SK Corp, South Korea's largest refining company, expects to decide early next year whether it will build a $2 billion facility to process more profitable clean fuels, company officials said on Tuesday.
In an interview with Reuters, the officials also said refining margins would stay robust in the medium term as capacity expansion in the industry still lagged demand growth, although margins have weakened this quarter.
The new project plan, if implemented, would enable SK to cash in on rising regional demand for cleaner fuels, particularly from the US West Coast, as a result of tougher environmental standards, they said.
"If we build a new RFCC, I think the major export (destination) should be America," said Jung Heon, vice president for corporate strategy and planning.
No new US refineries have been built for nearly 30 years, and growing fuel demand has led to a tightly stretched refining system in the world's biggest oil consumer, helping to push oil to record highs in August after plants were damaged by hurricanes.
SK already exports around 10 percent of its fuel production to the US, though high shipping costs across the Pacific often limit further spot exports.
By the end of 2007, countries that consume more than half of Asia's 24 million barrels per day (bpd) of oil demand will move to lower sulphur emission standards, a Reuters survey has found. By 2010 nearly all of Asia will have tightened specifications.
Shares of SK have severely underperformed its peers in the Asia Pacific region this year, which analysts attribute partly to the company's lack of refining capacity for clean fuels, heavy exposure to the highly cyclical petrochemical industry, and relatively sluggish domestic refining margins.
Shares of SK, which runs the world's second-largest single refining complex, have lost more than five percent so far this year, compared with an average gain of almost 25 percent in the stocks of the region's refining companies, Reuters data showed.
SK said recently it was considering building a second fluidised catalytic cracker (FCC) to process about 60,000 barrels of heavy oil per day into more value-added light products. But it did not give details.
"We're worried about the spread of bunker fuel oil versus FCC gasoline stock," Jung said, adding the spread could drop $5 versus Q3.
"That's another consideration for our operating project," Jung said. "The overall economics of refineries in the fourth quarter will decrease."
An FCC project could cost some 2 trillion won ($1.94 billion) and would take about 40 months from the planning stage to completion, the company has said. SK signed a preliminary pact in September to buy smaller domestic rival Inchon Oil Refinery for 3.2 trillion won, in a deal that would boost its refining capacity by a third to 1.12 million barrels per day.
Katharine Kho, an assistant vice-president, said the acquisition was aimed at expanding SK's exports to booming China and would be finalised by February.