In Line with IMO's Strengthened Environmental Regulation
SK Innovation Co., the nation’s leading oil refiner, is taking the stricter environmental regulations of the International Maritime Organization (IMO) as an opportunity to expand its low sulfur oil business.
According to SK Innovation on Sept. 3, the IMO passed a regulation in 2016 to limit the amount of sulfur in vessel fuel from the current 3.5 percent to 0.5 percent to protect the environment.
Accordingly, the marine fuel oil market will be reorganized around low sulfur oil, such as low sulfur fuel oil (LSFO) containing less than 0.5 percent of sulfur oxides, marine gas oil (MGO) and liquefied natural gas (LNG), starting January 2020.
SK Innovation is taking the regulatory change as an opportunity to develop a new market. The company is moving to expand its low sulfur oil business through SK Trading International (SKTI), its subsidiary engaged in oil product exporting and trading.
SKTI has been operating a marine blending business that reproduces LSFO with half-finished products since 2010. It has rented a large oil tanker in Singapore for use as a blending tanker. Marine blending is a tricky business as a company needs to manufacture products at sea, instead of on land. SK is the only company in South Korea running the business and, globally only a few companies are engaged in it.
SKTI supplies 1 million tons of LSFO a year. This year, the company has decided to double the marketing volume of ultra-low sulfur fuel oil (ULSFO), which contains less than 0.1 percent of sulfur, a lower level of sulfur than existing LSFO, to respond to the IMO regulations. In addition, it is preemptively establishing global networks to sell its high-end low sulfur oil products.
The vessel fuel market in Singapore is a perfect place to purchase the materials at low prices and efficiently manage the business as the country has abundant blending distillate resources that are proper to produce LSFO. It is also an attractive market because there are a large volume of port traffic and demand for marine oil products. In addition, Singapore has good distribution infrastructure, including marine storage tanker and barges.
An official from SKTI said, “By expanding the Chinese and Singaporean markets, which are expected to show a rapid growth of MGO demands, based on our position as the largest diesel exporter in the area, we will set up a marine oil distribution trading model that connects South Korea, China and Singapore.”