South Korea’s largest oil refiner, SK Innovation, announced on January 5th that they will seek to increase imports of US oil condensate to diversify their current supplies, which mostly originate in the Middle East. The transportation route from the US was tested last year with a shipment of 400,000 barrels and was proven to be viable for the company.
The country’s second largest oil refiner, GS Caltex, has also expressed their interest in increasing imports after analyzing the outcomes of their $40 million shipment from Texas ports in July 2014. Samsung Total Petrochemicals has also joined the list of South Korean refiners with an interest in US oil.
Condensate is a type of ultralight oil extracted from underground shale. The majority of US oil condensate production occurs in Texas, which alone produces 35% of the United States’ crude oil and condensate. Recent plummeting oil prices have led some companies to reduce production and cut down their workforces, while some analysts have predicted another oil bust for Texas. Emerging export opportunities to South Korea could be the savior Texas needs to avoid another recession akin to what it experienced in the 1980s.
On top of this, trade relations between South Korea and the US appear to be stronger than ever. Last month, South Korean trade officials reported a 13.4% growth in exports to the US in 2014. This was said to be the direct result of the US-Korea Free Trade Agreement, which allows enhanced access to markets and reductions in trade barriers. Latest data show a $125 billion bilateral trade relationship between US and South Korea, with significant levels of trade in machinery, agricultural products, vehicles, and private commercial services. South Korea remains one of the United States’ top ten largest goods export markets, while it is ranked as the 6th largest source of imports. This expansion of oil shipments to Korean refiners will further strengthen the important economic relationship between the two countries, and has the potential to reduce the overall trade deficit that the US has with South Korea.
Doris Xu is a Research Intern at the East-West Center in Washington and an undergraduate student at the University of Sydney.