Just as South Korea was enjoying global attention thanks to Parasite sweeping the movie world off its feet in this year’s Oscars, the sudden coronavirus outbreak has put the country under a very different kind of spotlight.
The rapid rise in the number of coronavirus cases in Daegu, a city in southeast Korea, has renewed global concerns about the impact of the virus on the Asian and global economies.
But while the outbreak is definitely a worry, and may yet impact the commodity markets if it cannot be successfully contained, it is worth putting into context the distance between Daegu and the largest Korean oil and refining centres – in economical, physical and psychological terms.
The following data give an idea of the country’s place in the global oil and derivative markets. South Korea is the world’s fifth largest importer of crude and one of the largest refining centres in northeast Asia, behind only China and Japan. The country imported around 2.94mn b/d of crude in 2019, statistics from state-owned oil firm KNOC show.
South Korea is also one of the most significant exporters of middle distillates — gasoil and jet fuel — as well as gasoline, with the three making up a big chunk of its 1.43mn b/d petroleum product exports.
Its refineries also account for more than 10pc of global supplies of base oil, which is used for making lubricants. They also produce and export more than 3mn t/yr of bitumen to Asian markets. And Korea imports nearly 7.5mn t/yr of LPG, accounting for nearly 10pc of Asian import demand.
The country is also a giant in petrochemical manufacturing, being the world’s largest exporter of aromatics, both benzene and paraxylene (PX). Korea exported more than 2.6mn t of benzene and over 7mn t of PX in 2019.
The products are key raw materials for production of various consumer goods including polyester. The country is also an important supplier of polyethylene as well as polypropylene, which have wide uses in the packaging and automotive industries.
Much of Korea’s modern and complex refining and petrochemical capacity is located along the rim of the country, in four main centres: Ulsan, Yosu, Daesan and Incheon. This is where South Korea’s largest oil companies – SK, S-Oil, GS Caltex and Hyundai Oilbank — have based their operations.
Each of these locations boasts extremely well planned and designed shipping facilities, engineering and production subsidiary units as well as huge and modern storage facilities. This makes the Korean oil and derivative industry a very important part of this market.
Daegu, on the other hand, is a relatively smaller city of nearly 2.5mn people. It was known in the 1970s for being a centre of electronics production and later an important base for textiles production, while its main industries are now fashion, textiles, machinery and metals.
The city’s main link to the energy markets may be its location as the corporate headquarters of Kogas, the country’s main natural gas supplier.
If the coronavirus outbreak can be contained in the region, the key oil refining centres should be able to continue operations as usual, limiting the possibility of big shocks to demand or supply.
But while Daegu is distant from these regions both physically and economically, the psychological impact of the outbreak and the speed at which it has grown has shocked the markets.
Here’s hoping it doesn’t spread much further to the coasts or elsewhere in the country.