South Korea has no domestic crude oil production, and is completely dependent on imports for its oil consumption needs. In 2006, South Korea’s gross oil imports averaged 3 million barrels per day (bbl/d). South Korea’s oil imports exceed consumption needs, as the country re-exports about a quarter of its gross oil imports as refined petroleum products, mostly to neighboring countries in East Asia. In 2006, South Korea consumed an estimated 2.2 million bbl/d of oil, making it the ninth-largest consumer of oil in the world and the fifth-largest net importer of oil.

The state-owned Korea National Oil Corporation (KNOC) was established in 1979 as the country’s sole upstream oil development company. KNOC is also charged with managing the country’s strategic oil stockpiles. While South Korea’s upstream oil sector is dominated by a single state-owned company, the downstream sector is subject to greater competition. Much of South Korea’s oil pipeline network is operated by the Daehan Oil Pipeline Corporation (DOPCO), which was privatized in 2001. The refining and retail sectors are dominated by several large Korean conglomerates (known as chaebols in Korean), with SK Corporation holding the largest market share. Other companies with significant downstream presence include GS Caltex (a joint-venture of Korea’s LG Corporation and Chevron), Hyundai Oilbank Corporation, and S-Oil Corporation.

Oil consumption in South Korea has been relatively flat since 2000, although the country remains the ninth-largest oil consumer in the world. Oil demand peaked in 1997 at 2.3 million bbl/d, and has fluctuated between 2.1 – 2.2 million bbl/d since 2000. Although South Korea is importing less oil than in previous years, relatively higher oil prices have increased the total cost of those imports. In 2005, the Korea Petroleum Association reports that South Korea spent $45.6 billion on crude oil and petroleum product imports, 57 percent higher than in 2003 even though import volumes for the two years were nearly equal.

In 2006, South Korea imported 2.2 million bbl/d from Persian Gulf countries, or 75 percent of the country’s total gross oil imports. This share of oil imports from the Persian Gulf has risen over the last ten years, despite concerted efforts on the part of South Korean officials to diversify the country’s sources of petroleum imports. In 1996, South Korea received 64 percent of its imports from Persian Gulf countries. For 2006, Saudi Arabia was the single-largest supplier of oil imports to South Korea, accounting for about 860,000 bbl/d, or 29 percent of gross oil imports.

Because South Korea is a peninsular country, it relies on oil shipped by tankers for its import requirements. South Korea’s major ports are Pusan, Incheon, Kunsan, Mokpo, and Ulsan. Incheon and Ulsan are the primary petroleum import terminals, while industry sources report that Pusan is the fifth-busiest container port in the world. South Korea does not have any international oil pipeline connections.

As noted above, South Korea does not currently produce any crude oil domestically. In the 1970s and 1980s, South Korea partnered with various international oil companies on exploration projects, although commercial oil deposits were never discovered. Since 1983, KNOC has engaged in numerous exploration projects, particularly in its offshore territory, although to date it has only had success in locating natural gas reserves (see the Natural Gas Section for more information). South Korea has also engaged in joint exploration projects with Japan, and KNOC remains optimistic that there are potential oil resources in Korea’s continental shelf regions.

KNOC and other South Korean firms have actively pursued investment in overseas exploration and production (E&P) projects. As of 2006, KNOC was involved in 32 E&P projects in 15 countries around the world (see map below for greater detail). Of this total, six of those projects were currently producing oil, of which KNOC’s equity share averaged 40,000 bbl/d in 2005, or less than two percent of net imports for the year. The South Korean government has set a target of raising KNOC’s equity share of net oil imports to 10 percent by 2010, and in June 2006 earmarked $7 billion for additional overseas E&P activities to help meet this goal.

According to the Oil & Gas Journal, South Korea had about 2.6 million bbl/d of refining capacity at six facilities as of January 2007. The largest is SK Corporation’s 817,000-bbl/d Ulsan plant, which is the second-largest refinery in the world. South Korea also hosts the world’s third-largest refinery, GS Caltex’s 650,000-bbl/d Yosu facility (for a complete list of South Korea’s refineries see the table below). At present, South Korea’s refining capacity exceeds domestic oil demand, and the country exports refined petroleum products to countries in the region. While overcapacity has prevented the development of further refineries in South Korea for the last several years, S-Oil Corporation announced in July 2006 that it is considering building a 480,000-bbl/d plant at Sosan. The proposed S-Oil refinery would target export markets.

Refineries in South Korea, 2006
Company	Location	Capacity (bbl/d)
SK Corp.	Ulsan	817,000
GS Caltex	Yosu	650,000
S-Oil Corp.	Onsan	520,000
Hyundai Oilbank Corp.	Daesan	310,000
Hyundai Oilbank Corp.	Incheon	270,000
Hyundai Oilbank Corp.	Busan	9,500
Planned Facilities
S-Oil Corp.	Sosan	480,000
Source: Oil & Gas Journal; Global Insight

As part of the government’s energy security efforts, South Korea holds strategic oil reserves to protect against oil supply disruptions. The country’s strategic oil reserve program is managed by KNOC, which reports that its system has the capacity to store 116 million barrels of oil. As of April 2007, KNOC held 76 million barrels of oil in its strategic stockpiles, of which 64 million barrels was crude oil and 12 million barrels was petroleum products. This total amounts to approximately 34 days of net import cover, according to 2006 estimates of demand. KNOC has plans to expand the country’s strategic storage capacity from 116 to 146 million barrels by 2009, and to fill the emergency reserves to 141 million barrels by 2010.