South Korea's GS Caltex drops planned Brazil refinery project

Reuters

* GS Energy also walks away from plan being looked at withPetrobras

* GS Caltex, GS Energy unsure of project's profitability-Chairman Hur

* Investment should focus on domestic heavy fuel upgradingunits -Hur

* GS Caltex to export more diesel; China remains main market-Hur

By Jane Chung

DAEGU, South Korea, Oct 14 (Reuters) - South Korea'ssecond-largest oil refiner GS Caltex said it has dropped plansto build a refining plant with GS Energy and Brazil's state-runoil firm Petroleo Brasileiro SA due to uncertaintyover profitability.

GS Caltex, with a 775,000 barrel-per-day (bpd) refiningcapacity, thinks its investment should focus on secondary unitsto extract higher value gasoline and diesel from heavy oils, itschairman Hur Dong-Soo told reporters on the sidelines of theWorld Energy Congress on Monday.

Such investments can run into billions of dollars, he said.

"We decided not to go for the (Brazilian) project. Wedropped it completely and so has GS Energy as we are not surewhether it is a profitable project," Hur said.

GS Caltex is equally owned by Chevron Corp, thesecond-largest U.S. oil company, and South Korea's GS Energy,owned by GS Holding.

Hur said the company should focus on upgrading its domesticfacilities to extract more value from residual fuels.

"It usually costs about 1 trillion won to build a 40,000 bpdfacility. If we want to do 150,000-bpd, you can imagine how muchit costs," he said.

The refiner in March said it had completed a 53,000-bpdheavy oil upgrading unit worth 1.3 trillion Korean won ($1.21billion), raising its gasoline and diesel output and boostingthe refiner's heavy-oil upgrading capacity to 268,000 bpd.

Hur also said the refiner will increase its diesel exports,without giving a target number. The main destination for itsoverall exports will continue to be China, he said.

"Currently gasoline exports are the No. 1 item amongstpetroleum products. But we will change from it to more middledistillates such as diesel," he said. "Still China will be themain export market and maybe Australia and South Africa andAfrican countries."

With China's top refiner Sinopec Corp expected to boost its diesel exports in the fourth quarter, moremiddle distillates coming out of South Korea could add furtherpressure to regional refining margins.

In June, Petrobras signed an accord looking at a possiblepartnership with GS Energy to build a 300,000 barrel-per-daylow-sulfur diesel refinery starting in late 2017 near Fortalezaon Brazil's northeastern coast.

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