SEOUL, Jan 20, 2022, S&P. South Korea has agreed with the six-member Gulf Cooperation Council to resume talks on their free trade agreement, which could help the world’s fifth biggest crude importer increase Middle Eastern sour crude purchases in a cost effective way, the energy ministry said Jan. 20, S&P Global Platts reported.
Trade Minister Yeo Han-koo and GCC Secretary General Nayef Falah M. Al-Hajraf signed the joint statement in Riyadh, under which the two sides will start negotiations within the first quarter of this year with an aim to reach a formal FTA deal “as early as possible,” according to the Ministry of Trade, Industry and Energy.
A free trade deal with the GCC states is expected to make Middle East crude oil more economically attractive, which will prompt South Korean oil refiners to increase purchases of light, medium and heavy sour crude, as well as condensate from the Persian Gulf nations, the MOTIE official said.
In times of high oil prices, an FTA deal with GCC members would be a shot in the arm for South Korean refiners as a reduction in Middle Eastern crude import costs could significantly support refining margins, while low feedstock procurement costs would eventually help tame inflation and high retail fuel prices for the benefit of consumers, middle distillate marketers at major South Korean refiners including S-Oil and SK Innovation told S&P Global Platts.
South Korea currently levies a 3% tariff on imported crude oil, which is abolished or cut for volume from suppliers that have free trade agreements with the Asian nation.
Details on tariffs and other trade barriers will be negotiated with the GCC and decided later, the MOTIE official said.
Apart from Saudi Arabia, the six GCC members include South Korea’s traditional crude suppliers, such as Kuwait, the UAE, Qatar and Oman, as well as Bahrain. Among major Middle East crude suppliers to South Korea, only Iraq is not a GCC member.
With OPEC members, especially major Persian Gulf producers, seemingly hesitant to accelerate the pace and scale of their crude production hike strategy, South Korean refiners indicated that Middle Eastern crude official selling prices have been rather expensive, prompting crude importers to focus on more cost competitive supplies elsewhere, including the US, Mexico, Brazil and Kazakhstan.
South Korea was Asia’s top US crude buyer in 2021 as the country was estimated to have purchased around 120 million barrels of crude from the North American producer in the year, with local refiners favoring light sweet US grades due to attractive procurement costs.
South Korean refiners paid on average $69.88/b for US crude shipments over January-November, according to latest data from Korea National Oil Corp. In comparison, the refiners paid on average $70.70/b for Saudi crude over the same period, while shipments from Kuwait averaged $70.84/b.
South Korea imported a total of 461 million barrels of crude from the GCC states in the first 11 months of 2021, which accounted for 52.8% of total refinery feedstock intake of 873.22 million barrels, KNOC data showed.
The January-November GCC crude import volume was down 15.8% from 547.41 million barrels in the same period in 2020.
As South Korea and the GCC have already completed “terms of reference,” the two sides can restart FTA negotiations anytime soon, the ministry said.
The joint statement was signed on the sidelines of President Moon Jae-in’s visit to Saudi Arabia during which the South Korean leader held talks with Saudi Arabia’s de facto ruler Crown Prince Mohammed bin Salman. Moon also visited the UAE before landing in Riyadh.
At the signing ceremony, Moon asked the GCC secretary general to make efforts to produce “results that satisfy everyone” in the upcoming free trade talks.
“If South Korea and the GCC sign a free trade pact, it will increase mutual interests in various fields, including goods, services, investment, energy and technology,” Moon was quoted as saying by the MOTIE.
South Korea and the GCC member states have a “complementary economic structure,” in which the Persian Gulf nations sell crude oil to South Korea whose major companies have been involved in their infrastructure projects, Moon said.
The resumption of FTA talks with the GCC comes 12 years after such negotiations were suspended in January 2010.
South Korea and the GCC had agreed to push for a free trade deal in 2007 and the two sides held three rounds of talks until 2009. However, the GCC announced the suspension in January 2010 when it also decided to suspend FTA talks with others such as the EU and Japan.