- Solid diesel demand expected ahead of IMO 2020.
- Company’s Q2 profit down by 42% to 498 billion won ($420.91 million).
- Gasoil cracks to increase in Q4 due to pre-stocking.
- Plans to start its own desulphurisation unit in 2020.
South Korea’s SK Innovation, owner of South Korea’s biggest oil refiner SK Energy, said that refining margins are expected to improve, driven by solid diesel demand before new rules on marine fuels take effect from 2020, reports Reuters.
Second quarter profit
The company posted a 42% drop in its operating profits for the second quarter to 498 billion won ($420.91 million), dragged down by weaker margins during the period, compared with 852 billion won over the same period a year earlier.
Shares of SK Innovation closed up 0.6% before the earnings announcement, while the KOSPI index ended 0.4% lower.
The company said in an earnings statement that diesel demand is expected to grow as the International Maritime Organization (IMO)’s new shipping fuel regulations is implemented from 2020.
IMO fuel regulation
The IMO’s marine fuel regulations will limit the sulphur content in shipping fuel to 0.5% from the current 3.5%.
The stricter rules will require the shipping industry to switch to cleaner fuels based on gasoil or diesel fuel from high sulphur fuel oil (HSFO).
Crack spreads likely to rise in Q4
Kim Ji-yong, a senior official at SK Energy, said in a call with analysts that the profit margin for producing gasoil, known as crack spreads, are likely to rise in the fourth quarter due to pre-stocking process ahead of the IMO implementation.
S-Oil, South Korea’s third-largest refiner, also said it expected the inventory build-up for IMO compliant fuel to lift refining margins in coming months.
Desulfurization unit with 40,000 barrels per day capacity
In preparation for change over to lower sulphur fuels, SK Innovation announced in 2017 that it would build a vacuum residue desulfurization unit (VRDS) by 2020, with a capacity to produce 40,000 barrels per day of low sulphur fuel oil.
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Source: Reuters
