Seoul: The government will initiate a crude oil swap system with private companies starting Tuesday to assist oil refineries in securing alternative oil supplies and minimizing disruptions, as announced by the industry ministry.
According to Yonhap News Agency, the system will operate for the next two months. It entails the government lending its oil reserves, primarily Middle Eastern crude, to oil refineries, which will later replenish the stock with alternative supplies secured by the companies. The initiative aims to help companies maintain stable stock levels despite delays in supply due to the effective closure of the Strait of Hormuz, driven by the Iran conflict. The Ministry of Trade, Industry and Resources highlighted that this system postpones the need to release the government's strategic reserves, which serve as a final defense in crude oil supply.
"Such a system is akin to currency swaps," stated Yang Ghi-wuk, deputy minister for trade, industry, and resource security, during a regular briefing. He emphasized that the government has traditionally been inflexible in managing oil reserves but is adopting a more flexible and responsive approach to navigate the current crisis.
Yang revealed that four companies have applied for the program, facilitating a combined exchange of 20 million barrels of crude oil. The government plans to secure a 2 million barrel swap deal with an undisclosed firm later today. The private sector is actively seeking alternative oil supplies from regions including Africa, Central Asia, the Americas, and Australia. Despite these efforts, South Korea is not expected to experience actual disruptions in domestic crude oil supply until the end of June.
Yang also assured that the government is vigilantly monitoring supplies of petrochemical and other industrial materials amid certain disruptions. He noted that supplies of materials such as naphtha, helium, ethylene, hydrogen bromide, and sulfuric acid, crucial for industries like semiconductors, display, pharmaceuticals, and shipbuilding, will remain stable until June. Industry Minister Kim Jung-kwan indicated in an interview that the government might release oil from its strategic reserves around late April or May if the situation persists.
Earlier this month, South Korea agreed to release 22.46 million barrels of oil from its reserves as part of an International Energy Agency (IEA) collective oil release plan to stabilize the international oil market. Kim also mentioned the potential implementation of stricter energy-saving measures. If the Middle East crisis intensifies, a mandatory two-day vehicle rotation system for the public sector may be introduced, contingent upon the national resources supply crisis alert being elevated to Level 3. Presently, Seoul is under a Level 2 alert within the national resource security crisis warning system.