South Korean nuclear shutdown seen boosting oil demand

The precautionary closure of four South Korean nuclear reactors after last week’s earthquakes could boost the country’s need for imported fuel oil.

Following the two quakes near the city of Gyeongju last Monday night – the largest of which, registering 5.8, was the country’s biggest one measured to date – the state-owned nuclear operator, Korea Hydro and Nuclear Power, quickly shut the four Wolsong reactors, which are located on the coast.

The Wolsong complex has a combined capacity of about 2.8 gigawatts, or a little over 10 per cent of the country’s nuclear capacity, which accounts for nearly 30 per cent of South Korea’s electricity generating capacity.

The four precautionary shutdowns bring the total number of reactors offline to seven.

Three of the country’s liquefied natural gas plants likewise were temporarily shut down because of the quakes.

It is not clear how long damage assessment and restart will take, but the event could lead to a temporary boost in fuel oil demand, says Nevyn Nah, an analyst at Energy Aspects.

South Korea’s fuel demand has been soaring because of a summer heatwave and economic stimulus, with crude oil demand up 5.5 per cent year-on-year in July at 2.3 million barrels per day, according to the latest data.

The country is one of the world’s largest importers of oil and has no domestic resources of crude. Almost all of its imports come from Arabian Gulf countries, with the UAE accounting for about 15 per cent of its average daily consumption.

South Korea is one of the UAE’s best oil customers and the two countries have deep energy ties. Last year, GS Energy was one of the first to win a concession in Abu Dhabi’s prime onshore oilfields, taking a 3 per cent stake in the new Adco, which was financed by government-owned Korean National Oil Company.

South Korea is also designer and builder of the UAE’s nuclear complex at Barakah, in the western region, and will operate it.

Any demand boost from South Korea will be welcome as Asian markets for refined oil are amply supplied. The markets for middle distillates in particular – which include diesel, jet fuel and kerosene – have been flooded.

“Stubborn oversupply in the Asian diesel market seems no closer to ending,” according to BMI Research, a unit of Fitch.

“A dramatic upsurge in Chinese exports alongside brimming stockpiles at key storage hubs – particularly Singapore – maintain the oversupply in the regional market and hurt margins,” BMI reckons.

Diesel margins in Singapore dropped more than 14 per cent last week, to US$10.50, having peaked in July at $12.30.​​

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Anthony McAuley

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