South Korean bunker prices soar on supply shortfall

Several South Korean refineries are unable to deliver bunker supplies for the rest of this month, leading to sharply higher prices relative to other parts of the region.

The price of South Korean very low-sulphur fuel oil (VLSFO) hit a record premium to Singapore values of $220/t on 18 May, having risen from more typical levels of about $20-25/t since 11 May, according to Argus data. The shortage of bunker supply in South Korea is so severe that yesterday VLSFO there was assessed almost at parity to low-sulphur marine gasoil (LSMGO), a premium bunker product that usually commands a much higher price. Argus assessed South Korean VLSFO at $1,164/t yesterday and LSMGO at $1,185/t.

South Korea's refining sector is dominated by four companies — S-Oil, SK energy, GS Caltex and Hyundai Oilbank. Of those, only Hyundai Oilbank is understood to still have spot supplies on offer for May delivery. The others have either run out or are being hampered by outages.

S-Oil, which operates the 669,000 b/d Onsan refinery in Ulsan, is heard to be having some issues with its residue fluid catalytic cracking (RFCC) unit, although this could not be confirmed. Market sources told Argus that the refinery requires maintenance, and this has led to a decline in output. Meanwhile, SK Energy's 840,000 b/d refinery in Ulsan is understood to have been under maintenance for a while, with the company only offering product for June delivery onwards. And GS Caltex has reportedly sold out of VLSFO for May.

"Hyundai know they're the only ones that can still offer spot supplies for May so prices are through the roof," said one trader.

Most of the bunkering taking place in South Korea at the moment is therefore restricted to term volumes. The constraints on VLSFO production from S-Oil and SK Energy, also partly connected to an interruption in supply of low-sulphur crude, is not expected to ease until the end of May or early June.

South Korea is one of the largest bunker supply hubs and producers of VLSFO in Asia-Pacfic, with most bunkering taking place in the country's southern ports of Ulsan and Busan. No official data on the country's bunker fuel demand are available, but December 2021 total sales were estimated by various market sources at 800,000-850,000t, of which about 590,000t was VLSFO.

By Sammy Six and Maiko Nakashima