Aramco Signs Deal With S-Oil To Secure Oil To South Korea

South Korea’s third largest refiner S-Oil has signed a 20-year rare supply deal with Saudi Aramco, it was revealed on Thursday. This came as Asia’s crude consumers come under US pressure to reduce imports from sanctions-hit Iran and Seoul tries to secure stable energy sources.

S-Oil, 35 percent owned by Saudi Aramco, said the contract with its biggest shareholder was the first long-term commitment of its kind by the world’s top crude exporter, which has promised to make up for any shortfall in global oil supplies.

S-Oil said Aramco would provide about 230 million barrels of crude oil each year, about 30 percent of the country’s total annual consumption.

The contract is highly unusual in the crude market where most deals are renewed every year, S-Oil said, adding that years-long ties between the two firms helped secure the deal.

Korea buys 10 percent of its crude needs from Iran and President Lee Myung-bak is currently touring Gulf countries this week to seek alternative sources.

“The crude supply contract from the world’s largest oil producing country, at a time of serious volatility in the market due to the embargo against Iranian crude and (Iranian) threats to block the Straits of Hormuz, will ensure stability in the company’s refinery operations,” S-Oil said.

“Now the deal … will ensure stability of our refinery operation despite the (planned) sanctions on Iranian oil and (Iran’s) threat to block the Strait of Hormuz,” S-Oil added.

The company said the contract was “highly unusual” in a market where one-year supply deals are the norm.

S-Oil has a 669,000 barrels per day (bpd) capacity and Saudi Aramco supplies almost all the crude it processes into fuels.

The two refiners struck annual deals to buy a total of 200,000 bpd of Iranian crude this year, up from around 190,000 bpd in 2011.

Seoul has yet to publicly commit to cutting Iranian oil imports at the behest of Washington, which is its main security guarantor and which, along with the European Union, imposed a raft of financial sanctions against Iran aimed at halting its nuclear program.

Some $5 billion in payments for Iranian crude oil imports is sitting in escrow accounts in South Korea as it cannot be sent to Iran due to US sanctions.

Securing oil supplies is a priority for South Korea, Asia’s fourth largest economy and the world’s fifth largest oil importer.

Saudi Arabia supplied over 30 percent of South Korea’s imports of 2.54 million barrels per day (bpd) of crude oil last year.

Oil Minister Ali Al-Naimi, during a meeting with Lee on Tuesday, “promised to help ensure a stable supply of crude to South Korea,” Yonhap news agency cited an unidentified Seoul official as saying.