S.Korea's SK Chemicals explores biodiesel use in shipping fuel for IMO 2020

* S.Korea No.1 biofuel maker testing marine fuel products - exec

* Clear IMO guidelines, legislation for biofuel blending needed

* Says capacity expansion under consideration

PANGYO, South Korea, Dec 12 (Reuters) - SK Chemicals , South Korea’s top biofuel maker, has started tests on blending its biodiesel with petroleum-based fuels to create low-sulphur marine oil that will comply with new green shipping fuel rules set to kick in within weeks.

The company is also considering increasing its biofuels output by 50% as it eyes what will be a new market in the shipping sector, An Jung-bum, head of the company’s energy& petrochemical business, told Reuters.

An’s firm is adjusting its course to reflect the International Maritime Organization’s (IMO) move to mandate that from January 2020 ships must cut harmful environmental emissions either by burning fuel with 0.5% sulphur, down from the current 3.5%, or installing emissions-removing devices known as scrubbers.

“We see there will be great needs for marine biofuels because they are sulphur-free and that gives an edge to biofuels,” An said in an interview at his office in Pangyo, an hour’s drive from Seoul.

Biofuels can be used to increase the lubricity of new marine fuels, replacing sulphur as the lubricant, he said. Lubricity refers to the ability of a fluid to reduce friction between surfaces in motion.

“However, we need clear (IMO) guidelines and legislation about marine biofuels’ properties, such as viscosity, to better prepare (for the demand),” An said.

SK Chemicals can produce 500,000 kilolitres per year of biodiesel and biofuel oil, currently mainly used for fuel blending for domestic transportation and power generation.

The company primarily uses palm fatty acid distillate, a non-edible palm-oil, as a feedstock from Indonesia and Malaysia.

Last year, it began exports with about 20,000 kilolitres of biodiesel shipped to Europe.

An said his company is now weighing the capacity expansion based on market conditions at home and abroad.

“It’s not an easy decision to make because when we do, the scale of the capacity expansion is 250,000 (kilolitres per year) ... We’re planning as we think the marine biofuel market would grow,” he said.

Biodiesel can be blended with marine gasoil to reduce its sulphur content, but the higher costs of producing it remain a hurdle, while guidelines on specifications for biofuel oil to be blended with low-sulphur fuel oil are still under development, An said.

Under the IMO guidelines for 2020 global sulphur limits, diesel fuel can contain up to 7% of biodiesel.

“We don’t know yet in which direction the market will go,” the executive said, “however ... we see the possibility of biofuel oil uptake is higher.” (Reporting by Jane Chung; Editing by Florence Tan and Kenneth Maxwell)