Navarik Market Update
August 10, 2017
Tensions on the Korean peninsula are rising and will continue to do so, as North Korea has followed up recent successful warhead and intercontinental missile tests with openly musing about striking US military facilities in Guam. This activity was met with a threat from US President Donald Trump to respond with “fire and fury”. Given oil prices are notoriously susceptible to geopolitics, now is a good time to review the potential effects of open hostilities.
Despite the press given to the North’s nascent long-range ballistic missile and nuclear warhead capabilities, their true strategic advantage lies in their artillery strength near the heavily populated Seoul metropolitan area; the south’s capital. This has historically had the same deterrent effect North Korea hopes to achieve with nuclear weapons. Any attack or counter-attack from the North would therefore initially consist of a targeted barrage of population centres as far south as central Seoul.
While terrifying, this puts most of the country’s petrochemical facilities out of the likely reach of a Northern attack. The predominant oil products marine facilities are located in South Korea’s extreme south, including Ulsan and Yeosu on the Sea of Japan. These facilities include import and export terminals as well as petrochemical plants such as BP’s joint venture with Lotte. However, to the south-west of Seoul, at Incheon and Daesan, there are also several key facilities such as Total’s joint venture refining complex with Hanwha. Whether or not these facilities would be within range of the North’s artillery and likely strategic targets is debatable. Complicating this analysis is the fact that nearby are several marine terminals for other energy fuels, such as LNG and nuclear reactor fuels, so a successful incursion from the north far enough to be within reach of these facilities could jeopardize the country’s overall domestic energy mix more so than its foreign trade in oil products.
None of this is to say that the loss of life and economic havoc outside of the petrochemical sector is not worthy of consideration. Nor does it assume that trade flow diversions will not occur in the busy Asia-Pacific. But in the immediate term, should war indeed break out, the South Korean petrochemical sector may avoid damage better then the peninsula’s general economy.
Figure 3: Daesan, South Korea
Figure 4: Likely Location of Artillery Sites
Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.
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