Korea's oil refineries are being hit by a series of bad news in addition to the falling oil prices and the global supply glut. That's because the government decided it would impose tariff duties on crude imports for use with naphtha and raise the mandatory share of biodiesel to 2.5 percent from current 2.0 percent from August next year. The ratio will be raised to 3.0 percent from 2018. Since 2007, the government has introduced a scheme as part of a measure to reduce greenhouse gas emissions to require oil refiners to mix vegetable oil in diesel fuel.
The Korea Petroleum Association estimated that the additional cost burden to the refiners due to the rise in the mandatory biodiesel ratio would be 85 billion won this year. It will like to increase to 100 billion won next year and 130 billion won by 2018. In addition, the refiners won't be able to improve their cost structure any time soon as they rely mostly on palm oil imported from Southeast Asia. The volume of domestically produced biofuels last year fell short of 420,000 tons, accounting for only 38.3 percent in total.
An oil refining industry official said, "The government's measure to raise biodiesel mixture ratio would only result in added burden to refiners as they will have to pay more for palm oil imports. Rather than forcing the refiners to comply with simplistic formulas, it is better to raise the mandatory ratio in step with the speed of biofuel import substitution."
Source: The Korea Economic Daily