SEOUL, 1 December 2005 — Saudi Arabia, the world’s biggest oil exporter, may invest up to $3.5 billion to build a plant in South Korea to process more profitable clean fuels, Seoul’s Energy Ministry said yesterday.
State-owned Saudi Aramco has a 35 percent stake in S-Oil Corp., but the Energy Ministry statement did not say whether Saudi Arabia would make the investment jointly with South Korea’s third-biggest oil refiner.
S-Oil spokesman P.G. Kim said they had not been informed of the possible new investment.
Crown Prince Sultan said during a recent meeting with visiting South Korean Prime Minister Lee Hae-chan he would order a positive consideration of the plan to build the Bunker-C cracking plant, the ministry said in the statement. It said the investment could reach between $3.0 billion and $3.5 billion for the plant, which processes fuel oil, or Bunker-C oil, into more profitable gasoline, diesel and kerosene.
Asian refiners are pouring billions of dollars into upgrading their refineries in an effort to meet tightening fuel standards throughout the region.
By the end of 2007, countries that consume more than half of Asia’s 24 million barrels per day (bpd) oil demand will move to lower-sulfur emission standards, a Reuters survey has found. By 2010, nearly all of Asia will have tightened specifications.
Analysts said the plant was highly likely to be built for S-Oil and would be the right move in terms of growth for the refiner given rising fuel demand by neighboring China, the world’s second-biggest oil consumer.
“The world needs cleaner fuels like diesel and gasoline more and more,” said Cha Hong-sun, an analyst at Goodmorning Shinhan Securities. “The new plant is a desirable move for the company’s future growth in the medium- and long-term.”
The move should result in a rise in S-Oil’s demand for high-sulfur crude oil from Saudi Arabia, the biggest oil supplier to South Korea, which is the world’s number four crude oil buyer. S-Oil sources all of its crude from Saudi Aramco.
South Korea imported 21.2 million barrels of crude oil per month on average from the Kingdom last year.
S-Oil already has a 290,000 bpd Bunker-C cracking plant. Its capacity to process crude into various oil products stands at 580,000 bpd. The refiner’s shares closed flat at 75,800 won yesterday, versus a 1.41 percent gain on the wider index.
S-Oil’s capacity to process clean fuels currently exceeds that of bigger domestic rivals. But top refiner SK Corp. and GS Caltex Corp. are rapidly expanding their capacity to cash in on rising regional demand for cleaner fuels.
SK expects to decide early next year whether it will build a $2 billion plant - a second fluidized catalytic cracker - to process about 60,000 barrels of heavy oil daily into more value-added light products.
GS Caltex, a 50:50 joint venture between South Korea’s GS Holdings Corp. and US oil major Chevron Corp., has said it planned to invest 1.2 trillion won ($1.16 billion) to build a diesel-making hydrocracker with a daily capacity of between 50,000 and 60,000 barrels by 2007.
Fourth-ranked Hyundai Oilbank Corp. was also considering building a cleaner-burning fuel plant, with a final decision to come before the end of this year, Hyundai CEO Seo Young-tae told Reuters in late September.