Global refinery shutdowns present opportunity for local petroleum companies

By Kim Hyun-bin

Global carbon neutrality efforts on top of the COVID-19 pandemic have put global petroleum companies on the verge of shutdown, which some see as an opportunity for local companies to further enhance their global market share.

According to the Korea National Oil Corp.'s petroleum information website Petronet, exports of local petroleum products accounted for 295.4 million barrels, a drastic decline of 31 percent from the previous year. The pandemic has caused a global shutdown with less demand for transportation leading to reduced consumption of gasoline, diesel and aircraft fuel.

As low demand continued for a year, overseas petroleum companies are starting to close down their refineries. Also global carbon neutrality efforts have added to the burden and taken a toll on the companies' profitability.

According to global market research firm IHS Market, 11 petroleum plants including ones in the U.S. and Japan have decided to shut down their plants.

British Petroleum (BP) announced it was shutting down its Australia refinery last year, and just last month, Exxon Mobile announced the closing of its Australia refinery with plans to transform it into an import terminal. Ampol which produced 100 thousand barrels daily is under review to close its plants.

In addition, refineries located in the Philippines, New Zealand, South Africa are under review to close their refineries. Industry watchers believe more global petroleum companies will end up closing their businesses in the near future.

Local refiners ― SK Innovation, GS Caltex, S-Oil, Hyundai Oilbank ― were also hit hard with an accumulated deficit of 5 trillion won, which led them to initiate emergency management and postpone investments as cost-saving measures and to better endure the crisis.

Once the pandemic starts to ease, Korean refineries are likely to benefit greatly. Korean petroleum companies are known to have secured global competitiveness. SK Innovation, GS Caltex and S-Oil are ranked within the top five in the world. Hyundai Oilbank was even successful in turning a profit in the second and third quarters last year amid the pandemic.

In late 2011 through the first half of 2013, petroleum products took over the top place for local exports exceeding semiconductors.

“Even though petroleum product demand seems to be on a decline, it is inevitable to use as a main energy source for the next 10 to 20 years,” a local petroleum official said. “The shutdown of global refineries will help local petroleum companies' global competitiveness. Although the government is aiming to find eco-friendly measures, it needs to continue its support and investment in the sector so local companies could maintain their competitive edge.”