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

North Korea fired a missile over Japan in late 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 accounted for 34% (13.6mn b/d) of seaborne oil trade flows, 55% (143mn tonnes) of LNG trade, and 46% (551mn tonnes) of seaborne coal trade globally in 2016, according to market analyst Wood Mackenzie.

‘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 ‘flailing nuclear industry,’ comments Chris Graham, Product Suite Director, Gas and LNG, Wood Mackenzie. ‘Oil markets would also be severely affected. Around 65% 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 three to four years ago, in a worst case scenario.’

As with coal and gas, China has domestic oil production options, although up to 58% of this could be at risk of shut-in in the event of escalating tensions. According to Graham: ‘Around 1.5mn b/d of China’s 3.95mn b/d crude production comes from the North China basin, with the nearest field just 200 km from the North Korean border. Another 0.8mn b/d is produced from the Songliao Basin, approximately 400 km from the border.’

He concludes: ‘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.’

News Item details


Journal title: Petroleum Review

Region: Asia-Pacific

Countries: China - North Korea -

Subjects: Gas markets, Oil markets, Policy and Governance, Coal markets, LNG markets

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