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Crisis In North Korea Would Threaten Oil Import

2017-10-11 | 10pm

According to the renowned Energy Consultant, Wood Mackenzie, in case the tension mounts between North Korea and North Asia neighbours then approximately half of China's oil production will be in trouble. China, Japan and South Korea have to face huge oil crisis, as Military action could stop the flow of crude oil imports. This will be approximately 34 percent of seaborne oil trade across the globe. As stated by Chris Graham, product suite director for gas and LNG at Wood Mackenzie, “In case of a "worst case scenario," China could permit the release of oil from strategic reserves "for the first time since it started building these 3-4 years ago.” Such kind of steps might be taken by South Korea and Japan as both of them have emergency reserves for almost 90 days. There is also probability of increasing the re-commissioning of nuclear power generators by Japan. This will be helpful in compensating any squeeze on imported oil and gas in case of crisis. However, if you are talking about China, then its domestic oil production would provide a buffer. But, some of the major production basins are close to the North Korean border which may leaves the country helpless for any kind of disturbance. According to Graham, “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.” Interestingly, North Korea basin offers approximately 1.5 million of China's 3.95 million barrels per day crude production where  the nearest field is positioned 200 kilometers (124 miles) from the North Korean border as stated by Wood Mackenzie. Consultancy further added, that another 0.8 million barrels per day is produced from the Songliao Basin. This basin is located approximately 400 kilometers from the border. On Tuesday, North Korea fired a missile which might be intermediate-range Hwasong-12. It flew over Japan and after flying 2,700 kms it broke up into three pieces. It was far short of its 4,000-kilometer range. Wood Mackenzie further added that this would severely affect the global oil markets in the event of a regional conflict that affects South Korea, Japan and China, as approximately 65 percent of Asia's refining capacity is positioned here, whereas regional stockpiling and increased logistics costs could lead to a short-term price premium. .