Iraq's plan to store crude at a South Korean oil terminal has been suspended indefinitely due to Baghdad's debt problems, a South Korean government source told Platts Wednesday.
Iraq and South Korea signed a memorandum of understanding in September last year that included joint storage of Iraqi crude at a South Korean oil terminal. The deal was signed between Iraqi oil minister Abdul Karim al-Luaibi and his South Korean counterpart Yoon Sang-Jick at a meeting in Seoul.
Speaking to reporters in Seoul last September, al-Luaibi said Iraq had planned to store "about 4 million barrels" of Iraqi crude for marketing in Asia in storage tanks in South Korea.
A month later in October, the two nations agreed to begin the storage "at the earliest date possible" and hold a meeting of their respective energy ministers in first half of 2014 to get the project off the ground in H2.
At that time, a South Korean energy ministry official told Platts Baghdad was looking to start storing crude oil at a South Korean oil terminal in H2, but Seoul wanted it to begin earlier.
"The joint storage project has [now] been suspended due to Iraq's debt problems that has kept vessels carrying Iraqi crude from leaving for South Korea for joint storage as they could be distrained by creditors," the source said. He declined to elaborate on the extent of Iraq's debt, saying only: "South Korea concluded the MOU last year on the condition that Iraq's debt problem was resolved and we cannot start the project before then."
Iraqi crude imported by South Korea refiners is owned by the refiners. The cargoes to be jointly stored in South Korean tanks will be owned by Iraq and could be seized by creditors over the debt problem, the source said.
South Korean refiners imported 23.71 million barrels of Iraqi crude over January-April, down 23.4% from the same period last year, mostly under term contracts, according to state-run Korea National Oil Corp.
KNOC, which runs the country's state oil storage facilities, said the joint storage plan would not start in the near future.
"Some details on the joint storage have not fixed yet," a KNOC official told Platts, without elaborating. "KNOC cannot comment on Iraq's debt because the MOU was led by the Ministry of Trade, Industry and Energy."
JOINT STORAGE SEEN AS A 'WIN-WIN'
The ministry has described tank leasing as a "win-win", giving South Korea first access to the foreign oil stored in its tanks in the event of an emergency, and foreign owners logistical advantages in tapping into the growing Asian market.
The joint storage is part of South Korean efforts to transform its southern coast, which houses oil refiners and tank terminals, into an oil hub for Northeast Asia.
The United Arab Emirates has 6 million barrels of crude stored at a base in Yeosu under a 2012 joint storage deal between KNOC and Abu Dhabi National Oil Company. The first 2-million barrel shipment arrived last September, the second last December and the third in January.
KNOC operates nine storage bases that can hold a total 146 million barrels of crude oil and oil products, including tunnel-type underground tanks and the world's single largest oil storage base. Of the total capacity, 127.5 million barrels is for crude oil, 14.1 million barrels for refined products and 4.4 million barrels for LPG.
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--Edited by Wendy Wells, firstname.lastname@example.org