Thai Oil to Study Investments in Refinery Enhancement

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Researched by Industrial Info Resources (Sugar Land, Texas)--Thai Oil plc (Bangkok, Thailand), Thailand's largest oil refiner, has announced plans to perform feasibility studies for proposed investments of $2.3 billion to $2.9 billion on refinery enhancement during the next three to four years. The proposed investment will include $1.3 billion toward development of a conversion facility, which will produce high-value products such as diesel and petrol.

About $100 million to $200 million will be invested in upgrading Thai Oil's lubricant oil production facility, and $300 million to $500 million to augment production of downstream products from the benzene and paraxylene manufacturing units. Thai Oil is also exploring the possibility of spending $100 million to $200 million to expand the capacity of the company's refinery to 300,000 barrels per day (BBL/d). Thai Oil's refining capability stands at about 275,000 BBL/d. The augmentation program is likely to include enhancement of paraxylene production capacity to 610,000 tons per year, from the present level of 489,000 tons per year. The company also proposes to invest about $60 million to $70 million in construction and expansion of its deep-sea port.

Company officials have indicated that it has become critical for Thai Oil to perform the augmentation program to not only improve the company's production efficiency but to maintain price competitiveness of products in the region. Since the past year, refining companies in Asia have being facing issues of low refining margins. Thai Oil hopes that the expansion program will help the company reduce risks associated with dipping margins.

Experts have indicated that the average industry refining margin is about $1 to $2 per barrel. During the first half of this fiscal year, Thai Oil recorded a gross refining margin of about $2.60 per barrel and integrated refining margin of about $5.70 per barrel. Last fiscal, during the same period, Thai Oil's integrated refining margin was about $8. Company officials have observed that Thai Oil's diversification into petrochemicals, power, information technology, marine services and lubricants has helped the firm maintain higher refining margins than competitors.

Thai Oil is optimistic that the company's proposed investments will enable it to become one of the most flexible refiners in Asia. The flexibility will allow the firm to curb losses by shifting production from one product to another, depending on market demand. The company recently moved away from production of jet fuel to diesel, after the slump in tourism activity led to a decline in jet fuel demand.

In a related development, Thai Oil has announced that it will run the company's 275,000-BBL/d refinery at full capacity to provide feedstock for the petrochemicals facility. This comes at a time when several global refiners are resorting to cutbacks in production and run rates, due to declining refining margins.

Thai Oil is partly owned by PTT Public Company Limited (Bangkok), which has stakes in five of the seven operating refineries in Thailand. The group accounts for 36% of the domestic refining capacity in terms of equity. The refining business accounts for about 50% of Thai Oil's profits, while the lubricants and petrochemicals divisions contribute 20% and 30%, respectively. Thai Oil's refinery, considered the largest single-site refinery in the country, accounts for 25% of the total refining capacity in Thailand.

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