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South Korea's SK Energy increases gasoline, gasoil output in H1 ahead of IMO 2020 rule

Seoul — 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, while reducing output of fuel oil, a company official said Monday.

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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.

The refiner produced 56.37 million barrels of gasoil over January-June, up 6.9% from 52.74 million barrels a year earlier.

It also increased gasoline output by 4.2% year on year to 29.09 million barrels of gasoline in the first six 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.

"The rise in auto fuels production such as gasoil and gasoline was driven by stronger local demand on lower retail prices, thanks to oil tax reduction," the company official said.

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 Korea National Oil Corp.

The South Korean government cut taxes on the auto fuels by 15% for six months from November last year with a view 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%.

SK Energy said it would increase production of the light oil products later this year to brace for the IMO fuel regulations.

"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," the official said.

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.

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. The VRDS will increase the company's heavy oil upgrader capacity to 239,000 b/d from current 199,000 b/d.

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 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.

-- Charles Lee, newsdesk@spglobal.com

-- Edited by Nurul Darni, nurul.indriani.darni@spglobal.com