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South Korea's GS Caltex drops planned Brazil refinery project

* GS Energy also walks away from plan being looked at with Petrobras

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

* Investment should focus on domestic heavy fuel upgrading units -Hur

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

By Jane Chung

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

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

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

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

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

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

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

The refiner in March said it had completed a 53,000-bpd heavy oil upgrading unit worth 1.3 trillion Korean won ($1.21 billion), raising its gasoline and diesel output and boosting the 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 its overall exports will continue to be China, he said.

"Currently gasoline exports are the No. 1 item amongst petroleum products. But we will change from it to more middle distillates such as diesel," he said. "Still China will be the main export market and maybe Australia and South Africa and African countries."

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

In June, Petrobras signed an accord looking at a possible partnership with GS Energy to build a 300,000 barrel-per-day low-sulfur diesel refinery starting in late 2017 near Fortaleza on Brazil's northeastern coast.