CAPITAL: Seoul

MONETARY UNIT: Won

REFINING CAPACITY: 2,540,100 b/cd

OIL PRODUCTION: None

OIL RESERVES: None

GAS RESERVES: None

The restructuring of South Korea`s refining and petrochemicals industries continued at a brisk pace in 1999, brightening the outlook for the nation`s downstream sector.

Hyundai Oil Co. acquired the oil refining division of Hanwha Energy Co. Ltd., while a consortium led by France`s Banque Paribas wanted to acquire a 28.4% stake in Ssangyong Oil Refining Co. Ltd. owned by Ssangyong Cement.

SK Corp., South Korea`s domestic industry leader, also emerged as a potential buyer for the Ssangyong stake, but its bid was blocked by Saudi Aramco, which had a 35% stake in Ssangyong Oil Refining.

Meanwhile, in the petrochemical sector, Samsung General Chemical was merging its operations with Hyundai Petrochemical into a new company in which Japan`s Mitsui & Co. was taking a 25% stake, while Hanwha Chemical Co. and Daelim Industrial integrated their naphtha cracking centers at the Yeochon Petrochemical Complex. In the end, South Korea`s oil sector was dominated by four refiners: SK Corp. had around 30% of the market, LG-Caltex 26%, Hyundai-Hanwha 16%, and Ssangyong Oil Refining 16%. The rest was held by independents.

Analysts said South Korean refiners would enjoy the best profits in Asia during 2000-02 even as the region suffered through continuing refining overcapacity.

They said profitability would be helped by protected domestic refining margins, a strong demand recovery, and a lack of capacity expansion. The South Korean refining margin in 1999-2000 was forecast at $7.70/bbl against a regional average of $0-0.50/bbl.

They said South Korean year-to-year oil demand growth would be 5% in 2000.

Long term, heavy oil cracking and desulfurization capital investments were expected to expand to meet the worldwide trend toward reducing sulfur content. By the end of 2001, South Korea`s heavy oil cracking capacity would be expanded by 80,000 b/d to 127,000 b/d, improving the nation`s petroleum demand and supply structure.

The industry was faced with meeting tightened standards for the sulfur content of heating oil and gasoline, and refiners were expected to expand desulfurization facilities for kerosine and light oil by 80,000 b/d by 2003.

Processing activity

Abu Dhabi`s International Petroleum Investment Co. bought 50% of Hyundai Oil Refining Co. from Hyundai group for about $500 million.

In order to keep a 50% stake, Hyundai shareholders must invest $75.8 million in the company, which had 665,000 b/d of capacity. Hyundai took over Hanwha Energy Co. Ltd.`s refining division early in 1999 and soon offered to sell half.

State-run Korea National Oil Corp. expanded from 63 million bbl to 95 million bbl its crude oil storage depot in Yeochon, southwest of Seoul.

An explosion and fire in May 1999 leveled SK Corp.`s 30,000 b/d heavy oil upgrading plant near Seoul.

Daelim Industrial Co. and Phillips Petroleum Co. agreed to make a Daelim petrochemical plant at Yosu a joint venture company.

Phillips would earn 60% stake in the company in return for an unspecified investment. The plant made styrene butadiene copolymer.

Enron Corp. bought stakes in three gas utilities and a power plant in South Korea from Byucksan Group for $130 million in cash and assumed debt.

Enron acquired the stakes through SK-Enron Co., a joint venture it formed in January 1999 with SK Corp., a South Korean gas company. The venture paid $60 million in cash and assumed $70 million in debt.

SK-Enron now owns 51% of Bobae City Gas Co., serving the city of Iksan; 87% of Daeil City Gas Co., selling gas in Chunchon; 100% of Dongbu Haeyang City Gas Co., a utility serving Sunchon; and 87% of Byucksan Energy Co., owner of a 21-Mw coal-fired cogeneration plant in Iksan.

Natural gas

South Korea said development of the first commercial gas field off its coast could cut the nation`s energy import bill 3.5% by 2002.

The field, off the southern port city of Ulsan, was found after 30 years of offshore exploration.

Korea National Oil Corp. planned to spend about $200 million to build the gas production platform, pipelines, and underground storage in 2000.

The field had about 200 billion cu m of recoverable reserves.

KNOC was continuing delineation drilling. It said the region could contain a further 100-150 billion cu m.

Meanwhile, Qatar`s Ras Laffan Liquefied Natural Gas Co. sent its first cargo of LNG to South Korea, beginning a 25-year deal with Korea Gas Corp. (KOGAS).

Rasgas was Qatar`s second LNG venture, based on its North Field gas reserves, the largest single concentration of gas in the world.

Rasgas was 63% owned by state-owned Qatar General Petroleum Corp. and 25% by Exxon Mobil Corp. Japanese firms and nominees of KOGAS held the balance.

KOGAS will buy 4.8 million tonnes/year of LNG.