- SK Energy increases gasoline and gasoil production in the first half of the year on solid local demand and limits HSFO production ahead of IMO 2020.
- The refiner produced 56.37 million barrels of gasoil over January-June, up 6.9% from 52.74 million barrels a year earlier.
- It increased gasoline output by 4.2% year on year to 29.09 million barrels of gasoline in the first 6 months, compared with 27.92 million barrels in the same period last year.
- Its fuel oil production fell 2.1% year on year to 3.29 million barrels over January-June, compared with 3.36 million barrels a year ago.
- South Korea’s gasoil demand climbed 4.1% year on year to 85.57 million barrels in H1 and gasoline consumption rose 4.1% year on year to 40.61 million barrels.
- Persistent tightness in HSFO supply in South Korea and rise of supply in Japan, caused 380 CST bunker fuel price spread widened to a record high recently.
South Korea’s top refiner SK Energy has increased production of gasoline and gasoil in the first half of the year on solid local demand, and limits HSFO production, reports Platts.
Uptick of gasoil demand
The official said the company will further raise output of light products later this year ahead of the new International Maritime Organization 2020 marine fuel regulations.
The IMO is moving forward with a marked reduction in the global maximum sulfur content of marine fuel on January 1, 2020.
“Gasoil demand is expected to grow as the IMO regulations will be implemented from January next year,” the company said.
Refiner’s output
- The refiner produced 56.37 million barrels of gasoil over January-June, up 6.9% from 52.74 million barrels a year earlier.
- It increased gasoline output by 4.2% year on year to 29.09 million barrels of gasoline in the first 6 months, compared with 27.92 million barrels in the same period last year.
- Its fuel oil production fell 2.1% year on year to 3.29 million barrels over January-June, compared with 3.36 million barrels a year ago.
Firm local demand
The company said that the rise in auto fuels production such as gasoil and gasoline were driven by stronger local demand on lower retail prices. He attributed this to oil tax reduction.
- South Korea’s gasoil demand climbed 4.1% year on year to 85.57 million barrels in H1.
- While gasoline consumption also rose 4.1% year on year to 40.61 million barrels in the period, according to the Korea National Oil Corp.
Extension of tax cut period
The South Korean government cut taxes on the auto fuels by 15% for six months from November last year to help lower consumers’ costs amid the country’s slowing economy.
The temporary measure was scheduled to end in May, but the government has decided to extend the tax cut by four months until the end of August, with tax cut rate falling to 7% from 15%.
Increased production
SK Energy said it would increase production of the light oil products later this year to brace for the IMO fuel regulations.
The company said margins of gasoil and low sulfur light products are expected to sharply improve in the second half on pre-stocking process by shippers as IMO fuel regulations are nearing.
Commercial production from VRDS
The refiner has been building a vacuum residue desulfurization or VRDS since 2017, with a capacity of 40,000 b/d in its Ulsan complex.
“We aim to complete construction of VRDS in February next year and start commercial production the VRDS as early as possible to meet demand under the IMO rules,” the company official said.
About VRDS
- The VRDS will transform heavy fuel oil into value-added low sulfur light products, producing 34,000 b/d of 0.5% sulfur fuel oil and 6,000 b/d of gasoil.
- It will increase the company’s heavy oil upgrader capacity to 239,000 b/d from current 199,000 b/d.
Economic slowdown
The official said SK Energy produced 26.71 million barrels of naphtha in H1, down 0.9% from 26.95 million barrels a year earlier, amid South Korea’s economic slowdown.
But its jet fuel production climbed 4.7% year on year to 16.77 million barrels in H1.
The company produced a total of:
- 146.36 million barrels of refined oil products for the first six months which also include kerosene and
- LPG over January-March, up 3.8% from 141.02 million barrels a year earlier.
SK Energy’s crude distillation units
SK Energy operates five crude distillation units with a combined capacity of 840,000 b/d in its Ulsan complex. Its crude run rate was 90% in Q2, up from 88% a year earlier but down 95% in Q1.
SK Energy’s affiliate SK Incheon Petrochem also produced 6.85 million barrels of gasoil and 2.11 million barrels of gasoline in H1, down from 7.41 million barrels of gasoil and 2.21 million barrels of gasoline a year earlier.
SK Incheon produces other products, such as jet fuel, LPG, kerosene and naphtha, among others. Its crude run rate was 84% in Q2, down from 87% a year earlier and from 87% in Q1.
HSFO supply – South Korea Vs Japan
According to another article published in Platts, the delivered 380 CST bunker fuel price spread between South Korea and Japan widened to a record high recently, due to persistent tightness in high sulfur fuel oil supply in South Korea and rising supply in Japan.
- The South Korea versus Japan delivered 380 CST bunker spread rose $6/mt day on day to $81.75/mt, the highest on record, S&P Global Platts data showed.
- Delivered 380 CST bunker in South Korea typically trades at a premium to a similar grade delivered in Tokyo Bay.
- The price of delivered 380 CST bunker in South Korea averaged $13.54/mt higher than that in Tokyo Bay so far this year, Platts data showed.
- Tokyo Bay delivered 380 CST bunker last traded at a premium to South Korea’s on June 4, when it was assessed at $406.75/mt, $2.75/mt higher than the South Korean price, the data showed.
South Korea’s HSFO supply tightened?
South Korea’s high sulfur bunker fuel supply is expected to tighten further, as refiners in the country are limiting HSFO production.
This move is to prioritize 0.5% sulfur marine fuel output, in preparation for the implementation of the IMO 2020 regulation from January 1, 2020.
A South Korean refiner said that they will be producing less HSFO from October, in just small quantities until their 0.5% sulphur marine fuel production begins in Q2 2020.
No HSFO stock
With less than four months before the IMO 2020 deadline, one of the South Korean refiners has limited its HSFO inventory to nearly zero, a Seoul-based bunker trader said.
“[They] have no more [HSFO] stocks at all … two other refiners are still selling to them,” he added.
Demand for high sulfur bunker fuel is expected to gradually trend lower going into the end of the year.
“No one wants to import HSFO from October,” the bunker trader said.
Rising HSFO supply in Japan
Conversely, in the Japan bunker market, HSFO supply has been rising steadily in August, as refiners raised refinery run rates to meet gasoline demand for the driving season, traders said.
“It’s the driving season [now] and fuel oil supply is very heavy … many suppliers have been very eager to sell HSFO,” a Tokyo-based trader said.
Spot order cancellation
In addition, excess bunker fuel stocks from the recent cancellation of spot orders due to Typhoon Krosa has made suppliers rather keen to sell the product, traders added.
“The number of vessels calling [at Japanese ports] is lower than usual, so demand for bunkers has fallen accordingly too,” the Tokyo-based trader said.
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Source: Platts
