Hyundai Oilbank Co. said Thursday it has entered into full-fledged operation of its second heavy oil upgrading plant in a bid to gain an upper hand in the lucrative market.

Located in Daesan, South Chungcheong Province, the new facility has been test-running since the completion of construction in January.

The country’s smallest refiner pumped 2.6 trillion won ($2.45 billion) over the past two years into the project, which converts heavy distillates like bunker C and asphalt into cleaner, lighter and more profitable fuel such as gasoline, kerosene and diesel.

The new unit pushed up Hyundai’s heavy oil upgrading capacity to 120,000 barrels per day from the previous 68,000, making up 30.8 percent of its 390,000-bpd crude distillation capacity. That marks the highest ratio among four Korean refiners, trailed by GS Caltex with 28.3 percent, S-Oil with 25.5 percent and SK Energy with 15.4 percent.

“The facility will boost the company’s revenue because high value-added lighter oil can improve profit margins per barrel to a great extent,” the Hyundai Heavy affiliate said in a statement.

The race is growing intense among refiners in the lucrative market trying to meet surging demand for light and middle distillates, on top of increasingly stringent environmental regulations at home and abroad.

GS Caltex, the nation’s No. 2 refiner, is injecting 1.1 trillion won in its fourth heavy oil upgrading facility in Yeosu, South Jeolla Province.

To be unveiled in 2013, the plant is aimed at snatching the highest upgrading ratio spot from Hyundai by upping production to 268,000 bpd, equivalent to 35.3 percent of its total distillation capacity.

Meanwhile, concerns are mounting that the competition may result in excessive supplies of high-quality oil relative to the pace of demand growth around the country.

Korean refiners also face fierce competition from India and China. India’s Reliance is ratcheting up output at its leading refineries, while Chinese distillers are forecast to add a combined 3.7 million bpd of new upgrading capacity by 2015.

In efforts to quell such jitters, local refiners are seeking to promote clean diesel vehicles to operators of taxis and buses, most of which use liquefied petroleum gas. 

By Shin Hyon-hee (heeshin@heraldcorp.com)