S-Oil, Major Plant Scheduled Maintenance Underway

[Asia Economy Reporter Park So-yeon] Amid the sharp decline in demand for petroleum products due to the spread of the novel coronavirus infection (COVID-19), S-Oil is conducting regular maintenance across all facilities including refining, lubricants, and petrochemicals. This is interpreted as a move to defend profitability as international oil prices plummeted along with the steep drop in oil demand caused by COVID-19.

According to the refining industry on the 16th, S-Oil plans to carry out regular maintenance starting as early as the second quarter of this year on the Crude Distillation Unit (CDU) No. 1, Residue Fluid Catalytic Cracking (RFCC) unit, Polypropylene (PP) and Propylene Oxide (PO) production facilities, and the Hydrodesulfurization (HDT) process for lubricating base oil. They are currently adjusting production volumes and work schedules.

An S-Oil official said, "Considering the worsening market conditions due to decreased demand, this plan was made," adding, "The specific timing and duration will be announced at the end of this month during the first-quarter earnings release after a comprehensive review of market conditions." S-Oil plans to appropriately utilize a three-month flexible work system for this regular maintenance.

The daily production capacity of CDU No. 1 is 90,000 barrels, which accounts for about 13.4% of S-Oil's total production. The propylene produced at the RFCC is about 200,000 tons annually, PP has an annual capacity of 405,000 tons, and PO is about 300,000 tons. Industry insiders expect S-Oil to flexibly adjust production volumes during this regular maintenance period.

Recently, due to the plunge in international oil prices and the demand decrease caused by the spread of COVID-19, the refining industry is suffering losses the more they operate their plants. Refiners have responded by partially lowering operating rates at the beginning of the year, but as the overall industrial situation worsens due to COVID-19, they have resorted to the drastic measure of conducting early regular maintenance.

Earlier, Hyundai Oilbank also stopped operations at its Daesan No. 2 plant on the 8th and began a 43-day regular maintenance schedule. The No. 2 plant produces 360,000 barrels of petroleum products per day, accounting for two-thirds of Hyundai Oilbank's total production capacity.

GS Caltex's Yeosu plant is also undergoing a regular maintenance schedule. The Yeosu plant is GS Caltex's main facility, equipped with the world's fourth-largest single refinery capacity among global refineries.

An official from the refining industry explained, "Refiners are conducting regular maintenance because they judge that the current market conditions are the worst," adding, "If regular maintenance is scheduled for this year anyway, advancing it is more cost-efficient."

Meanwhile, the Singapore complex refining margin in the second week of April was -$0.7, marking the fourth consecutive week of negative margins. This is the first time since Reuters began compiling related statistics in 2014 that refining margins have been negative for four straight weeks. Accordingly, the first-quarter operating losses of the four domestic refiners (SK Innovation, GS Caltex, S-Oil, Hyundai Oilbank) are expected to exceed the previously forecasted range, reaching about 2.5 trillion won. An industry insider explained, "With adverse factors such as negative margins and a sharp drop in demand overlapping, losses could reach the trillion-won level."