Seoul (Platts)--29Jan2008

Iraq has halted crude exports to South Korea's top oil refiner SK Energy
in protest at its involvement in an "illegal" exploration deal in northern
Iraq, a South Korean energy ministry official said Tuesday.
Iraq has stopped crude shipments since this month and suspended an annual
contract under which it had exported 90,000 b/d to SK Energy," an official at
the Commerce, Industry and Energy Ministry said.
Last month, the Iraqi government notified SK Energy, South Korea's top
refiner and sole buyer of Iraqi crude, that it would halt crude shipments if
South Korean companies did not scrap an oilfield project in Kurdistan.
Iraq has been angered by the project being promoted without the
permission of the central government, the energy ministry source said.
The official said South Korea would not give up the project despite the
Iraqi move. "There is no change in our position to go ahead with the project,"
the official said. "It is part of an internal dispute in Iraq and we are not
involved in it," he said.
Iraq's central government has been at odds with regional governments over
control of new exploration areas.
A South Korean consortium led by state-run Korea National Oil Corp. and
Iraq's Kurdistan Regional Government in November signed a production sharing
contract for the Bazian block located in the Kurdish-controlled region. KNOC
has a 38% stake in the consortium, while SK Energy has a 19% stake. The Bazian
field is estimated to hold 500 million barrels of crude oil.
The official downplayed the impact of the suspension of Iraqi crude
deliveries. "They will be no changes in domestic prices over the dispute," he
said, noting that Iraq accounted for less then 3% of crude imports last year.
The shortage will be covered by purchases on the spot market, the
official said. South Korea can also reduce its reliance on imports from Iraq
by reducing the exports of oil products, he added.
SK Energy's spokesperson declined to comment, but a company source said
the refiner is in discussions with Iraq to resolve the dispute.
"SK Energy has to pay a little more to buy crude in the spot market than
the annual contract, but it seems ready to shoulder the cost to keep the
Kurdish project afloat," the source said.
SK Energy is spearheading upstream oil projects abroad for energy-poor
South Korea, which imports all of its crude oil requirements, more than 80% of
which comes from the volatile Middle East.