The government will operate a crude oil swap system with private companies starting Tuesday in a bid to help oil refineries secure alternative oil supplies and minimize supply disruptions, the industry ministry said.

Under the system, set to run over the next two months, the government will lend some of its oil reserves, mostly Middle Eastern crude, to oil refineries and later restore the stock with alternative supplies secured by the companies.

The system will help the companies maintain stable stock despite a delay in supplies due to the effective closure of the Strait of Hormuz due to the Iran war, while ultimately postponing the release of the government’s strategic oil reserves, the last line of defense in crude oil supply, as long as possible, according to the Ministry of Trade, Industry and Resources.

Such a system is used for currency swaps,” Yang Ghi-wuk, deputy minister for trade, industry and resource security, said in a regular briefing, stressing that the government has “been very inflexible in its operation of oil reserves.”

“Since we are in a crisis, we decided to operate the system in a more flexible and responsive manner to overcome the situation,” added Yang.

The official said four companies have currently applied for the program, which amounts to a combined 20 million barrels of crude oil exchange, with the government planning to first sign a 2 million barrel swap deal with an unidentified firm later in the day.

The private sector is working to secure alternative oil supplies from Africa, Central Asia, North and South Americas, Australia and other regions, he added, noting that Korea is unlikely to face actual disruptions in domestic crude oil supply until end-June.

Yang also said the government is closely monitoring supplies of petrochemical and other industrial materials amid disruptions in some items, such as naphtha, noting that supplies of helium, ethylene, hydrogen bromide, sulfuric acid and other materials used in the semiconductor, display, pharmaceutical and shipbuilding industries will be stable until June.

Industry Minister Kim Jung-kwan said in an interview that the government plans to release oil from its strategic reserves around late April or May if the current situation continues.

Earlier this month, Korea agreed to release 22.46 million barrels of oil from its reserves as part of an agreement among International Energy Agency (IEA) members on a collective oil release plan aimed at stabilizing the international oil market.

Kim said the government may adopt stricter energy-saving measures than the current five-day vehicle rotation system, which is mandatory for the public sector and voluntary for the private sector, if the Middle East crisis worsens.

The government is considering introducing a mandatory two-day vehicle rotation system for the public sector if the national resources supply crisis alert is raised to Level 3, according to Seoul officials.

Seoul is currently under a Level 2 alert in the country’s four-tier national resource security crisis warning system.
Source: The Korea Times