Good morning, everyone. [Non-English content]. Welcome to the SPRC analyst meeting, where we will share our performance for the second quarter of 2023. My name is Joni Shaw, Investor Relations Manager, and I'll be your meeting moderator today. I'd like to introduce you to our SPRC management that's in attendance with us today. First, we have Robert Dobrik, CEO. Next, we have Nutsa Somkiatweera, CFO.
Hi. [Non-English content].
Then we have Sakchai Thamsuruk, Supply and Planning Manager.
[Non-English content].
During the meeting today, we will refer to the presentation that is available on our website. Robert will start with a performance overview, followed by our financial performance from Nutsa. Then Sakchai will share a market update. Robert will wrap up the prepared comments in about 30 minutes, and then we will move to our Q&A session. If you have any questions, please post them in the chat or use the raise hand feature in Teams. With that, I'll hand the session over to our CEO, [Non-English content] Rob.
Well, thank you, and let me just say first off, thanks for everyone joining us today. Look forward to providing you an opportunity, really more of a discussion and an ability to answer your questions. But we'll provide a really high-level recap of the second quarter performance and give some context to perhaps some of the efforts moving forward. We can go to the next slide. What I'll do is I'll skip right to maybe hitting on our operational performance. Our mission hasn't changed. Our vision mission is really delivering on, frankly, leveraging our talent, our caring family culture and delivery, our performance delivery culture towards optimizing our operation, delivering safe, reliable, sustainable operations. We joke amongst ourselves to really be boring. Boring and predictable is our objective.
Make sure everyone goes home safely and continue to look for ways to strengthen our value proposition through making smart and timely investments, ultimately to meet all our stakeholders' key expectations. And we do that with the core values that we underpin everything that we do. If we move to the next slide. Continue on. Really high level, we talk about days away from work case, and this is actually just kind of an indicator. It's not the only thing we do. And frankly, we work very hard to understand our key risks and the key safeguards and then really have what we characterize as strong safeguard assurance in our operation to ensure that the absence of incidents is a continued focus around those safeguards and make sure that we're doing what we need to be doing each and every day, each and every task.
As a positive indicator of that is our historic day away from work cases, those that have not been able to return to work the following day as a result of some significant incident or injury. We're moving on to, I think we've actually exceeded 10 years since our last incident in 2013. That's a pretty strong testament to the caring culture. But it's that discipline each and every day that we apply to what we do that ultimately delivers on those outcomes. So a real strong indicator there. As we look into the operational indicators, talk about utilization and operation availability, generally a strong quarter. There was no material operational incidents that detracted away from our performance. However, we'll talk in the next few sections around the margin environment that drove us to drop perhaps a little bit in our utilization to optimize the value proposition.
This is something we're constantly doing is understanding what our margin outlook is going to be and then adjusting potentially throughput or the mix of products to maximize the value in those environments. And many times, obviously, if it's a high margin environment, you're generally trying to drive towards maximum utilization, maximum throughput. But in other environments, depending on where those product mixes and values are, you'll end up dealing with something that's substantially less and the more dramatic version of that would have been during COVID. And we continue to look to optimize. We've had some successes in optimizing our crude mix, bringing in some different products, different supply sources to optimize the value proposition.
We do have some headwinds, we will talk about it in terms of the SPM operation, but we have some other things we have done to offset that in terms of looking for ways to increase our margins through other means and opportunities. That provides the high backdrop, basically a pretty solid operational quarter, safe, reliable environmentally, no incidents per se on those fronts. It was a bit of a challenging margin environment in this past quarter, we will let [Non-English content] Nutsa and [Non-English content] Sakchai speak to that in a little more detail. What I will do is I will turn it over to [Non-English content] Nutsa to talk a little bit about the financial output.
Thank you, [Non-English content] Rob, and good morning, everyone. For the financial performance for second quarter of this year, our financial performance is significantly impacted from the weak refining margin. As you know that second quarter is not a good quarter, this is from various factors. For example, this is from the worry of the economic recession and also the demand in China, which is not that high and also excessive supply from the export from China. This factor push the pressure on the product price below crack spread across all the product, especially on the middle distillate. This cost refining margin for the second quarter to be $1.34 a barrel, which is lower than previous quarter. In addition to that, we also have incurred the stock loss during the quarter because of the decrease in the oil price.
The stock loss during the quarter is around $2.8 a barrel. That result to our accounting margin negative at $1.45 a barrel for second quarter. On the operating expense side, for second quarter is at $2.13 a barrel. The number is slightly above than we normally have lower than $2, this is because of the actual intake that we optimize our refinery run to meet the domestic demand during the low margin. Based on low throughput, our operating expense in term of dollar per barrel seems to be high. However, if we adjust the throughput to be at our normal capacity, it would be $1.98, which is around $2 a barrel. There could be some increase from prior year that I also explained in last quarter, that this is because of the activity that we catch up from prior years during the COVID time.
On the oil spill expense side, in second quarter, we incurred just only a minimal amount of just only $0.1 or $0.2 million. For the total year is around $3.2 million for the oil spill expense. For the net income, because of the low margin and the stock loss, our P&L net income is negative at $61 million. In combination to the first quarter that we have net gain of $37 million. So total year for six months, we have the net loss of around $25 million. Looking at our financial leverage side on the balance sheet, our debt-to-equity ratio at the end of June, we still have a strong financial position with our debt-to-equity ratio is at $0.15, which is very low for our business operation.
And just for information that there could be some question regarding the acquisition of the fuel business, which we are planning to enter into some additional loan to acquire the fuel business that we expect that we can earn the income from that business. Part of that is also from the cash from operation that we expect that we could generate during this high margin period. This is the financial summary of second quarter. Then I pass to [Non-English content] Sakchai.
Thank you, [Non-English content] Nutsa. Hello. In term of the market, I think if you look back in term of what we project at the beginning of the year, I think, yeah, the picture is just telling us that the supply demand is expect to get to balance toward the end of the year. Actually, what we see happen in the market is, OPEC leading by Saudi Arabia come out and actually try to really maintain the supply balance in the market, supply demand balance in the market. As we know, I think they actually voluntarily cut the production by 1 million in Q3 so far. Probably about half a million actually getting support by Russia as well. By looking at the oil market, actually Q2, the market actually get depressed a bit by the economy headwind.
You see a lot of economic data released now and not really telling a so good story. That why it actually keep the oil price is still not that high. Even we see some stock loss because of the crude oil price drop below 31. But coming into Q3, with the production cut from Saudi Arabia and also Russia actually bump up the price to go up above 80. That along with the projected demand that as we project the demand actually keep increasing toward second half of the year, try to creep up to the pre-COVID level. At the same time, I think actually Saudi, when they are not satisfied on the price that they want to see, actually cut down the production and make the supply demand tight in the market. That what we see so far today.
What stop the price to go up further? I think we didn't see a kind of price go up above 100 or that kind of thing that we see in the past. Actually, something that kept the gain of the crude oil price is probably the headwind economy that we still have uncertainty there. The second thing that we see quite obvious is the production from the non-OPEC is very healthy. Even some of the OPEC+ country, they also really got a quite healthy production, mainly from other non-OPEC side actually come from U.S., leading by U.S. and also from South America and Canada. I think we see in that region the production of crude oil come out quite good in terms of the growth. Also, in the OPEC country itself, from South Africa, the production is keep going up.
Include the wild card of two countries, is Iraq and Iran also get a more healthy production so far. That's why we need someone to really cut the production to keep the market balanced. That's what we see so far. So expect crude oil price probably stay around this band, depend on which factor actually gets stronger. In terms of our GRM track, quite well with the Singapore margin in the past. I think if you compare in the past, we used to have a kind of a dollar or $2 above Singapore margin. But because of today, because of the ship-to-ship cost, actually limit that gain, that delta. Just to note that, some people might have a question about, sometime we dip a bit below.
That mainly because of the crude oil premium that getting still high in this quarter and also the freight cost that stay high in Q2. That make SPRC margin slightly a delta from Singapore refinery, because when they compute Singapore refinery, typically the sum of the analyst, because we compile a few analysts together. Some analysts, they didn't factor in the crude oil premium in that. Next slide. Yeah, in terms of the product market, actually, in general, I think the thing that different for this quarter, mainly at the end toward the end of this quarter, is we start to see the Singapore inventory start to be the same picture as the global inventory. In previous quarter actually, you can see the light distillate actually stay high compared to the global inventory.
But today, I think with some of the issue in terms of the production unit in many refinery in the world, cause the production problem and cause the inventory to go down, while the inventory in U.S., which is the majority of the inventory of the world, is still low. That's why you can see that the current market pick up. So, yeah, very sensitive market when you stay on very low inventory. So, yeah, in Q2 compared to Q3, what really different is only one thing we just talked before is the inventory in Singapore on light distillate and the refinery problem in many part of the world. The second thing is low inventory really make the market so sensitive. And compare between Q2 and Q3, what really different is the market is really mute, really quiet in Q2.
No one actually really active try to come up and secure the barrel in Q2 because they still see sufficient supply in the market. Refinery still run higher utilization. They carry from Q1 good margin. In Q2 so far, still good margin. They carry high utilization, no refinery problem. So people still have belief in the sufficient supply and don't want to take on any cargo. But coming into Q3, getting closer to winter season as well with the refinery problem, so we start to see people come to really secure the barrel. That's what we see so far, and that mainly see in the medium distillate. Strongly the pull is come from the European side. European market actually pull the demand and start to really bump up the crack spread in diesel.
For gasoline, I think as I talk, I think it probably picked up by the regional demand. Also, the refinery problem in few countries that majority export into the Asia market, like Korea. China also export less for gasoline, but we see export more on gasoline, but not that significant. With the refinery problem in Korea, in Malaysia, actually caused the supply issue and together with the good demand in this region, actually bring up the crack spread in Q3. That is why we see a very good margin so far at the moment. I think fuel oil still stays strong, and that mainly because of the production cut of OPEC. Actually, when they cut the production, they mainly cut the Arab Heavy and Arab Medium sour crude, so caused the market to really short the bottom barrel.
Right now, I think one of the reason that some people talk about make a tight supply is sometimes come from the upgrading unit of the refinery that does not have enough feedstock. That also part of the issue that we see less of the production come into the market. I think that is all. Maybe I leave the rest for the question. I think in term of the product, it just tell itself that in Q2, because of the really quiet market. That is why it resolved into really low margin period for Q2. But when the demands start to picking up, and because of the low inventory, so you can see a big jump. So it is kind of a panic market.
With low inventory, when the demand come in, actually it just panicked the market so far. So we see the margin really jump up a lot, and fuel oil still stays strong. The crude oil premium really reflects what actually happened for the margin in Q2, that we got the sufficient supply, sufficient product in the market, so it is keep declining. Right now, it stay quite on the low end, about 1.7 in term of the Murban premium. So expect that to continue into Q4, probably up until the time that the winter kick in. So hopefully, when the demand come in, it will keep the crack stay high and maybe some of the crude oil premium may increase a little bit. But we can still really see a good margin with, what you call, the current strong demand is bridging to the winter demand in the near future.
So that we can see the, what you call, the margin can stay strong over Q3 and Q4. Yeah, also to be note, I think by the end of Q3, so typically, the refinery maintenance is happen 2 period of the year. One is after the winter, which is about end of Q2, and then we will do again probably about end of Q3, that is prior to the winter season. So that is why we believe that the strong margin today could bridging into the winter, when the winter demand kick in. We expect that to bridge the gap and see if the good margin stay. That is it, [inaudible]. So leave the rest for the question. Back to you, [Non-English content]Rob .
Thank you, [Non-English content] Sakchai. I think we have talked about this slide in the past. Really, we continuously look towards the value accretive opportunities. From a refining view, as we move towards our major shutdown in 2025, we are looking at a variety of what we would characterize as relatively low dollar investment, high return, quick payout type projects in advance of that. Total value, I think we have shared in the past, is THB 100 million-THB 150 million range, and those are still working through various phases of definition. We will mature the estimate and some of those may drop off as we get further insight into the costs and the potential return on some of those. But it is in that order of magnitude. We are not scheming something of double or triple, quadruple those numbers in that window.
Once again, those are all tempted to be pretty quick return and more commensurate with increasing products towards higher value products. Maybe some slight petchem connectivity, but still on a minor scale. As we move beyond the turnaround to 2025, 2026 plus, we are looking at a host of different types of opportunities, perhaps more around positioning a bit more towards the petchem industry and separately around energy transition. We will look to cover those in more detail in future as we are actually working through a bit of a long-range asset strategy update in the moment, to kind of hone in on a few key opportunities. Hopefully, we will be able to start to share a bit of that further with you in the coming quarters. Moving to the next slide. We talked a little bit about energy transition, and really it is how do we position ourselves?
The policy environment in the moment does not necessarily lend itself to significant investments. Now, that varies across the world, right? You will see in some environments there is quite a bit of activity, primarily driven by policies. I could maybe argue, give an example, the West Coast of the U.S.A., California might be an example where there is a lot of policy enablers that are driving certain types of activities, whilst another state in the U.S. has frankly, no particular drivers towards doing those same activities. Even within countries, you will see some diversity. Then as you move into Europe versus Asia, you are seeing quite a wide range of policy enablers. We are kind of watching things in this environment to understand when those opportunities arise and when are we better positioned to get the types of returns we think our shareholders want on these types of investments.
But we are staying in the game. As an example here, we have signed a memorandum of understanding to be part of a net zero pilot project to really understand carbon footprints with a variety of other key stakeholders in the industry. To really kind of understand how carbon trading, carbon credit, carbon tax type infrastructure could enable some of the things that we need moving forward. Just kind of staying connected and being an active participant in some of these efforts through FTI. As you appreciate, we are significantly a major shareholder with Chevron. We are party to all the work that Chevron is doing across its global operations. Once again, whilst we may see what is being acted on and moving forward in various other opportunities, we do not quite have the same economics as some of these other areas.
We are advantaged in terms of understanding the technology, the types of issues we would have to work through, and once again, how do we shape the policies to supporting some of those activities. That is really where our efforts are going to be, is really how do we promote awareness of these opportunities and start to shape the regulators' thinking and perhaps other companies with how to advance some of these opportunities towards a lower carbon future. We have some things that we are doing within the refinery, but this is a relatively new refinery, and on the lower complexity side. So on a relative scale, relative to other refineries around the world, probably on the lower carbon intensity side compared to many of our peers. Thus, there are less opportunities relative to some others.
Once again, as we move forward, there is going to be a variety of energy demands and there is no singular answer out there. I think there is a preponderance of everyone who move to electric vehicles, but once you actually truly understand the carbon footprints of some of those opportunities, you could see things like renewable diesel, renewable gasoline, types of fuels that bring a lot more non-fossil fuel contributors towards those are getting close to be, if not even better on a carbon footprint, and probably could be enabled in a much more timely manner. So those are some of the opportunities you are seeing advancing in other jurisdictions, that probably have some opportunities here in Thailand and in the region, with the right incentives over time. Next slide. We have had some questions around Euro 5, are we prepared for Euro 5?
Just to maybe answer the question before it is asked, we fully expect to be able to deliver on Euro 5 demands. We are actually in the middle of a catalyst change as we speak, which will position us, frankly, to deliver on Euro 5 product as starting as January 1 of next year per the mandate. So no major capital expenditures. We may have some optimization potential that we will look at in the 2025 turn, but it is a relatively minor scale. Really this is really more around frequency of catalyst change out perhaps, and some incremental energy demand really in the short term. So fully positioned to take advantage of be compliant and then arguably take advantage of potentially some higher margins that this opportunity presents itself as we move forward. Next slide.
Really I just wanted to kind of summarize, as we put it under the guise of safety, but it is really to continue our operation, to be boring, be safe, reliable, predictable. No process safety events, no losses of containment, no impacts to our communities. We want to be a partner in our business, in our communities and just be that dependable shareholder that delivers on consistent, reliable results. We continue to look for ways to optimize our environments. There are certain products yields. It is kind of seasonal. Certain products perhaps have higher yields at different times of the year, but how do we make sure that we understand when those moments are that we dial up our recipes, so to speak, to take advantage of those opportunities.
And then really just be agile enough to, especially at these price environments as Nutsa kind of alluded to, go from a particular quarter of whatever to a fairly low quarter. Then before you're even out of the wind, before your days, relatively quickly you're starting back into a high margin environment. We've had a probably more dynamic market in the last few years than we've had through many of our history and we just need to continue to position ourselves to take advantage of.
That's part of our driver for arguably picking up the fuels business and being part of that broader value chain so that we actually have better insight in terms of those opportunities where we can our anchor volumes in a variety of different ways than we do today. Then really see some of those opportunities and be able to act on those in a timely manner. As Nutsa says, we continue to be prudent in our finance, make sure that we spend only what we need to spend. Don't be afraid to spend to maintain the reliability that we ultimately need to deliver on. But at the same time, maintain cost effectiveness, do capital projects only if and where they will be value accretive in a timely manner.
Maintain that low debt-to-equity ratio as best when we can and just look for ways to continue to optimize our business. We're constantly challenging ourselves to reduce our cost structure where we can, to increase margins where we can, and just that mindset of creating a one team mindset towards value creation. As I said to you earlier in terms of future, we look towards the future, there's a lot of opportunities moving forward. We're advantaged in that we're a relatively new facility. We've got very talented people. We've got a strong performance history, and we also have a major shareholder that is doing things in 30 different environments versus just the one environment in which we actually are operating in.
We have the ability to take in that technology and that capability and bring it to bear in a fit for purpose manner here in our environment. So we feel that we're well positioned to be competitive in the moment and to continue that competitive advantage as we move forward. Next slide. Key takeaways. No one gets hurt, no environmental incidents. We just continue to deliver reliable operations, complete our efforts to be ready to deliver on Euro 5 performance. Working very aggressively on the SPM. We'll cover that perhaps in some of the questions. Then really just continue to look for ways to optimize our business, both margins and costs, moving forward. Nutsa is working towards making sure that as much as we can, we'll fund any future investments with our generic cash flow.
But if or where we need capital, we're very well positioned with our debt-to-equity ratio to get quality terms in the market for any additional finance we need, primarily short term, to fund these future investments. Then really just look for opportunities to be positioned at the right time to grow our business and to really start to understand this value chain to where we can drive more value than quote unquote, the sum of the parts. We're already seeing lots of opportunities in that front, but we have to wait till we own the asset before we can actually take advantage of a few of those. So that'll be day one is still targeted to January 1, 2024, and we're positioning ourselves to act on those opportunities in that timeframe.
So I think that kind of closes our remarks, and I think maybe we'll just open things up for questions.
So we'll move on to the Q&A session now, so you can post your question in the chat or raise your hand. And I see, [inaudible], you have a question. Go ahead.
Hey. Hi, management, can you hear me?
Yes, we can hear you.
Right. May I know what is the latest timeline of SPM restart after the oil spill incident? That is the first question. The second question will be, may I know what is the extra ship-to-ship crude oil freight cost for Q2 and so far quarter to date in 3Q? Thank you.
Rob, you want to take that?
Well, I will take the first part of that, and maybe I will revert to [Non-English content] Sakchai, maybe a little around the actual ship-to-ship costs over time. The SPM, we have been actively out offshore conducting what we characterize as a variety of inspection and maintenance activities. We have made a lot of progress. We have completed a full pigging of the, what is an assessment of the entire pipeline. There is a 44 inch pipeline that goes 20 km offshore. We completed that full assessment.
No anomalies found. We have actively begun the process of inspecting and conditioning some of the subsurface equipment. We probably have a relatively short amount of time to complete the work, but however, we do have some challenges with regards to weather. We are a bit in the monsoon season, so unfortunately, you are at the mercy of weather sometimes and whether you can safely execute this operation offshore.
That's kind of line of sight. We have the material, we have the capability. I'm not anticipating that to be a rate-determining step moving forward. Really, it's around the regulator's ability to support our resumption application. We've had multiple meetings with the regulator talking about our operation resumption proposal. Not seeing any deltas in terms of what we're proposing, but there's a desire to make sure that there's broad stakeholder engagement. We're working with the regulator to how do we satisfy some of those concerns or address some of those demands. At the end of the day, the regulator is looking to establish some kind of a resumption committee as to when they'll hear from all key stakeholders and look at our submission in the context of that.
Our best guess is it could happen rather quickly if there's motivation on the regulator, or it could be extended for whatever time. We have really not full control over those efforts. All we can control is what we provided, and we're prepared to provide everything the regulators ask for more or less by now. We're anticipating sometime fourth quarter, could be end of year. We've got a range of outcomes, 10- 50/90, but those are all the range of things that we're looking at. We have line of sight to how this could be done before the end of the year, and that's what we're working towards doing. With regards to ship-to-ship, I think we've seen highs of close to $2 a barrel.
We started off early last year, was probably closer to $1 a barrel, and I think our historic average is probably closer to $1 a barrel. But through the Ukraine-Russia conflict, you've seen demand on these types of ships and caused a premium in that period. So, we saw prices closer to $2 a barrel through some part of this. A bit of softening as of late to about $1.50, but maybe I'll let [Non-English content] Sakchai provide some broader perspective beyond what I've already stated.
Yeah, same picture, I think, [Non-English content] Rob, that you described. I think if you look at the high cost that we incur, I think it's up to about $2 during the time that really the ship got a lot of demand that was mainly from the West. But recently, because of the, I think when the activity come to slow down, you can match that with the margin that there's not a lot of activity happening in Q2, so thereby the ship cost also gets softened toward the end of Q2. So right now we see probably around $1.4 or $1.5 per barrel so far in Q3, and probably expect that to maintain in Q3. Q4 typically is some seasonal demand of the ship going up, but depending on the activity.
We hope that that probably if it come up, maybe also we see a higher margin as well because of more activity could mean more demand in the market as well.
All right. Thank you both. [inaudible] , you can ask your question.
Hi. Okay, I assume that's me, right?
Yes.
Okay.
How do you say your name?
[inaudible] . Yeah, it's long. I have one question, actually, a set of questions related to Euro 5 formula. First question is, what's the premium level compared to the Euro 4? The second question is, will the buyers pay for it? In Thailand, the like of PTT Public Company Limited or, they have to pay market price, right? Therefore, it has to be higher. The third question, it's related. I understand that when you deal with the buyers, it's market price, but I'm not sure whether EPPO say anything about changing the ex refinery formula in the table that they normally use to monitor the market price in the industry. Can you maybe share with us the discussion with the regulator on that front, if there is? Thank you.
Hey, look, I'm going to probably revert to [Non-English content] Sakchai. He's been more actively involved in some of this. As you know, the variety of parties had to make some sizable investments to move towards Euro 4 and Euro 5. As an industry, I think there's some expectation that they get a return on their investment. But you're right, there's a lot of dialogue with the regulator in terms of how do we provide the right understanding and support for that effort. [Non-English content] Sakchai, maybe I'll turn it to you to provide some details.
Yes, [Non-English content] Robert. It's really true message that I think the government, as we know, in Thailand, they actually monitor in term of the retail price in the market. As you know, I think whenever we got the product spec change in Thailand, they actually come to get involved. But in principle, I think they really accept that. I think there are two things that they actually talking when we talking to them. First thing is they're aware of the cost to make Euro 5, so they know that there will be increased cost to produce from the refinery, both investment and the OpEx, that related to make Euro 5 because of the spec change.
The second thing is, they also know that in Thailand, actually, the price that seem to be, when you count practical and make the market healthy, it should be based on the import parity price. That is the two concept or two principle that we dialogue with the regulator. So far, I think they're still working on that one and expect the result will come out in Q4, probably sometime mid of Q4. We will work it from there. I think right now we start to dialogue in term of how we going to come up with the pricing for Euro 5 with our customer.
I think one thing to note that for the diesel, it's really clear that in this region, there is more and more country and more of more trading value that in Singapore market that start to shift toward into MOPS 10 ppm. Right now, we use MOPS 500 ppm to price the diesel, but it's getting less and less liquidity in the market because more and more country and more of the trading value move toward 10 ppm. So, the liquidity is start to lean toward the MOPS 10 ppm. And that probably the product quote that we going to use in the future when we are selling Euro 5 product into the market.
What I try to communicate is just, it's the structure change by itself, by the market itself, that it will divert us toward the direction to change the MOPS 500 ppm to be the MOPS 10 ppm. I think that that probably the thing that I can see in the market.
Can I have one follow-up question? Just on the additional OpEx cost that related to changing to Euro 4 to Euro 5. What is the cost and roughly how much is it per barrel? Thank you.
Yeah. It's a kind of the communication we communicate with the regulator. I think majority is probably refer to the investment that we make. And for some of the refinery like us, we actually invest in the Euro 4 tire. So the investment, it has been put during the Euro 4 tire. When we start to shift from Euro 4 to Euro 5, it's just minor investment on top of that. So I think the cost that we communicate to the regulator is majority combine of the two, of CapEx and OpEx. And majority of the cost, I would assume, is it will be based on the CapEx. I think the number that they talk in the market, they talk probably in the range of $1- $2 per barrel, [Non-English content].
All right. Thank you. Next, we'll have [Non-English content] Amornrat . You can ask your question.
Yes. Thank you. I have one question for [Non-English content] Sakchai on the refinery yield in the second quarter. I noticed that the naphtha yield has been increasing and at the expense of the gasoline. I'm also not sure why the diesel yield is also decreasing. I know it's about the optimization, but could you give us a bit more details on actually what are the factors that affect the refinery yield tilts away from the higher value on product? Thank you.
Yeah. First of all, I would say my first comment will be it is quite small in term of the shift that we see. It's just in the range of 1% that we see so far in term of the gasoline reduction compare 1Q . So it's minor. What I can say is probably it's the optimization that we do around the constraint that we have. I think in the refinery, as you know, a lot of equipment, a lot of thing that from time to time when we see some constraint, we need to optimize the refinery to really how can we make the most profit around the constraint we have. So in second quarter, you probably see that some shift on the product and the constraint we have.
What I can say is probably get addressed at probably beginning of this quarter, and we should be able to get it back to the fully optimization mode toward mid of Q3 and probably for the rest of Q3 as well.
Could you share with us what kind of constraint that you have? Because, actually, 1% for gasoline and 1% for diesel, that's actually 2% and that two products that have the high crack spreads in the second quarter. More details would be appreciated. Thank you.
Yeah. Okay. Actually, it's linked to the thing that we plan to do right now. I think we are doing the catalyst change. I think it's just the workaround. We actually attempt, it's probably a timing issue that we actually lean toward the time that we need to change the catalyst out. So actually, there are some constraints that we need to manage before we actually bring the unit into the catalyst change in July. So that's why it's a one-off, and probably it will just get addressed, and we should be able to go back to fully optimization later on this quarter.
So maybe another way to say that, [Non-English content] Sakchai, is we always had a catalyst change plan for this year. It's been somewhat accelerated as a result of some a bit slightly early deterioration and that maybe showed itself towards the end of the second quarter. But with the catalyst change that we're making, we're fully prepared to make Euro 5 product and continue on through the shutdown. Is that a fair statement, [Non-English content] Sakchai?
Yeah. Because when we going to do a kind of partial shutdown the refinery, actually, you need to manage the inventory, the intermediate, that kind of thing. So that's why I think we need to really posture the refinery a bit different to prepare for the coming event, so that why probably the yield might not be fully optimized as you may see in Q2. But as I said, I think after we changing the catalyst out, which is for Euro 5 purpose, I think we will be back to fully optimized.
Okay. Next we have Kaushal. You can ask your question now.
Hi. Good morning. This is Kaushal from Macquarie. Two questions for [Non-English content] Sakchai and then one question for Rob. [Non-English content] Sakchai, could you give us some more details in terms of the extra OpEx that SPRC recorded in first quarter and second quarter due to ship-to-ship? I understand in the third quarter, you said it's $1.4-$1.5, right? Just maybe some color on the first and second quarter. That would be helpful. The second question is, I understand that you had mentioned that Murban premium will remain relatively low. But I'm looking at Saudi Aramco OSP, they've been increasing it. I've been looking at the Brent versus Dubai Crude spread, that's flipped. With margins quite strong, I'm just trying to understand, why would the Murban premium remain at low levels? Thanks.
In term of the extra cost, yeah, actually the ship-to-ship cost is the extra cost that, yeah, we compute in our margin. In second quarter, we start to see, what do you call, a coming down on the ship-to-ship cost. I think in Q1 we see something like close to $2 per barrel, and then probably Q2 is a transition from two up to down to about $1.5 at the end of Q2. So on average, I don't have exact number, but I would assume it's probably in the range of between $1.5- $2, maybe $1.7, $1.8 per barrel for Q2. For Q3, so far we see around $1.4, $1.5 per barrel. It is, yeah, considered to be close to normal market of $1.1, $1.2. Your question on Murban. Yeah.
Actually, in term of the premium that when you talk in the market as Saudi Aramco come out and announce, actually, you can see that it just confirmed that when they cut the production, I think they mainly cut for the Arab Medium and the Arab Heavy. So if you look at the premium that becomes strong, actually it's the Arab Medium compared to Arab Light. Arab Light, when I consider is Arab Extra Light, Arab Light. When you look at the Arab Medium, Arab Heavy, that kind of thing, the OSP or the premium is nearly the same as Arab Light and the Arab Extra Light. Even sometimes it just get more expensive. That's why for the refinery, that why we see it's relatively cheap to process lighter crude in our diet.
The comment to say that in Q4, yeah, because of, as I said, if the demand pick up and the margin become better, yeah, that could imply that we got, what do you call, the pull in the market again to pull up the crude from the market and then the supplier can actually combine more premium. So it is a kind of mechanism that probably go hand in hand, and it is cycle. When the margin is good, become to bad, actually the crude oil premium slowly decline. And then, yeah, going into the winter time that we expect to see a better margin, or even today we see a better margin.
If the refinery start to really come back and try to run more barrel again, up until the crude oil get tight supply in the market, yeah, you can actually see the Murban price start to climb up again. So, but so far, I think even we trade for October barrel today, we start to see a climb up around $0.30 so far. About $0.20-$0. 30 . Not a big jump so far. Hopefully, we can end the October purchasing with not a big jump in term of the crude oil premium. Not sure is this answer your question?
No, this did answer my question. Just sorry, one more question. I remember in the first quarter analyst meeting, your outlook was quite cautious, given sort of the new capacity coming from Middle East. And now with GRMs doing so well does that outlook change or, I mean, is that going to remain a problem or do you see the situation much better now versus last time we spoke?
Yeah. I think the fundamental is there, that you got the new production come out, and I think we call the last wave of the new investment that will coming in actually toward this year and probably maybe beginning of next year. They are adding new capacity that add on to the world. Yeah. So the fundamental is still there. I believe that the spike in margin today is probably come out from, as we talked before, about the low inventory, and there are few refinery problem. And probably the sum of the supply that is maintaining low from the low margin period in Q2 continue into Q3. So people or the, what you call, the buyer just feel that they short of the barrel in the market, so they come up and try to secure the barrel right now.
So that what we see a spike of margin for the diesel so far, that we see a market really actively from European side come out and buy the barrel. For gasoline, I think we see a short spike because of the refinery problem in North Asia, in Korea, in Malaysia, and also in U.S. So that why we see a spike in the margin so far. But I hope this picture will probably, as I said, reaching into Q4 when the winter demand come in. So I would expect that if the thing just bridging between the spike, a good margin today can bridging into the winter demand that will kick in soon. Together with September, October, we got the maintenance season before going into winter that reduce the supply in the market.
That should bridging the gap in term of the good margin and hope the margin will continue to stay good throughout Q4. But fundamentally, I think with the new wave of supply, I think the expert said it probably will eat up this new capacity, probably eat up in mid of 2024. And probably from there, we don't see any new supply coming into the market. If the demand is still keep going, I think we will see the market get actually get tight after that. That why we call a golden period for the refinery maybe after that.
Thank you. And just one question for [Non-English content] Rob. You did mention for some of the future opportunities you're looking at, there's some petchem applications that you're exploring. Just wanted to check, I mean, would this be something Thai Oil did acquire Chandra, at least a stake. I mean, would it be on that scale or are you looking at something really, really small and just like maybe some color around what kind of applications could be considered?
Thanks, [inaudible]. Yeah, we're probably not looking at the high end of major capital projects, but probably up well beyond what we're describing as these low investment, high return things that we're doing before the turnaround. So it's that next scale, but far from what I'd characterize as a billion-dollar multi capital, major capital project. So substantively lower than that and really trying driving towards some petchem opportunities and leveraging some technology that's evolving out there, where once again, it allows some, what terminology I like to use is the 80/20 approach. You can get the bulk of the benefit for a fraction of a dollar investment. And yeah, you don't get every last possible margin upgrade you were hoping for, but you can do you can get a good chunk of that for a much smaller investment.
There's some different technologies that we're exploring out there that may be a better fit for how we position ourselves going forward and then better use of capital, frankly, in that ongoing period.
Okay. All right. Thank you.
All right. Thanks. Next, we have [Non-English content] [inaudible].
Thanks, [Non-English content] Rob and [Non-English content] Sakchai, for the detailed presentation. I have two questions for [Non-English content] Sakchai. With the crude premium pretty low in August and since September, and freight cost not very high, does it mean that your market GRM or realized GRM in August and September should be back to tracking Singapore GRM that we have seen in the past, if we add back ship cost? That's the first question. Second question is that you sound very optimistic about the short-term outlook for winter demand and maintenance season. Does this mean that when you are planning for linear programming in September and October, you're looking for $30 each of diesel and jet crack spread. And the last one is that, is there anything that we can do or you can do about the light naphtha and LPG, which the margin has been pretty very low.
Thank you.
Okay, [inaudible]. I think the first question about the low crude premium and the low freight cost, whether our margin will track well with Singapore. I think if we add back the ship-to-ship cost of $1.50, I am really confident that we will stay well competitive or we will stay probably compete with Singapore, can compete with Singapore or GIN. Typically, as you see, we are slightly above because of our domestic placement of the product. Majority is in Thailand. I think the historical really demonstrate that we stay competitive compared to Singapore margin if really thing going back to normal and, in the crude oil premium and the freight aspect. I think that is it. Yes, [inaudible], for the first question. For the second question on the good margin present for in our Q3, Q4.
It is probably hard to say what it will be in term of the crack spread. At $30 per barrel today, it is probably that maybe not sustainable. I would say something is good, but the $30 per barrel is probably something that not I think you can agree with me that it is not something sustained. Something will happen if that kind of good margin, good crack spread present. A lot of hydroskimming capacity will come in and just kick in and run those barrel out and probably just cross out the gap. So, I would say that the healthy one is probably the one that we always see the margin between 5-10, probably something that more sustained, that we say a good margin that is sustained in the market.
Something around that range and probably track well with our historical, that probably can say as a good margin for us that I can see. On your last comment on light naphtha and LPG, I think it is really valid comment. That is, I think the three product that is below the Dubai prime, the our feed stock is LPG, naphtha, and fuel. That probably some of the thing that we will invest. I think as Robert Dobrik said, we try to look for the project around this area, try to high grade our molecule to make more margin. So that is something that we continue to looking for the investment to add those, to high grade those molecule. But today, I think, even today, we not stay, what you call, stand still. I think we try to really upgrade the naphtha as much as into gasoline.
As you can see, I think one of the collaboration that we drive to make it happen is use the Gasoline 91, the low octane base fuel, to make E20 in the market. That actually can help us to really upgrade the naphtha and make more gasoline to be gasoline. That is the really a drive that actually initiate from us and drive into the industry. So it may not good for just SPRC. It is good for Thai refinery, but yeah, never mind. I think all we make the cake bigger, so I think that is good for all and good for us. I think the fuel oil is the product that we continuously try to make more asphalt, try to upgrade fuel oil into asphalt. You can see that we actually make a higher production in this quarter for asphalt.
We continue to see a very good margin for asphalt going forward as well.
Thank you, [Non-English content] Sakchai .
All right. Thank you. [Non-English content] [inaudible], you are next. You can ask your question.
Thank you for your presentation. I have one question about the incident. When you think that the incident, the root cause will be, the result will come out, and do you think that the result of the incident should come out before your resumption of the SPM? Thank you.
Yeah. Unfortunately, like I say, I think we've shared in the past, this is actually the hose and the investigation is being managed by the government through the Marine Department, through the police, through a third party that has been doing a bunch of testing. We have our own work that we've done to try and understand what we think happened, but separately, when will the official government report come out? My sense is they have seen some interim products. I think they have most of what they're going to get from this, but we haven't seen an actual report coming to us or coming beyond. That said, I think there isn't, to my knowledge, there's no more work that's being done, so it could be available in the coming weeks, month. There's nothing really preventing this from moving forward, but that's really up to the regulators.
It's not within our hands. Is it a condition for resuming operations? I think the regulator and the committee that they form will want to have some comfort that we generically understand what happened, and that we're moving forward to reduce the likelihood of future failures. To kind of give you some context, arguably the design of the hose that was used in that period, we've actually gone two generations beyond in terms of what we're proposing to the regulators. Not only a much upgraded design of the original manufacturer, but actually a different manufacturer with an even upgraded design on top of that. We're confident that we can make the case to the regulator on this upgraded design, and it's in use broadly around the world with no incidents.
I think we think we can make a case for that particular standard that meets international standards across the world.
All right. Next, we have. Did you have any follow-up questions?
No. Thank you.
All right. Thank you. Next, we have [Non-English content] [inaudible]. You can ask your question.
Sorry. I couldn't find the button. I have two questions. First is, can you provide the guidance for the crude intake in the third quarter and fourth quarter? And the second is about the winter demand that you expect to see this year. Would like to see how much do you expect. Thank you.
Sakchai?
Yeah. The crude intake in Q3, Q4, as you probably learned from us, we typically optimize the refinery when the margin come down. But when the margins go up, typically we try to drive up to meet the demand and capture those margin. I would say, I think the range that we see is probably not that big gap. Probably in the range of 160- 170 is the one that we try to evaluate, and try to drive toward that kind of range to see whether where we can make the most margin. From time to time, this is up to the econ. I would say probably on average, we probably can see around 160- 170 for Q3 and Q4.
For the winter demand, I think in general, typically the demand in the wintertime is coming because of the heating oil and probably the switching from NGL to liquid. I think the watching point for this year that it probably the same that we could repeat that it can boost up the demand further over and above our normal winter demand on the heating oil is the switching from gas to oil. I think if you look at, we probably need to look at the LNG market that whether if the LNG market start to get spike, and that the cost of the LNG go up, I think that will be sending a signal to us that there will be a switching between gas to oil again and cause the crack on the diesel and jet actually to go up really high in the wintertime.
I would say the demand probably does not have anything specific for the asset heating oil. But typically, it's getting better between normal quarter compared to the winter quarter. We would typically see an increase in demand for seasonal. But the second factor that probably added in is the switching over from LNG to oil. That probably the second factor that will boost up significantly on the oil demand.