coal at about 43.2% and hydraulic power 32.3%.

In South Korea, oil accounted for 40.1% of its overall energy consumption, with coal at 27.8% and nuclear power at 11.6% in the same year.

-- Gawoon Philip Vahn, Philip.Vahn@spglobal.com
-- Charles Lee, newsdesk@spglobal.com
-- Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com

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