May 19 (Reuters) – South Korea’s third largest refiner, S-Oil Corp (010950.KS), has suspended production of several processing units after a blast at its Onsan refinery, it said on Friday, a step that could tighten gasoline supplies and boost refiners’ margins in Asia.

S-Oil, a key exporter of products that is majority owned by Saudi Aramco (2222.SE), has suspended outputs at the units in the city of Ulsan as a precaution since they were near the resulting fire, the company added in a regulatory filing.

These are its No.2 alkylation unit and nearby processing units, such as the No.2 residue fluidized catalytic cracking (RFCC) unit and the No. 2 paraxylene (PX) unit, it said.

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“We are exploring best solutions to make sure this does not cause any interruption in domestic supply of fuel products,” Chief Executive Hussain Al-Qahtani told a news conference.

The company will make full use of inventory and its domestic and overseas network in that effort, he added.

The shutdown following Thursday night’s blast that killed one person is expected to affect already tight gasoline supplies in Asia, where S-Oil is a key exporter.

It may push up Asian refiners’ margins of the fuel, already hovering near an all-time high of close to $34 a barrel.

S-Oil runs two alkylation units, with a combined capacity of 9,200 bpd, to produce alkylates that are blended with gasoline to boost its octane levels and quality.

Citi analysts expect S-Oil’s gasoline output to be “severely impacted” in the near term, although it could buy alkylate to maintain production.

It may take up to two years to replace the fire-hit unit, during which time S-Oil could export Very Low Sulphur Fuel Oil, the bank’s analysts said in a note.

One person died and nine were injured in the blast, an Ulsan fire official said on Friday.

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Reporting by Arpan Varghese in Bengaluru, Joyce Lee and Heekyong Yang in Seoul; Editing by Florence Tan and Clarence Fernandez

Our Standards: The Thomson Reuters Trust Principles.

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