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Scale, complexity and integration

B. S. Park, Head of Operations, S-OIL Corporation, talks to Impact about key factors behind the company’s continuing success.

I believe that the key factors behind S-OIL’s growth are successful investment at the right time, a well-balanced product portfolio from an integrated process configuration and our ceaseless efforts to enhance productivity and maintain operational excellence.

 B. S. Park, Head of Operations, S-OIL Corporation

B. S. Park, Head of Operations, S-OIL Corporation

As global refining margins have been squeezed and competition among refiners is intensifying, gaining a competitive edge is getting tough.

According to a Solomon Associates study on S-OIL’s fuel performance analysis in 2012, the operating costs of many refineries in Asia Pacific are disadvantaged compared with those of other regions, mainly because of differences in accessing cheap energy sources such as shale gas and natural gas. There is fierce competition driven by the expansion of paraxylene and lubricant base oil capacity, and refiners also need to satisfy tight product specifications because South Korea has the world’s strictest regulations on auto fuel sulphur.

Despite these challenges, S-OIL has become one of the most competitive oil refiners in the region.

S-OIL’s Onsan refinery in Ulsan, South Korea, is the fifth largest refinery in the world. Its crude distillation capacity is 670,000 barrels of oil a day, and it has a Solomon complexity factor of 13.2, thanks to large-scale residue upgrading facilities, the world’s largest paraxylene complex and the world’s second-largest lubricant base oil plant.

“We have achieved strong growth since our establishment nearly 40 years ago,” Park says. “And, since Saudi Aramco participated in a joint venture in 1991, we have doubled our crude distillation capacity and added 300,000 barrels of oil a day of residue upgrading capacity. At the same time, our capacities for petrochemical aromatics and lubricant base oil have increased by over 500%.

“In the early 1990s, considering the tough global economic situation and S-OIL’s capabilities, executing a huge project worth US$1.7 billion for residue upgrading facilities was not easy. With S-OIL’s decisive determination and solid co-operation from Saudi Aramco, the project was successfully completed, and S-OIL was able to achieve world-class competitiveness and profitability in the refining and lubricant base oil sectors.

“Since 2000, S-OIL has improved its facilities to meet more stringent product regulations such as the requirement for less than 10 ppm sulphur in gasoline, kerosene and diesel. S-OIL now produces superb-quality auto fuel. As a result, its gasoline and diesel have earned the highest grades for five consecutive years in the environmental evaluation of auto fuel conducted by the Korean Ministry of Environment. This not only enhances S-OIL’s reputation with domestic customers for producing the best quality and environmentally friendly products, but also contributes to our expanding international customer base around the world.

“We are very proud of our continuing growth; however, there is more to be done before realising our vision of being the world’s most profitable and integrated energy company.”

Competitive edge

Park continues: “Even with the narrow margins that are the result of overcapacity in the global refining industry, we were able to gain a competitive edge based on a well-balanced product portfolio, thanks to our integrated and combined facilities for residue upgrading, paraxylene and lubricant base oil.

“Since we completed the second aromatics complex project in early 2011, we now have the world’s largest paraxylene production capacity at 1.8 million tonnes per annum. For the past several years, despite declining margins, our petrochemical operations, including our paraxylene and lubricant base oil businesses, have enabled us to maintain high portfolio leverage and profitability.

“The rally in the market for petrochemicals and lubricant base oils has driven the players to develop mega-projects and expand production capacity, which has resulted in surplus capacity. Increasing competition in these areas will be a challenge. Global refining overcapacity is expected to be resolved at least in the medium and long term, providing refiners improve their performance and competitiveness.

“We acknowledge that our refinery can increase its competitive edge by enhancing productivity and operational efficiency. In line with our corporate initiatives, we are looking at heavy residue and to expand into the downstream olefins business. There are also plans being developed for a refinery-wide upgrade to maximise profitability.”

Operational excellence

“I cannot emphasise enough the importance of pursuing operational excellence,” Park says. “A progressive and continuous energy conservation programme is required, and we need to optimise our operations and increase our operational availability. Our employees are the key to achieving operational excellence, which is why we invest in extensive training programmes and aim to create a positive working environment.

“Over the last decade, S-OIL has achieved a high level of energy conservation and operational availability and developed long-term plans to make significant improvements in productivity and profitability. To bring out the best in our business, we do not hesitate to create synergies with other players and benchmark their best practices.

“In this regard, we see Shell Global Solutions as a valued technical partner and we are seeking to work together for our future growth. Such co-operation will provide both sides with valuable experience and mutual benefits.

“With our corporate initiative of best-in-class operational excellence, and with the right partner, I believe that S-OIL will continue to be a top-tier refinery and to increase its profitability and continue its success for the coming decades,” Park concludes.