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Shell leases Korea National Oil tank for Basra Light

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Shell leases Korea National Oil tank for Basra Light

  • Reuters
  • Friday June 27 2008
SINGAPORE/SEOUL, June 27 (Reuters) – Shell has leased storage in South Korea from Korea National Oil Corp (KNOC) for Iraq’s Basra Light crude, trade sources said on Friday, a rare move that could help the major bypass uncertainties at the loading port.
Exports of Basra Light from Iraq’s southern Gulf port average around 1.5 million barrels per day (bpd), but refiners have said lifting from the terminal has been a headache at times since the U.S.-led invasion in 2003.
“Shell started joint stockpiling after January this year,” said a KNOC source, without giving details on the volume or the duration.
Shell was leasing 3 million barrels of storage in South Korea from KNOC, a refining source said, mainly for Basra Light, and selling the grade on to Japan and South Korea.
“It’s not easy to make money by storing Middle East grades but Shell has a really global system, so it may make sense for them,” the refiner added.
But such trades are fitting under the current contangoed market for Middle Eastern crude, where the forward months are stronger than prompt months.
Iraq needs billions of dollars to modernise its oil industry and raise output after decades of sanctions and war. On top of those concerns, just earlier this month, wind storms disrupted shipping from the southern port of Basra for four days, largely grinding exports to a halt.
The country’s oil sector has increased output as security has improved but oil companies remain nervous about sabotage, technical problems and smuggling.
“If they can store it somewhere else and minimise the uncertainty, it should be workable,” a trader said.
KNOC declined to confirm the deal.
“We cannot release any information on joint stockpiling due to contract issues, but we are trying to expand the joint stockpiling in the long-term,” said Kwon Oh-bok, team leader in charge of KNOC stockpiling deals.
South Korea has joint stockpile agreements with seven firms including Norway’s Statoil, Algeria’s Sonatrach, Swiss-based trader Glencore, China’s state trader Chinaoil and French major Total.
The rest is rented out to trading firms Masefield and Trafigura.
South Korea currently uses 76 million barrels of the total 121 million barrels capacity storage as strategic stockpiles, while the rest is open for joint storage with foreign firms.
(Reporting by Angela Moon in Seoul and Jonathan Leff and Annika Breidthardt in Singapore; Editing by Ramthan Hussain)
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