South Korea Investing $10 Billion in Refining Industry

---

Researched by Industrial Info Resources (Sugar Land, Texas). Despite being dependent on imports for all its oil requirements, South Korea is looking to maintain and develop its status as one of Southeast Asia’s leading oil and petroleum product exporters. As always in the larger Asian trading region, the demand from China as a key customer indicates the prospects for long and short-term margins. Out of an export total of 720,000 barrels per day (bpd) in 2005 from South Korea, China was in the market for 192,000 bpd, or 27% of the total exports, according to government statistics. In the period from January to May 2006, total export sales were down to 674,000 bpd of which 188,000 bpd went to China. This represents reductions of 6.3% and 2.1%, respectively. But Chinese plans for greenfield petroleum refinery projects and expansion plans for existing plants could further curb imports from South Korea in the future.

Adding value to meet demand for low-sulfur light oil products, like diesel and kerosene, is a key factor in refinery expansions. S-Oil (KSE:605440.KS) (Seoul, South Korea) plans an investment of $3.7 billion to build a 75,000 bpd hydrocracker and a 75,000 bpd reside fluid catalytic cracker (RFCC) at the Onsan refinery, which has a capacity of 580 bpd, for a total expansion of 480,000 bpd. Refineries incorporating RFCC into their upgrades will reduce the bill for purchasing naphtha and gasoline feedstock. With the sourcing of light sweet crude in the global crude market is becoming constricted, S-Oil has a secure source in its 35% stakeholder Saudi-Aramco (Riyadh, Saudi Arabia). All S-Oils expansion projects are due for completion in 2010.

Hyundai Oilbank (Seoul) is also going the RFCC route with a $2.1 billion expansion program that will include a 70,000 bpd cracker at the 390,000 bpd Daesan refinery scheduled for completion in 2010. SK Corporation (KSE:SK) (Seoul) is building up crude supply sources in West Africa to supply its $2 billion RFCC cracker at the 275,000 bpd Incheon refinery, which has a 2008 commissioning date.

At its Yeosu 650,000 bpd refinery, GS-Caltex (NYSE:CVX) (San Ramon, California)I is investing $1.4 billion to expand the current capacity of the 90,000 bpd RFCC unit to 145,000 bpd by 2007. The company is also constructing a 150,000 bpd vacuum distillation unit and a 55,000 bpd hydrocracker.

With up to 500,000 bpd of greenfield refinery project capacity and 400,000 bpd top-end product expansion plans with an investment value of $10 billion plus due to come on stream by 2010, South Korea must keep developing export markets as the home market moves on to plateau. But the growth rate of developing markets in the Asian region, is open-ended, and even if China has temporarilyy tapered, India, which is also targeting a ‘swing’ exporter role of refined petroleum products, is due to witness a massive growth rate in auto ownership and middle class petrochemical product consumption.

Industrial Info Resources (IIR) is a Marketing Information Service company that has been doing business for over 23 years. IIR is respected as the leader in providing comprehensive market intelligence pertaining to the industrial processing, heavy manufacturing, and energy-related industries throughout the world.