The UAE's state-run energy giant Abu Dhabi National Oil Co (ADNOC) will lease oil storage facilities in South Korea capable of storing 6m barrels of crude for three years, state-run Korea National Oil Corp (KNOC) said on Thursday.
This is the first time the United Arab Emirates' ADNOC has leased storage in South Korea, a KNOC spokesman said. It becomes the twelfth international company to hold storage facilities located in the world's fifth-largest crude importer, joining other producers, oil majors and investment banks.
For producers, storage in South Korea gives them flexibility to meet fluctuations in demand from Asian buyers. It also allows them to sell smaller cargoes than the two million barrels that typically sail on Very Large Crude Carriers from the Middle East to Asia.
For South Korea, leasing storage to producers contributes to its security of oil supply. It has first rights to crude in storage in case of emergency.
The storage contract was signed on Wednesday.
"All 6m barrels of crude oil will be shipped to the storage facility within the first half of next year under the contract," a KNOC spokesman told Reuters by phone. The oil would be held in storage near the port of Yeosu, about 500 km south of Seoul, he said.
The Korean government holds a total of 146m barrels of storage facilities for its strategic crude and fuel reserves.
Of the total, 40m barrels of capacity is reserved for leases to oil producers, majors and investment banks, and as of end-October a combined 30m barrels of crude and fuel was stored there, according to KNOC data.
The announcement was made while Korean President Lee Myung-bak, and other government and business officials were visiting the UAE to mark the start of construction there of the country's first nuclear reactor. A Korean consortium in 2009 won an order for some US$20bn worth of nuclear plant and construction work there.
The visit comes after Seoul shut down two reactors in South Korea due to the discovery that thousands of components at the plants had forged safety certificates. The UAE has said it has been assured by Seoul on the safety standards of South Korean plants.