SET-listed Thai Oil Plc (TOP), the country's largest oil refiner by capacity, has high expectations for additional demand once laws governing the Eastern Economic Corridor (EEC) scheme are implemented.
"The much-touted EEC project matches with Thai Oil's business policy," president and chief executive Atikom Terbsiri said during Wednesday's annual general shareholders meeting. "Although electric vehicles are the next generation, they are only going to replace petrol demand, but diesel is still in a good situation."
Demand for bunker oil is also likely to decline because of concern for cleaner fuel on ocean liners, he said.
Thai Oil's upgrade and expansion are worth a combined US$3.7 billion (136.4 billion baht).
The project, called Clean Fuel Products, aims to switch from refining heavy oil with low margins to producing more high-margin products, including diesel and jet fuel.
The company also plans to gradually cut production of low-margin heavy oil like bunker oil, which accounts for 7% of total production.
Thai Oil's business plan is aimed at increasing its refining capacity to 400,000 barrels a day, up from 275,000. The larger capacity will require the expansion of the refinery area in Sri Racha by an additional 200 rai.
The project is part of a growing trend among global refiners to produce more high-quality oil products instead of relying on heavy-polluting fuel.
Shippers, the biggest users of fuel oil, will likely drop it after 2020 to meet the requirements set by the International Maritime Organization.
"The new oil refinery unit is set to cut our operating costs sharply, while helping us increase the crude premium in a higher range of $3-4 per barrel," Mr Atikom said.
Thai Oil's peer refiner, Bangchak Corporation Plc, also plans to debottleneck refinery capacity by 2020 to 130,000 barrels a day, up from 110,000, and increase its output of light and middle distillates.
Bangchak last year set up an engineering, procurement and construction firm that began operations this year. Commercial operations are scheduled to start around 2021-22.
The company's two ageing crude distillation units will thus be replaced with the upgraded ones.
The upgraded refinery units will allow Thai Oil to source crude from many different sources instead of buying it from a single source, helping the company to generate better margins, Mr Atikom said.
Half of the total investment budget for this project or 60 billion baht will come from cash on hand, while the rest will come from bank loans and debenture issuance.
Mr Atikom said Thai Oil's policy will not cut down shares at a par price of 10 baht because the company's share price is not high, unlike that of its parent group, PTT Plc.
TOP shares closed Wednesday on the Stock Exchange of Thailand at 92 baht, up 1.25 baht, in trade worth 371 million baht.
