South Korean refiners are set to cut imports of North Sea crude after a tax change that will reduce the benefit they get from buying oil from the region, according to the International Energy Agency.
South Korea, the world’s fifth-largest buyer of crude cargoes, signed a free trade agreement with the European Union in July 2011 that granted the country an exemption from a 3 percent tax on crude imports. Refiners in the country also receive a tax rebate on refined product exports, including those made from crude imported from the EU.
A third incentive is a 90 percent government reimbursement for the difference in freight charges on crude imports from the Americas, Africa and Europe compared with the Middle East in a bid to diversify nation’s supply sources. As of July 1, refiners buying duty-free crude from the EU will no longer be able to claim this freight rebate, the IEA said today in its monthly Oil Market Report.
“The economic benefits that fueled brisk North Sea-Korea trade over the past few years will be reduced,” the Paris-based agency said.
There has been an unprecedented flow of North Sea crude to the country in the last two years. The change in legislation will see shipments to South Korea drop to 55,000 barrels a day from 110,000 barrels in 2012, Vienna-based analysts JBC Energy GmbH said in a report on June 10.
South Korea will import 2.6 million barrels a day of crude by sea this year, according to data from Clarkson Plc, the world’s largest shipbroker.