SK Energy and S-Oil are promoting a plan to extend their supply contract for low-cost gas stations by one year. The contract signed two years ago is set to expire this year, but it could be extended for another year twice, according to the terms of the contract. This is seen as an effort to secure stable demand in a situation where international oil prices are not rising.
According to the refining industry on the 10th, SK Energy has decided to extend the purchase contract for low-cost gas stations concluded with Korea National Oil Corporation (KNOC) and Korea Expressway Corporation, while S-Oil is looking to do the same with NongHyup. SK Energy and S-Oil were awarded fuel supply responsibilities from the bidding results for low-cost gas stations held on Aug. 10, 2023. Consequently, SK Energy has been responsible for supplying fuel to low-cost gas stations of Korea National Oil Corporation and Korea Expressway Corporation until September 30 this year, while S-Oil has supplied fuel to NongHyup's low-cost gas stations.
The contract from that time includes options for a 2-year supply contract as well as 1-year + 1-year contract extension options. The two companies plan to serve as suppliers for low-cost gas stations until September of next year. An official from the refining industry noted, "The existing contract conditions are not bad, so Korea National Oil Corporation and others are in the process of negotiating the contract extension."
The decision by SK Energy and S-Oil to pursue an extension of the low-cost gas station contracts appears to be due to ongoing concerns about a global economic downturn. The tariff war initiated by the United States has raised fears of economic recession and the potential for decreased demand for oil products.
From the refiners' perspective, securing a fuel supply contract for low-cost gas stations allows for stable access to the domestic market. According to the contract from two years ago, SK Energy and S-Oil supplied 3 billion liters of fuel over the course of two years.
An official from the refining industry remarked, "Since the supply for low-cost gas stations is based on the lowest bid, the revenue is not significant, and it is often referred to as a 'chicken rib' (referring to something that is not very useful but too valuable to discard), but there is an advantage in being able to secure domestic volume."