Thai Oil opens $4.83bn CFP

Thai Oil Plc, an oil refiner with the country’s biggest capacity, has announced an investment in the Clean Fuel Project (CFP) of US$4.83 billion (160 billion baht) at its Sri Racha refinery.

Thai Oil wants to enhance competitiveness by improving production efficiency to increase product value by with more environmentally-friendly products, and increase its oil refining capacity to allow refineries to handle more types and greater quantities of crude oils, which will create economies of scale and reduce raw material costs.

Another goal is to enhance the country’s long-term energy stability and economic development.

The project aims to switch from refining crude oil with low margins to products with higher-margin, including diesel and jet fuel, while the low-margin products, bunker oil, for example will gradually decline to represent 7% of Thai Oil’s margins.

President and chief executive Atikom Terbsiri said Thai Oil aims to compete with other refineries in Asia-Pacific, so it has to trim down high emissions content from refined oil output.

He said crude oil input at its refinery unit will shift to a variety of resources around the world, not only from the Middle East.

“Thai Oil will contract Maybank Kim Eng Thailand as the financial adviser to oversee this project,” he said.

Construction will start mid-2019 and operations will being in early 2023.

Thai Oil plans to increase refining capacity to 400,000 barrels a day, up from 275,000.

But the actual refined oil output is over capacity at 300,000 barrels.

The expanded capacity will require an expansion of its refinery area in Sri Racha district, Chon Buri province by another 200 rai.

The new oil refinery unit is set to cut operating costs sharply, and push premium crude oil to $3-4 per barrel thanks to larger economies of scale.

Thai Oil reported the CFP will have an interest expense of $151 million during the construction period.

The company took almost three years to prepare for the CFP, making the final investment decision last week with a higher development cost of $3.7 billion.

In 2016, London-based Amec Foster Wheeler won Thai Oil’s front-end engineering design contract for the CFP.

The CFP’s capital expenditure has been the largest budget item over the last five years after Thai Oil allocated $380 million to two small power plants and $400 million to a linear alkyl benzene production facility, which is a fundamental raw material for detergents and other cleaning products.

Two business units have been in operation since 2016.

Finansia Securities’ stock analysis for Thai Oil was that the gross refinery margin in 2018 may average $5 per barrel higher than current figures because the company accelerated its refinery output before shutting it down for maintenance during the third quarter this year.

Once the CFP is in operation, Thai Oil will gain another $3.5 per dollar in gross refinery margins from cutting premium crude oil expense.