Korea's SK readies output cuts as crude cargoes back up

SK Innovation, South Korea's largest refiner, will likely need to further reduce the operating rate of its 840,000 b/d Ulsan complex because the impact of the Covid-19 pandemic on oil products exports will be felt more fully this summer.

The operating rate may have to be cut to around 60-70pc of capacity in June-July, said SK, which has pared crude runs to 85pc since the beginning of March because of slumping fuel demand. The company said the plant's residual oil crackers have been throttled back to a reduced operating rate for the first time in three decades for a reason other than maintenance or repairs. SK sees the crackers slowing to about a 70pc operating rate by June.

SK has run out of space to store the crude shipments that it is obligated to receive under long-term supply contracts, with demand for jet fuel, gasoline and other products slumping as the pandemic stalls economies around the globe. Its storage tanks in Ulsan are full to the brim, holding about 12mn bl, and a recent agreement to lease 1.8mn bl of storage capacity from state-run oil company KNOC in Daesan, southwest of Seoul, has done little to ease the pressure.

The company said it has been left with no other choice than to delay taking delivery of some arriving crude shipments. And SK incurs higher costs as tankers wait at sea off Ulsan, essentially serving as floating storage vessels. The refiner must pay 100mn won ($81,300) per day, depending on the size of the tanker, while the ships wait at sea to bring in their cargoes.

Exports typically account for more than half the sales of South Korean refiners. The Covid-19 outbreak has sharply reduced demand in the country's key export markets, such as China. Vietnam's state-run oil company PetroVietnam is lobbying Hanoi to completely halt products imports to bolster the domestic refining industry.

South Korea's government is planning additional support measures for the country's refiners after earlier this month agreeing to defer import taxes, make state-owned storage space available to lease and make more purchases for its strategic petroleum reserves.

By Tony Cox

source: Argus Media