Employees of SK Energy pose at the export dock of the refinery’s Ulsan plant in this undated photo. |
By Kim Hyun-cheol
Staff Reporter
Skyrocketing oil prices don't necessarily mean a bumpy road for all businesses. For some, it is a golden opportunity to increase their fortune.
Shipbuilders are benefiting from high demand for drilling ships as global energy giants search for new sources of oil. Trading firms flinging themselves to overseas resource exploration are also doing well. And growing interest in alternative sources of energy is a great boon to companies developing related equipment.
An interesting sector has joined the bunch ― oil refining. In a country unable to produce a single drop of petroleum, domestic oil companies are setting a new record in exports.
Exports of petroleum products led all other items, including traditional stalwarts like semiconductors and cars, for the second straight month.
The Ministry of Knowledge Economy announced earlier this month that overseas shipments by refineries reached $5.14 billion last month, up a surprising 154.5 percent from a year earlier. The figure was well ahead of ships at $3.5 billion and petrochemicals at $3.4 billion, and nearly double that of vehicles at $2.6 billion.
Refineries first reached the $20 billion mark in 2006 and earned $23.9 billion a year later. This year, the figure for the first seven months was $23.3 billion. Business sources predict the industry will break $40 billion by the end of the year.
Brisk exports have led straight to robust earnings.
SK Energy, the nation's largest refinery, registered in the second quarter 12.2 trillion won ($11.3 billion) in sales, up 76.7 percent year-on-year, and 532.4 billion won in operating profit, up 33.4 percent. In the first half of the year, sales grew 67 percent and operating profit six percent.
Over the same period, GS Caltex's sales posted 9.5 trillion won and operating profit reached 765.9 billion won, both record highs. S-OIL also exceeded one trillion won in operating profit for the first time in the first half.
High oil prices are undoubtedly the main reason for the boom, but South Korean oil-dealing firms have also played a major part.
The country exported $10.2 billion of refined petroleum in 2004, only four percent of the country's overall amount, but this nearly doubled to more than $20 billion two years later. Last year, it reached $24 billion, accounting for 6.6 percent of the total.
The refineries' export-centered strategy and their competence in production also contributed to the remarkable growth. Analysts say South Korea is the only Asian country capable of making enough petroleum products to cover domestic demand and also make reserves for exports.
The domestic market for refined oil products was liberalized in the late 1990s. Refineries soon after started to eye overseas markets, and this accordingly caused their profit structures to shift.
Overseas sales accounted for 34.1 percent of their profit in 2001, but jumped to 48.4 percent four years later. Last year, exports accounted for 53.3 percent of their profit, with experts outperforming domestic sales.
The fired-up refineries are now seeking to muscle into overseas markets.
SK's aggressive moves
SK Energy aims to become one of the top global players in the field by expanding its foreign business. Exports last year reached $16 billion, making SK one of the nation's top five exporters. Last year also saw exports outperform domestic sales for the first time, as exports comprised 54.2 percent of sales.
The company seeks to set this year an annual export record of 20 trillion won, a mark which has been achieved only by Samsung Electronics. SK's exports last year hit 14.6 trillion won.
Constant exploration of overseas markets, the strategy of the late SK Group Chairman Chey Jong-hyun and now being used by his son and successor Tae-won, is bearing fruit, the energy firm says.
The late Chey established a resource planning unit in the group in 1982 and announced oil exploration as its first project. In early 2004, he renamed the unit to "the resources and international" department and started full-scale investment.
SK spent more than 450 billion won on oil mining last year, up more than 55 percent from 2006 and more than six times the figure in 2004. The company will spend 630 billion this year on the sector.
Resource exploration is taking a larger share of SK's business. The sector's share in profits in 1999 was just 0.6 percent of overall sales and 4.7 percent of operating profit, but grew to 1.4 percent and 18.5 percent in 2006, respectively.
SK Energy is active in 31 blocks in 16 countries, with operations in seven blocks and exploration underway in the Majunga Block of Madagascar, four British North Sea blocks and Block 8 in Kazakhstan.
To form a new axis in the Asia-Pacific region, SK Energy has made big strides in advancing its mid- and long-term strategies and diversified export markets away from Japan and China.
Indonesia and the United States were SK's two biggest buyers last year, while Vietnam and Europe also had their share jump to the level of countries in the Far East. Also last year, SK transformed its Singapore branch into SK Energy International, a coordinate corporate in charge of business out of China with a view to establishing a hub for Asian expansion.
Along with foreign projects in progress in countries like Indonesia and Vietnam, SK Energy will stretch its overseas network by exploring new oil fields and expanding branches as its main objective.
Other rivals
Two other major refineries ― GS Caltex and S-OIL ― are not lagging behind despite SK's success.
GS Caltex, one of the main affiliates of the GS Group, shrugged off the tag "domestically geared firm" last year as exports took up the vast majority of sales.
Upgraded facilities have also helped its strong performance. GS completed last year a second heavy oil upgrading unit (HOU), in which heavy oils are processed into more expensive jet fuel and gas oil.
Success in HOU operations led to immediate benefits. Exports of high-value products soared with the new installation, and the number of export markets also rose to around 20 countries.
A third HOU is slated for completion by 2010 and will add 900 billion won to the company's yearly profit. GS announced in May that it will invest 2.9 trillion won in the sector's biggest project to produce 113,000 barrels a day.
For S-OIL, exports has long been a specialty. Other than rivals that started from the domestic market, the refinery concentrated on overseas business early. Exports take up around 60 percent of its overall sales.
In the center is the high-end bunker-C cracking center (BCC), which slashes high-sulfur fuel oil to under 3,000-ppm sulfur either for industrial fuel oil markets or else for pre-treated feed to a residue fluid catalytic cracker unit.
In 2001, S-OIL exported a high-quality ultra low sulfur diesel to Hong Kong, the first South Korean refiner to do so. The company's export are now headed all around the world.
The company expects the BCC will remain high-yielding for years, but is eyeing another refining complex with a daily capacity of 630,000 barrels at its Ulsan plan, under a plan to become the most competitive oil refining and marketing company in the Asia Pacific region.
hckim@koreatimes.co.kr
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yistory@koreatimes.co.kr
