By September 7, 2017 Read More →

North Korea’s military operations could affect 58% of Chinese oil production


North Korea leader Kim Jong Un claps with military officers at the Command of the Strategic Force of the Korean People’s Army (KPA) in an unknown location in North Korea in this undated photo released by North Korea’s Korean Central News Agency (KCNA) on August 15, 2017. KCNA/via REUTERS

1.5 million b/d of China’s 3.95 million b/d crude production comes from field just 200 km from North Korean border

By Chris Graham, product suite director, gas and LNG, Wood Mackenzie

North Korea fired a missile over Japan on 29 August signalling “the first step” of military operations in the Pacific and with plans for more launches.

Any further tension or launches could potentially impact its neighbours who are the world’s largest energy importers – China, Japan and South Korea, which in total accounts for 34 per cent (13.6 Mb/d)of seaborne oil trade flows, 55 per cent (143 MT) ofl LNG trade, and 46 per cent (551 MT) of seaborne coal trade globally in 2016.

In the event of any conflict, China could more readily tap into its domestic coal and gas resources, but Japan and South Korea could be left wanting given their large dependence on imports, and their usual practice of not maintaining large stockpiles.

The threat of conflict could help drive restarts in Japan’s flailing nuclear industry.

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Oil markets would also be severely affected. Around 65 per cent of Asia’s refining capacity is located in Japan, South Korea and China.

Oil demand in Japan and South Korea could still be met for at least 90 days by the emergency stockpiles mandated for OECD countries.

China could dip into its Strategic Petroleum Reserves for the first time since it started building these 3-4 years ago, in a worst case scenario.

Like with coal and gas, China has domestic oil production options, although up to 58 per cent of this could be at risk of shut-in in the event of escalating tensions.

Around 1.5 million b/d of China’s 3.95 million b/d crude production comes from the North China basin, with the nearest field just 200 km from the North Korean border.

Another 0.8 million b/d is produced from the Songliao basin, approximately 400 km from the border.

Escalating security risks on the Korean Peninsular will drive increased price volatility across the commodities.

A demand-side risk of this scale could put downward pressure on price globally, but regional stockpiling and increased logistics costs could equally lead to a short-term price premium.


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