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Analysis: South Korean refiners' domestic market share may shift post IMO 2020

Increase font size  Decrease font size Date:2019-03-14   Views:75
South Korean refiners are set to compete fiercely for the domestic middle distillates and low sulfur fuel oil market share when the International Maritime Organization implements new global sulfur limit rule for marine fuels next year, with SK Innovation well positioned to expand its lead thanks to its new desulfurization unit and dominant supply network.

South Korea's four major refiners -- SK Innovation, GS Caltex, Hyundai Oilbank and S-Oil -- have been dominating the domestic middle distillates market with the four suppliers fulfilling more than 98% of the country's gasoil demand over the past decade.
The competition for the domestic gasoil market share has been well balanced in recent years with no single refiner taking a significant lead over others.

South Korea's biggest refiner, SK Innovation, held 32% of the domestic gasoil market share in 2017, GS Caltex held 25%, while Hyundai Oilbank and S-Oil took 21.5% and 20% share of the pie, respectively, according to latest data from state-run Korea National Oil Corp.

However, the IMO's looming sulfur regulations could shake the balance slightly with potential for SK Innovation to extend its lead as the refiner aims to boost its ability to process very heavy and sour crude feedstocks more efficiently into low sulfur fuels.

SK Innovation is currently building a vacuum residue desulfurization facility at its Ulsan Complex, set to be ready by the second quarter of 2020.

In addition, South Korean shipping industry sources noted that with its wide network of supply, SK is likely to capture more market share as the company is able to supply across west, south and eastern parts of South Korea with two refineries at Ulsan and Incheon and storage tanks at Yosu, Busan and Pyongtaek.

The refiner is also currently the largest exporter of gasoil at 500,000 mt/month of exports.

"Surpluses of gasoil can well be used to complement the shortage of LSFO or IMO-compliant fuels, for bunker use," S&P Global Platts' head of analytics Kang Wu said.

"SK is well positioned to sell all over Korea and they are already producing LSFO.

They are already exporting gasoil and if they can switch from HSFO to LSFO, they can reduce HSFO imports from Singapore," a South Korean shipping source said.

SK Innovation's trading arm SK Trading International currently supplies 150,000 mt/month of bunker fuel, of which about half is imported from Singapore, company sources said.

Meanwhile, Seoul-based energy and commodities market analysts said Hyundai and S-Oil may take a stab at closing the gap with the top suppliers following recent slew of plant upgrades and modification works.

Hyundai Oilbank for one, has upgraded all of its secondary units and has been operating a solvent deasphalting process at its Daesan Plant, while S-Oil's new residue upgrading unit and downstream olefins unit at its Onsan complex started up late last year.

Industry officials in Seoul noted that there is growing interest in LSFO as well as increasing gasoil blending in the marine fuel pool, encouraging the refiners to maximize gasoil yields over the coming quarters.

S-Oil, Hyundai Oilbank and SK Innovation already have the capability of producing LSFO and ramping up gasoil output, company sources said.

"How the market share between the Korean refiners change will depend on how HSFO volumes shift to gasoil and LSFO," a market research manager at Korea Petroleum Association based in Seoul said.

With low sulfur fuel oil expected to rapidly take up the demand for high sulfur fuel oil in 2020, GS Caltex's share in the domestic fuel oil market may face some downward pressure as it has no plans for LSFO production yet, industry sources said.

"There is no plans [for GS Caltex to produce LSFO] yet, it is still under review," a company source said.

Currently, GS Caltex is the largest supplier of bunker fuel in South Korea, as it is the only refiner which produces both RMG and RMK grade of bunker fuels.

GS Caltex has been cutting bunker fuel production since Q3 2013, but the company still supplies to meet more than half of the country's bunker fuel demand, a company source told S&P Global Platts.

South Korea has consumed around 403,000 mt of bunker fuel in January, latest data from KNOC showed.

"Korea is well covered for 2020 as most refiners have confirmed they will be able to supply 0.1% fuel oil next year. [However], the volume of LSFO that will be produced is still unclear," a fuel oil trader with close knowledge of the South Korean domestic market said.

"GS can still be dominant if there are a large number of scrubber vessels requiring HSFO," the trade source added.
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