The author is an analyst of KB Securities. He can be reached at [email protected]. — Ed.
Explosion, fire during alkylation process at Onsan No. 2 Factory
— On May 19, operations at Onsan No. 2 Factory’s alkylation facilities were suspended after an explosion at 8:50pm. According to Yonhap News, the accident occurred during the maintenance of a butane compression valve (butane is used for the alkylate extraction process), leading to the death of one employee from a partner company and injuries for nine people (four with severe burns and five with minor injuries).
— Alkylate is a gasoline blending stock used for improving octane rating and mileage.
Direct impact on S-Oil expected to be limited
— Shortly after the accident, S-Oil stated it would do its best to address the issue and revealed details of its insurance coverage (e.g., property insurance, business interruption insurance). The company’s combined compensation limit for property/business interruption of USD1.8bn (KRW2.2tn) should cover most of the related repair costs and operating losses.
— Operations at the adjacent No. 2 RFCC Factory and No. 2 PX Factory were suspended as part of inspections for potential risks. Alkylate is a gasoline blending stock, so is not directly related to petroleum production. Thus, we believe the suspension periods will not exceed 2-3 months.
— The accident should hit short-term earnings but insurance should limit the damage. We will revisit our earnings forecast depending on the facility restoration schedule once inspections for Onsan No. 2 Factory are completed.
