SK Innovation’s subsidiary, SK Energy, has decided to build a new VRDS (Vacuum Residue Desulfurization) facility (with a production capacity of 40,000 barrels per day) in the SK Ulsan Complex, with a KRW 100 billion investment by 2020.

This decision is interpreted as providing a preemptive response to the decision made by the IMO (International Maritime Organization) to strengthen the regulation of sulfur content in bunker fuel from 3.5% to 0.5%.

Generally speaking, the low sulfur content in fuel products is considered to be better when it comes to its ecological footprint. While diesel fuel, used for land transports, has very strict regulations of less than 0.001% in sulfur content, the bunker fuel used in maritime vessels has faced constant criticism with its comparatively lax regulation of 3.5% and the resulting contribution to air pollution.

SK Innovation’s new investment is expected to place them in a strong position to discuss the upcoming challenges posed by the new regulation, such as the lack of supply in the global market and the consequent rise in prices.

Low-cost vacuum residues (residue from vacuum distillation process), which are used to produce asphalt and high-sulfur content fuel, are expected to face significant declines in demand and prices because of the new regulations. SK Innovation’s new investment in desulfurization facilities will allow the company to process the residue into high-value products such as low-sulfur fuel, diesel, or naphtha, helping to a diversified profit structure. Furthermore, desulfurization facilities are also expected to stabilize the supply of lube oil production processes, further helping to improve the profit structure of the company.

Coupled with the new possibilities for sourcing low-cost crude oil, SK Innovation’s new competitiveness in the form of optimization is also expected to experience a surge.

CEO Jun Kim of SK Innovation commented: “This investment is intended to strengthen the fundamental competitiveness of our oil business” and “we will continue working to provide a preemptive response toward the changes in the global energy market.”