Shale Boom Redraws Oil Routes

Shale Boom Redraws Oil RoutesShale Boom Redraws Oil Routes

For signs of how the US shale boom is transforming the global flow of oil, look halfway across the world at South Korea.

The Asian nation, which relies on the Middle East for about 86 percent of its oil imports, is benefiting as new output from Texas to North Dakota displaces the crudes that fed US refineries for decades.

South Korea received this month a shipment of Alaskan oil for the first time in at least eight years and may buy more, the importing company was quoted by Bloomberg as saying. The country was one of the first to receive a cargo of the ultralight US oil known as condensate after export rules were eased. The US shale revolution has driven oil output to the highest in more than three decades, reducing America’s need for overseas purchases and sinking global prices into a bear market. South Korea is seeking to reduce its dependence on Middle East crude just as OPEC’s biggest members discount supplies to protect market share and Goldman Sachs Group Inc. predicts the group is losing influence.

South Korea, which imports about 97 percent of the supplies used to satisfy its energy needs, receives more than a third of its oil from Saudi Arabia, the world’s biggest crude exporter and the largest member in the Organization of Petroleum Exporting Countries.

  Mideast Supplies

Its purchases from other OPEC members are declining. Crude imports from Iran fell to 4 million barrels last month, 27 percent below the five-year average, according to data from Korea National Oil Corp. compiled by Bloomberg. Libyan supplies declined 55 percent last month from August, while shipments from Iraq dropped by 16 percent.

“The need for diversifying supplies grew more than ever as the Middle East turned into a region full of instabilities,” Oh Sae Sin, an associate research fellow at Korea Energy Economics Institute, a government-funded researcher, said. “South Korea is laying the groundwork for a relationship with the US.”

The US imported 7.6 million barrels a day in July, 9.7 percent below the five-year average, according to the Energy Department. The country will export more energy than it imports by 2025, Wood Mackenzie Ltd. said this month.

As shipments from traditional suppliers shrink, crudes from the Americas and Africa are making their way to South Korea. Bogota, Colombia-based Ecopetrol SA sold its first cargo of Castilla Blend crude to South Korea this month and the country’s refiners this year imported the first Ecuadorean oil since at least January 2010.

  Tax Rebate

Starting next year South Korean refiners can receive a tax rebate of as much as 16 won (2 cents) per liter (0.26 gallon) of refined fuel sold domestically derived from non-Middle East crude, according to the Petroleum and Petroleum-Alternative Business Act signed into law in September by President Park Geun Hye.

“South Korean refiners are testing different crudes to cut their expenses as their profits are suffering,” Lee Chung Jae, an analyst at KTB Securities Co. in Seoul, said by phone on Oct. 28. “Refiners will need to figure out if the subsidies they get will take away the additional costs they needed to pay to get crude from outside the Middle East.”

The US Commerce Department in June opened the door to more US oil exports as long as the crude is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the last four decades. Condensates have been abundant in shale formations during the drilling boom, leading to oversupply on the US Gulf Coast.