Chapter 3. Korea-China FTA and Korea’s Oil Industry
C. Competitiveness of Petroleum Products
천만톤/년 10 million tons/year
연장석유 Extended oil
신화 Xinhua
기타 Others
Categories 2010 2015
Annual Average Growth Rate
(%) Refinery crude oil volume
(10,000 tons/year) 42,287 52,184＊ 4.3
Refining percentage of three
major companies (%) 77.6 68.9 -
Quality of petroleum products
Gasoline:
third round Diesel:
second round
Gasoline:
fourth round Diesel:
fourth round
-
Detailed processing rate (%) 88.1 100.8 2.7
Operation rate (%) 82.2 75.4 -
Yield of light petroleum
products (%) 76.2 78.0 0.5
Yield of total products (%) 94.5 94.3 -
Energy input per crude oil
(ton) (kgOE/t) 62.2 60.6 -
Note:＊refers to estimated figures.
Source: CNPC Economics and Technology Research Institute, 2015 國內外油氣行業發展報告 (January 2016)
Table 3-7. Technical Index Changes of China’s Major Petroleum Corporations (Crude Oil)
Categories
2010 2015
CNPC Sinopec CNPC Sinopec
Yield of light petroleum products
(%)
76.6 75.8 79.1 76.9
Energy input per crude oil (ton)
(kgOE/t)
66.2 58.3 64.0 57.2
Yield of total 93.9 95.1 93.8 94.8
products (%)
Processing loss (%) 0.6 0.6 0.4 0.4
Source: CNPC Economics and Technology Research Institute, 2015 國內外油氣行業發展報告 (January 2016)
Table 3-8. Changes in Capacities of Chinese Refinery Facilities After the 2000s
Facilities
2000 2014 2015
Production volume (10,000 ton/year)
Compared to crude
oil refinery
(%)
Production volume (10,000 ton/year)
Compared to crude oil refinery (%)
Production volume (10,000 ton/year)
Compared to crude oil
refinery (%) Crude oil
refinery 27,400 - 72,057 - 71,020 -
Catalytic
cracking 9,900 36.1 19,801 27.5 20,361 28.7
Delayed
coking 2,114 7.7 9,851 13.7 10,051 14.2
Catalytic
reforming 1,558 5.7 5,045 7.0 5,245 7.4
Hydro-
cracking 1,147 4.2 6,244 8.7 6,484 9.1
Hydro-
treating 4,261 15.6 26,310 36.5 29,620 41.7
Source: CNPC Economics and Technology Research Institute, 2015 國內外油氣行業發展報告 (January 2016)
Tables 3-9 and 3-10 illustrate the levels of technological competitiveness of the oil and petrochemical industries in Korea, China, and Japan in comparison with the United States. According to the tables, as of 2013, China was lagging behind in technology advancement. However, the technological divide between Korea and China is equivalent to the one between Japan and China. Considering the changes in China’s oil refinery industry in the recent years, the divide between Korea and China is expected to narrow in comparison with the one between Korea and Japan.
Table 3-9. Advanced Technology Levels of Intermediate Crude Oil Industries in Major Countries (as of 2013) Relative level (%) Technological divide (year)
U.S. Japan Korea China U.S. Japan Korea China
100.0 95.2 88.8 76.1 0.0 0.5 1.6 2.9
Source: Dongwon Choi & Yongwon Cho (2015), Ministry of Trade, Industry and Energy, Korea Evaluation Institute of Industrial Technology (KEIT), Study on Levels of Industrial Technology (2013)
Table 3-10. Comparisons of Technological Competitiveness of Major Countries’ Petrochemical Industries
Categories U.S. Japan Korea China
Relative level
(%) 100.0 94.2 80.2 74.8
Technological
divide (year) 0.0 0.7 2.5 3.3
Source: Dongwon Choi & Yongwon Cho (2015), Korea Evaluation Institute of Industrial Technology (KEIT), Industrial Technology R&D Strategy in Material Parts Industry (2013)
Tables 3-11, 3-12 and 3-13 below compare the export competitiveness of Korea and China by petroleum products, as well as the significance of petroleum products trade between the two countries using the revealed comparative advantage (RCA) index, trade intensity index, and trade complementarity index.
Korea’s RCA index (see Table 3-10) was above 1 for all petroleum products exports, except for heavy oil;
thus, it is evaluated to have comparative advantage. Compared with gasoline and diesel, which were placed between 1 and 2, jet fuel, lube base oil, and asphalt were much higher from 3 to 10, implying that Korea’s level of comparative advantage was on the high side. In contrast, none of the items goes over 1 in China, implicating that the oil industry showed a comparative disadvantage in contrast to other industries in China. Jet fuel was the only petroleum product close to 1, while other petroleum products were below 0.5.
However, if looking at trends, a different pattern emerges. First of all, overall figures in Korea and China in 2014 dropped as a whole due to shrinking global oil supply coupled with low oil prices. Therefore, we need to look at the general trend by excluding this period.
In Korea, petroleum products, except for lube base oil and asphalt, increased until 2012 and declined in 2013.
Despite this comparative disadvantage, all petroleum products, except for heavy oil, showed an upward trend in 2013. As for China, the proportion of its exports in the global trade market is increasing.
Table 3-11. RCA Index by Petroleum Products in Korea and China Categories Countries 2010 2011 2012 2013 2014
Gasoline
Korea 0.91 1.21 1.45 1.42 1.22
China 0.30 0.23 0.13 0.22 0.16
Diesel Korea 2.06 2.43 2.57 2.33 1.83
China 0.16 0.07 0.05 0.07 0.08
Jet fuel
Korea 3.68 4.15 4.48 4.18 3.27
China 0.73 0.77 0.77 0.85 0.67
Heavy oil
Korea 0.43 0.55 0.48 0.38 0.18
China 0.32 0.39 0.35 0.33 0.20
Lube base oil24
Korea 10.84 10.73 10.02 10.50 9.24
China 0.09 0.16 0.08 0.03 0.01
Asphalt Korea 5.60 3.33 4.82 5.71 4.84
asphalt China 0.10 0.13 0.08 0.11 0.10
Source: Trade Statistics, KITA (stat.kita.net), Petronet (www.petronet.co.kr), IHS Global Trade Atlas (www.gtis.com), UN Comtrade Database (comtrade.un.org), IHS Energy, 2015 Annual Long-Term Strategic Workbook - Refining and Product Markets: Regional Trade, (April 2015)
Next, the trade intensity index is an indicator that measures the importance of trade between two countries in particular industries. If the trade intensity index is larger than 1, it means trade between two countries is larger in scale in comparison with global trade. According to Table 3-12, the trade intensity index by petroleum products being exported from Korea to China significantly exceeded 1, indicating that Korea’s dependence on China in terms of petroleum product exports is very high. Reliance on gasoline, diesel, jet fuel, and asphalt were higher than other categories.
However, China’s reliance on Korea in terms of petroleum product exports was less than 1 on average. Even if the index had exceeded 1, it would have been a temporary phenomenon. This implies that the proportion of China’s exports of petroleum products going to Korea is relatively low. China might have delayed the opening of petroleum product markets in the process of signing the FTA with Korea in an attempt to develop its oil refinery industry.
Table 3-12. Trade Intensity Index by Petroleum Products in Korea and China Categories Trade
direction 2010 2011 2012 2013 2014
Gasoline Korea→China 0.00 45.28 61.26 139.33 37.35
24 In order to estimate the RCA of lube base oil, the global trade volume of lube base oil was estimated based on the export volume of lube base oil produced by countries that accounted for approximately 90% of the world’s production capacity as of early 2015. Thus, the RCA index is considered to be overrated compared with the actual index. According to HIS’s 2015 World Base Oil Manufacturing Capacities Survey and 2014 Finished Lubricant Market Shares, Korea’s production capacity involving lube base oil in 2014 was second highest at 12%. However, Korea’s proportion in the world’s consumption of lube base oil is only 2%, implying that Korea’s RCA of lube base oil is quite high.
Categories Trade
direction 2010 2011 2012 2013 2014
China→Korea 0.00 0.00 0.00 0.00 0.00
Diesel
Korea→China 14.14 24.42 42.14 47.64 18.71 China→Korea 0.19 0.08 0.04 0.38 0.21
Jet fuel
Korea→China 20.77 26.35 24.95 22.88 16.56 China→Korea 1.83 0.00 6.08 0.00 0.02
Heavy oil
Korea→China 4.50 4.90 3.91 2.65 1.68 China→Korea 0.83 0.96 0.27 0.38 0.19
Lube base oil
Korea→China 7.59 7.39 7.14 7.36 7.73 China→Korea 0.00 0.20 0.00 0.00 0.00 Asphalt Korea→China 22.13 20.07 20.47 22.41 17.13
asphalt China→Korea 0.00 0.06 3.38 9.18 0.05
Source: Trade Statistics, KITA (stat.kita.net), Petronet (www.petronet.co.kr), UN Comtrade Database (comtrade.un.org), IHS Energy, 2015 Annual Long-Term Strategic Workbook - Refining and Product Markets:
Regional Trade (April 2015)
These results are reconfirmed through the trade complementarity index between Korea and China (See Table 3-13). Based on the analysis of Korean exports and Chinese imports by petroleum products, the trade complementarity index from Korea to China continued be more than 50 until last year, indicating a very complementary relationship between Korean exports and Chinese imports. On the other hand, the trade complementarity index from China to Korea was well below 50, implying that the trade complementarity index between Chinese exports and Korean imports was somewhat low. In this regard, if the petroleum product market were fully open between the two countries, it would bring enormous benefits to oil refinery corporations in Korea.
Even so, it is noteworthy that the trade complementarity index from Korea to China shows a downward trend, as it implies that the more China delays the market opening of petroleum products, the more the future effects from an open market diminish. Therefore, in order for Korea to reap substantial benefits in the oil industry through the Korea-China FTA, the China petroleum product market needs to open very soon.
Table 3-13. Trade Complementarity Index between Korea and China
Trade Direction 2010 2011 2012 2013 2014 2015
Korea→China 56.84 57.64 59.63 58.08 54.44 51.73
China→Korea 12.72 13.92 20.60 25.40 25.01 18.95 Source: Trade Statistics, KITA (stat.kita.net), Petronet (www.petronet.co.kr), UN Comtrade Database (comtrade.un.org), IHS Energy, 2015 Annual Long-Term Strategic Workbook - Refining and Product Markets:
Regional Trade (April 2015)
In 2015, similar research on petroleum products was conducted by Dongwon Choi and Yongwon Cho, who arrived at equivalent results.25
Therefore, the Korea-China FTA carries both risks and opportunities for the oil industry. It is a matter of how to complement and make use of the agreement to maximize the positive impacts for Korea’s oil industry.
In Chapter 4, we theoretically analyze how the structural differentiation in the oil industry of Korea and China may influence the Korea-China FTA. From examining aspects of social welfare and the oil industry in Korea, we can propose directions to find more advantage for Korea in the Korea-China FTA.
25 From 2007 to 2014, the RCA index of both Korea and China, in relation to the crude oil industry, and Korea’s trade specialization index were analyzed. Korea’s RCA index was above the criterion of 1, implying that the country’s crude oil industry had comparative advantage. On the other hand, China’s RCA index went below 1, showing that the Chinese crude oil industry was at a relatively disadvantage. Also, Korea’s crude oil industry’s trade specialization index with China was higher than the global trade specialization index at above 0.8. Therefore, we can say that Korea’s crude oil industry is specialized in trade with China.