IEEJ: October 2005

The Korean Oil Industry
Challenges and Opportunities

Young -Tae Seo
CEO & PRESIDENT

Yonsei Bldg, 8484-11, NamdaemunroNamdaemunro-5Ga,
JungJung-Gu, Seoul, Korea
Tel : 822822-20042004-3000
Fax : 822822-20042004-3333
E-mail : ytseo@kr
ytseo@oilbank.co.
oilbank.co.kr

IEEJ: October 2005

Outline1. Overview of Korean Oil Industry
2. Key Issues and Challenges
3. Key Opportunities
4. Conclusion

IEEJ: October 2005

1. Overview of Korean Oil Industry
Outline of Korean Economy and Oil Industry
GDP (FY 2004)
Nominal GDP
GDP per capita
Growth rate

US$ 680 BN (World ’ s 10th largest economy)
US$ 14,162
4.6 %Crude Oil Import

2,262 MBD
(US$ 29,917 mil, World ’ s 5th largest importer )Product
Consumption
ExportImport

2,064 MBD (World ’ s 6th largest consumer )581 MBD (US$ 10,203 mil)
389 MBD (US$ 6,848 mil)Refining Capacity

2,735 MBD (World ’ s 5th largest capacity)# of Service Stations# of Vehicles

11,000

15 million[MOCIE & KPA, 2005]
3

IEEJ: October 2005

1. Overview of Korean Oil IndustryDomestic Demand vs GDP

Korean economy grew 5+% for the last 5 years
demand for oil products remains the same(%)

no imminent demand escalation is expected

10Demand By Products
GDP Growth Rate

8Product Demand Growth rate

450
400
350

6300

4250200

215002000 2001 2002 2003 2004 2005 2007 2010100
2000-2G/O[MOCIE, FACTSFACTS-Asia/Pacific Energy Demand & Supply, Spring 2005]
42001

B/C

2002

2003

Jet/Kero[Korea Petroleum Association 2005]

2004

2005

GasolineIEEJ: October 2005

1. Overview of Korean Oil Industry

Export/Import Balance(MBD)

300.0

GasolinJet/KeroGasoil
BCNaphExport200.0
100.00.0

2000
2000

2001
2001

2002
2002

2003
2003

2004
2004

2005(E)
2005(100.0)(200.0)

Import[MOCIE, 2005](300.0)5

IEEJ: October 2005

1. Overview of Korean Oil Industry

Export by Country

Skyrocketed demand from China
Japanese tighter product spec. after ’04
(MBD)

780
680
580
480

China

China

Japan

Japan

Japan

USA

USA

USA

USA
HK
S'poreVietnam
OthersHK
S'poreVietnam
OthersHK
S'poreVietnamHK
S'poreVietnam

OthersOthers

2003

2004

2005

2006 [KNOC 2005]

China
China

38028018080-20Japan

6

IEEJ: October 2005

1. Overview of Korean Oil Industry

Export to China

Export volume to China surged by 22.0% year on year
to 202 MBD last year
(MBD)

250

200

F/O
F/O

150

100

F/O
F/O
JetJet

Jet
500

Jet
G/O

G/O

G/O

G/O

OthersOthersOthersOthers2003

2004

2005(E)

2006(E) [KNOC 2005]

7

IEEJ: October 2005

1. Overview of Korean Oil Industry

Crude import by Region

Dependence on Middle East crude remains high at over 75%
(MBD)

3,000
2,449
2,500

2,262

2,000

1,712

1,500
1,000

77%
845

78%

602

500

78%

74%
59%

01986

1990Middle EastAsia

1995
Africa82000
2004
OthersImport Vol.(MB/D) [KNOC, 2005]

IEEJ: October 2005

1. Overview of Korean Oil Industry

Crude Import by Grade18%

17%

19%

22%

23%

22%

20%

15%

59%

61%

61%

64%

1996

1998

2000

2002

Heavy: API 30 under

Middle: API 30~33

25%
17%58%

2004

Light: API 33 & above[KNOC, 2005]

9

IEEJ: October 2005

1. Overview of Korean Oil Industry

Crude Import -Condensate(MBD)[$/Bbl]250

15Naph vs F/O

200

10150

5100

0Condensate

50(5)

0(10)

1999

2000

2001

2002

2003

2004
[KNOC, 2005]

10IEEJ: October 2005

11IEEJ: October 2005

GOVERNMENTPOLICYKor ean oilindustr yER
O W ND
SL M ADEENVIRE RO NGU ME
L A NT
TIA
ON L

2. Key Issues & Challenges

KEENERCOMPETITIONOVERCAPACITYIN REFINING

12IEEJ: October 2005

2. Key Issues & Challenges

Gover nment
Policies

Government Policies/ Slower Demand

Policy of Accelerating open market and FTA
Macro/Micro basic planfor new & renewable energy

Saturated domestic market
Demand growth centering onlight oil and transportation(especially diesel)
Tax Scheme on products(100:85:50)
13Slower
DemandIEEJ: October 2005

2. Key Issues & Challenges

Keener Competition/ Environmental Regulation

Severe competition amongrefiners

KeenerCompetition

Overly established Channel 11,000

Demand shift to renewable andsubstitute energy
Kyoto protocol will come into effectTougher environmental regulations
on petroleum productIntroduction of Alternative Motorfuel; CNG, Bio -diesel, Hybrid -car
14

Envir onmentalRegulation

IEEJ: October 2005

2. Key Issues and Challenges

Correspondence to Climate Change

Careful preparation for Kyoto protocol and New Agreement of 6
countries (Australia, China, India, Japan, South Korea, USA)
Opportunity for New Business- R&D for Clean Energy developmentex) Landfill Gas, Bio Fuel, Wind power, Fuel Cell etc.
- Development of CO2 treatment technology
Improvement Efficiency of Existing Business- Installation of the high -energy efficiency devices- Reshuffle the energy for CO2 reduction

15

IEEJ: October 2005

2. Key Issues and Challenges New Environment Regulation Method
Changes of Environmental regulation method for sustainable
development
Introducing the Voluntary Agreement- Site Assessment and Soil Remediation (Dec. 2003)→ protect the additional contamination through quick/efficient remediation- Emission reduction of Chemicals (named as 30/50 Program, Dec. 2004))→ reduce the emission 30% by 2007, 50% by 2009 compared with 2001
- Green Procurement System (m andatory to the public institution, Sept. 2005)→ competitiveness of eco -friendly product will be increased
Regulation on total amount from July 2007 in Metropolitan

16

IEEJ: October 2005

2. Key Issues and Challenges

Tighter Product Specifications

Addition or upgrading of desulphurisation units
Switch to ultra- low sulfur motor fuels from January ’ 06

Item2002

2006

2010(?)

Gasoline

130 <50<10<Diesel

430 <30 <10<2002
Hydro –TreatingUnits Capa
2005

684MBD

337

343
Revamp1790
Addition

770MBD (13% ▲)IEEJ: October 2005

2. Key Issues & Challenges

Overcapacity in Refining

Refiner

CDU capacity(MBD)

Actual Production in 2004
(MBD)

utilization rate
(%)

HDO

390

283

72.56

SK840

720

85.71

GS

650

618

95.08

S-Oil580

538

92.76

ICO

275

102

37.09

Sum

2,735

2,261

82.67

※ ICO under court receivership18

IEEJ: October 2005

19

IEEJ: October 2005

3. Key Opportunities

Future Upgrading and BTX Expansion

Korean refiners are focusing on upgrading their facilities toincrease the yield of lighter products and also expanding
BTX units to diversify its business territory and maximize
profitability
HCRFCC~’ 04: 150; 205 MBD + 40~’ 07:40+55~’ 04: 207

PLT

120

BTX; 272.5 MBD + 30
30
272.5
’ 06.12:30
7,850’ 06.12 :
1,550550; 7,850 KMTA + 1,550; 207 MBD + 120

Upgrading

BTX Expansion

ItemHCR

FCC

PLT

BTX

Capacity

245

327

303 MBD

9,400 KMTA

20

IEEJ: October 2005

4. Conclusion■ Create New Opportunities▶ Invest on facilities upgrading to exploit the gap between
light/heavy product/crude▶ Invest on BTX for Integration into Petrochemical downstream▶ Further develop the growing Chinese market■ Manage▶ Internal Industry Competition and preserve operational
excellence▶ Optimize operations with neighboring refineries for mutualadvantage■ Diversify and Stabilize crude oil import sources▶ Sustain oil exploration & development projects▶ Beef up cooperative relationship with oil -producing countries

21

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