SK Innovation Co Ltd
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SK Innovation Co Ltd
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Good morning. I am [ Chung Soo Yung ] , IR Project Leader at SK Innovation. Thank you for taking the time to join us today on this 2023 Q3 earnings call. On today's call, we have SK Innovation CFO, Kim Yang-Sub, Head of IR [ Ei-Yuan ]; and e-level officers from different subsidiaries.
The agenda for today's call is as follows: CFO, Kim Yang-Sub will present the Q3 business results, which will be followed by Q&A. Also, please note that today's presentation has yet to be reviewed by our external auditor. So the results are subject to change based on such review. With that, -- let me invite CFO, Kim Yang-Sub to make the presentation.
Good morning. I am Kim Yang-Sub, CFO of SK Innovation. I would like to thank our shareholders, investors and analysts for your continued interest in the company. Let me start with the highlights of the 2023 Q3 business performance.
In the third quarter, thanks to profit growth in all businesses, including increased profits in existing business such as refining petrochemical and lubricant, improved productivity in the battery business and inspection of AMPC, our turnaround was achieved with operating profit at KRW 1,563.1 billion, an increase of KRW 1,669.9 billion Q-o-Q. Also, profitability improved by 8.4 percentage points Q-o-Q with OP margin at 7.9%.
Secondly, in September, SK Earthon succeeded in producing crude oil from Block 17/03 in China. This offshore mine in the South China Sea that we have been participating in from 2015 is a large-scale mine with a daily production of approximately 29,500 barrels based on the peak oil production. This crude oil production is significant as it is the first ever case of SK Earthon successfully leading the entire process from initial exploration to current production based on the company's own technological capabilities after securing independent operating rights. In addition, we expect successful development and production of mine being explored in Vietnam and Malaysia.
Next, despite the negative lagging effect caused by falling metal prices, SK On continued to improve its profitability by improving yields at new overseas plants and starting full-fledged production in its U.S. plants. Q3 OP margin, which includes the AMPC benefits of KRW 209.9 billion, was minus 2.7%, an improvement of 0.8 percentage points compared to the previous quarter. In addition, production and sales in North America will continue to increase in Q4, and we aim to turn our AMPC combined operating profit into surplus. That was SK Innovation's Q3 business performance highlights.
Next, I will elaborate on the company's Q3 business results. In Q3 2023, despite a decline in metal prices and a slight decrease in sales outside of North America in the battery business due to the impact of rising prices from strong oil prices, sales was KRW 19,889.1 billion, an increase of KRW 1,161.9 billion Q-o-Q. Backed by the robust profit growth in all our businesses, operating profit was KRW 1,563.1 billion, an increase of KRW 1,669.9 billion Q-o-Q. Due to the losses on derivatives from rising oil prices, nonoperating loss was KRW 476.8 billion, a decrease of KRW 325.7 billion Q-o-Q.
To elaborate the current quarter's nonoperating loss was comprised of FX-related losses, KRW 111.6 billion, product derivatives losses KRW 127.9 billion, net interest expenses KRW 204.7 billion, equity meted losses, KRW 3.9 billion and other expense, KRW 28.7 billion.
Let me go over the balance sheet. As of the end of Q3 2023, total assets amounted to KRW 80,108.2 billion, up KRW 12,889.3 billion compared to the previous year's end. This increase was mainly attributed to the growth in intangible assets resulting from investment in new overseas battery factories and increase in working capital.
Liabilities increased by KRW 6, 983.9 billion compared to the previous year's end reaching KRW 50,960.5 billion, primarily due to higher [ barns ] to support expanded investment expenditure. Despite increasing liabilities, debt-to-equity ratio stood at 175%, down 14 percentage points compared to the previous year-end, driven by robust profit generation and a paid in capital increase.
Furthermore, net debt increased by KRW 1,012.2 billion compared to the previous year-end, reaching KRW 15,527 billion, mainly due to investments in overseas battery plant expansion.
Next, let me dive into Q3 performance of each business. The refining business recorded an operating profit of KRW 1,112.5 billion, an increase of KRW 1, 523.7 billion Q-on-Q, thanks to improved market conditions, such as increase in oil prices and refining margins. In Q4, although there are concerns about the continuation of the Fed high interest rate policy and demand contraction, while our inventory remains at a low level, we expect the market to remain strong due to increase in demand for winter stockpiling and widening supply-demand imbalance from the recovery in Chinese demand.
Next, let me move on to Q3 petrochemical business performance. Despite the margin compression due to the narrowing of the product spread, the petrochemical business demonstrated an operating profit of KRW 237 billion , up KRW 66.8 billion Q-o-Q, thanks to the inventory-related profits from the rising naphtha prices.
Next is Q4 market outlook for key products for PE and PP, despite the spread narrowing from the rising naphtha prices, we expect spreads to remain flat due to the influence of year-end demands such as Black Friday and Christmas. For [ Pet ], despite the decline in demand for gasoline blending, the Chinese polyester chain continues to operate at high rates and spread reduction is expected to be limited.
Next, I will brief on Lubricants Q3 performance. Despite the decrease in the base oil sales volume Q-o-Q, the lubricant business realized an operating profit of KRW 261.7 billion, up KRW 1.8 million Q-o-Q, thanks to the inventory effect from the increases in raw material prices. For the fourth quarter, despite factors such as a decrease in seasonal demand and other factors causing spread decline, this decline is expected to be limited due to a decrease in UCO supply from strong diesel prices.
Next is E&P business performance in Q3. The E&P business recorded an operating profit of KRW 79.4 billion, up KRW 11.2 billion Q-o-Q due to the effect of reducing variable costs from a decrease in production volume. In addition, starting from the fourth quarter, we expect top line and profit growth from 2024, thanks to the full-scale crude oil production from Block 17/03 in China mentioned earlier. From a cash flow perspective, it is expected that the new mine will be able to contribute on a meaningful scale every year in the future. With the development and production of additional exploration mine, we are concentrating our company-wide capabilities, leveraging SK Earthon's long experience and technology. Next, let me move on to the battery business in Q3.
Despite increased productivity and increased sales volume through improved yields at U.S. plant, the battery business sales was KRW 3,172.7 billion, a decrease of KRW 523.4 billion Q-on-Q due to the impact of metal prices falling sharply in the first half of 2023. Operating loss narrowed to KRW 45.4 billion Q-on-Q, thanks to the increased battery sales volume from full-fledged productivity improvements in the U.S. plant and the effect of AMPC worth KRW 209.9 billion. Consequently OP margin was improved.
In the fourth quarter, while there may be some impact due to a short-term slowdown in EV demand growth and a decline in metal prices, we anticipate further improvement in profitability through a sustained productivity improvements in new overseas plants and comprehensive cost-cutting efforts. In addition, we aim to turn our operating profit into surplus in Q4 as the benefits from U.S. AMPC also increases.
Next, let's get SKIET's Q3 performance. SKIET saw growth of KRW 3.6 billion in operating profit Q-o-Q, backed by the top line growth from the increase in sales volume to major customers. Looking ahead to Q4, a gradual improvement in profit is expected as sales to key customers continue to increase.
Next, let me provide an update on the company's ESG status. Recently, there have been growing demand from the government and regulatory bodies to respond to greenwashing risk in all business activities. We seek to actively respond to investors' demand for enhanced transparency in ESG-related disclosure and more detailed information. To respond to greenwashing that may arise in the process of promoting the company's products and services as well as management activities, the company will systematically respond to greenwashing risk by implementing pre-deliberation procedures and regular inspection activities based on internal policies and guidelines.
Thank you. And this is the end of our presentation. We will now start the Q&A session.
Please note the Q&A session will be conducted with consecutive interpretation. Prior to today's earnings call, the company has collected questions via our website for around 2 weeks. So before we open up the floor, we would like to provide answers to 2 most frequently asked question asked first.
So the first question is related to the recent concerns that there is a slowdown in the EV market. What the company's outlook would be and what strategy it has is the question. And the question will be answered by SK On.
This is [ Kim Yong ] I'm from SK On. And maybe I can take your first question. So if we look at the overall outlook in terms of supply and demand on the global market, in the short term, we do believe that there may be a slight dip in the overall demand growth due to factors such as inflation and the high interest rate environment. However, over the mid- to long term. If you look at the energy policies that have been released by each country. In addition to that, the distance per tank and also the various environment-related incentives that are available.
We do believe that the overall EV market demand will continue to be strong, mainly focused from demand driving that is coming from the North American market. In the case of the Chinese market, we do expect that the overall growth trends will continue in terms of demand. However, on a relative basis, supply will be stronger. And as a result of that, until 2030, we do expect that there will continue to be an oversupply situation.
In the case of the North American market, we do see signs that the overall growth rate is slightly weakening recently. However, still, if we look at it on a global basis, North America still represents one of the highest growth markets. And until 2030, we do expect that the overall supply will be shorter in terms of the growth versus overall demand growth. As a result of that, we do think that, that will be a situation, and we will continue to monitor the changes that take place in the dynamics continuously.
In addition to that, in addition with the market environment, of course, based upon the customer demand that we see, we do have different scenarios that we have created for each region and also according to situations that may make it safe in our overall order creation process. So as a result of that, we do think that we will be able to optimize the overall customer demand especially coming from the OEMs.
In addition, if we look at -- we will continue to deeply monitor the demand risk that is coming from macro and micro changes in the environment. And also, we'll make sure that we take measures such as optimizing our line operations and also the overall inventory management process to ensure that we do have a very effective inventory management system in place and also are able to minimize the impact of any changes in demand.
So the second question that we have received is with regards to the recent releases or event news that has come out about SK Earthon. And the China 17/03 block that we have actually being developed. So in terms of the estimated reserves and also the financial impact from that, that is a question that we have received. And in addition to that, if there is any progress that is being made on other exploration box, that is also something that has been requested. So this is a question that will be answered by SK Earthon.
Yes, this is the Head of Planning and Management Office from SK Earthon, and maybe I can take this question. In the case of the China 17/03 block, this is a very significant project for us because it has been based upon our own proprietary technology, and we have had the full independent operational rates to this in terms of the overall process, starting from the exploration project to discovering the oil, developing it and also production. So it is the first project of such nature, which makes it significant.
If we look at the overall reserves that we have from this site, based upon the petroleum initially in place or PIP, reserves, it would actually represent 120 million barrels. And in terms of the recoverable reserves, that would be approximately 50 million.
In addition to talk about the financial expectations or impact that we believe. For 2024, based upon the SK net basis, we do think that in terms of the top line, it will have around KRW 500 million of contribution -- KRW 500 billion of contribution and in terms of the operating profit, another KRW 250 billion.
In addition, from an ESG perspective, in the process of production, we are trying to cut back on the CO2 emissions that we have. So from the time of the design we have been very mindful so that we are using -- are we using the waste gas that is coming from the generator. And in terms of the various facilities, we have electrified them so that the facilities -- the production facilities reflect that. In addition, we are also reviewing the possibility of using LNG fuel-based shipments and also using energy sources that would come from renewable energy sources. So through this, we will continue to try to exert our efforts to cut back on CO2.
In addition to this, at the company's level, we also have received approval from the Vietnam government for the 15/105 block in the south coast of Vietnam in the Cuu Long Basin for a LTV structure development. So the current target is to hit first oil in 2026. And for that, we will actually engage upon the full-fledged development from next year.
In addition to that, if we were to look at the reserves of this block on a PIP basis, it's 490 million barrels. And in terms of the recoverable reserves, it represents approximately [ 60 ] million barrels.
In addition, in Vietnam, we also have the 16/2 block. And right now, we're currently verifying whether there is any hydrocarbon in this area. So we do have an exploration well that is under process, and we do believe that we will be able to come back with positive results in the not too far future. In addition to that, in Vietnam, there's also the 15/217 block. And in Malaysia in the Sarawak region, we have the SK 427 block, which is also currently looking for and exploring for oil.
So in addition to our traditional E&P business for SK Earthon, we are continuing, of course, to make inroads in the upstream area here, but we're also adding on in the green areas as a new growth driver. So as of 2023, for the carbon capture and storage area, we are focusing on the storage side of that dynamic to look for our business opportunities. And also for new green areas, we continue to develop new business items.
[Operator Instructions] The first question will be provided by Young Suk Shin from Morgan Stanley.
Yes, thank you for the opportunity to ask questions. There are 2 questions that I would like to ask. First is that if you look at the recent announcements that are coming from Ford and also Volkswagen, it seems to be that for their EV target volume, there has been some adjustment there. So as a result of that, for your battery business in the fourth quarter and also for next year, What are your expectations about overall utilization?
In addition to that, the second question that I would like to ask you is that it seems to be that the UAW strike is coming to an end. In terms of any impact on SK On in terms of the sales and profitability, what do you expect to happen there?
So this is [ Anna Park ] from SK On. And maybe I can take your first question. About the question about Ford and Volkswagen and the adjustments that are taking place there. We are aware of the market concerns that currently are taking place about the recent growth that is taking place in the EV market. However, that has been said, in terms of our line operations, we are trying to be very flexible. And through various conversions, we are trying to make sure that we are very flexible in terms of the operations.
So as the overall sales volume at the OEM side goes up and down, of course, on a very regular basis, there will be adjustments that we made to our overall utilization. That have been said, of course, there is some concern in the market right now about a possible decrease in production and also sales volume. However, as of the current time, the overall impact on our operations is very limited.
So in terms of the overall outlook for our utilization, please understand that it would be difficult to share specific numbers with you as of this time. However, what we can say is that into the fourth quarter and into next year, we do believe that our overall volume will continue to increase.
In addition to that, that have been said, we also believe that we will actually be on a relative basis, less impacted and also limitedly impacted by any changes in EV demand going forward and the reasons for that would be first because we are focused in the North American region. Secondly, in terms of our overall ordering activities and marketing activities. We have been more selective with our orders based upon proven and iconic models. And third, the fact that the overall portfolio that we are building is focused on JVs.
And to move on to the second question with regards to the UAW strike and the situation there. I do think that from the company side, what we can say about this is limited. However, we do understand that in the case of Ford that there has been a preliminary agreement that they have been able to strike. So as a result of that, we continue to look at what the trends are and monitor the situation.
And to move on to the point that you have asked about the overall sales and overall profitability impact. Of course, the EV factories were not subject to the strikes. So in terms of the short-term impact, we do think that it would be insignificant.
However, over the mid- to long term, there could be some concern that labor costs may increase. However, in light with that, what we are planning to do is that on the logistical side, we do have automated logistics in place, AGV, which would be automated guided vehicles, and also OHT, which represents overhead transfer conveyors. So with those initiatives, we will also create a smart factory to ensure that we are able to continue to strengthen our manufacturing competitiveness and cost savings.
The following question will be presented by Hyunryul Cho from Samsung Securities.
Yes, there are 3 questions that I would like to ask you and they are each about your battery business, your petrochemical business and your new business areas. First to ask a question about your battery business. In 2024, you are planning to put online your European and also Chinese new capacity. So in terms of the ramp-up there, how fast do you actually believe that, that will take. And in addition to that, this is a large-scale capacity addition that is taking place in almost a year. So do you still believe that in light of this capacity addition, you will be able to show stronger performance on a Q-o-Q basis?
The second question that I would like to ask is about your Ulsan ARC. There has been news reports that you will be actually having a commencement summary in early November with the target of actually starting commercial production in 2025. So for SK Geo Centric in terms of the overall business, of waste plastic recycling and also the outlook for that? If you could share that, that is something that would be appreciated.
The last question that I would like to ask you is about the recent investment that has been made by SKTI into [ Teong Ont ]. If you were to be able to talk about that, that would be something that we would like to hear about also. Thank you.
So this is [ Anna Park ] from SK On, and maybe I can take your first question. If we look at the overall Hungary and Chinese factory that is expected to go online next year, the actual locations of these factories is close to [indiscernible] , in which we already have very high yields. So as a result of that, we do believe that we will be able to stabilize the initial yields in a very early manner.
So as a result of that, if we were to talk about the impact from the capacity add-on in itself, which was your question, we do think that, that will be limited.
And maybe using this opportunity, I can also talk about new systems that we have -- 2 new systems that we have put in place to achieve a early ramp-up.
The first strategy that we have is to initiate a core team. What this core team is, is it's representing people who do represent the production side and also the manufacturing side and have accumulated experience working at other sites. So these people will be inputted in the beginning of 3 or 6 months to ensure that the overall ramp-up process goes very smoothly.
And the second is that we are trying to implement and also expand the adoption of a real-time production monitoring system. By doing this, what the overall goal would be is that for issues that we are not able to prevent in advance we would be able to detect them early on to ensure that we take measures accordingly in a very swift manner after they have appeared.
Yes. This is [ Yeo Sun-Kim ], the Head of Management and Planning Office from SK Geo Centric, and maybe I can take your second question. So since your question was 2 parts. One was the outlook for the market and the second was the current process that we are currently making. I will take those parts one by one.
First, to talk about our outlook for this market. Of course, because of various environment-related regulations that are taking place in Korea and outside and also because there are various brand owners that have declared to be more green in the future and make a green transition. As a result of that, over the mid- to long term, we do believe that the demand for recycled plastics will continue to grow.
And second, to talk about the various initiatives that we have on the business side. In order to secure the feedstock that is required for waste plastic development, high-quality materials in this area and also to ensure that we are able to produce a very high-quality recycled material. We are continuously making efforts to develop our own proprietary technology and also cooperate with partners that have technology in the chemical recycling area. So we do believe that the full integration of that would be the Ulsan ARC that we are planning.
So as a result of that, with regards to mechanical recycling companies right now, we are trying to secure the feedstock that is related -- needed for that in terms of making possible M&As or also equity investments in such companies to ensure that we're able to secure the high-quality waste plastic.
And with regards to the chemical recycling side, for the top 3 technology, which would be paralysis, also PET depolarization and also high-purity PP extraction. For these technologies, we all already have either secured them or in the process of securing these technologies.
And in the Ulsan area, right now, we are actually preparing the site for the project, and we are planning to complete the overall construction by 2025.
So this is [indiscernible] SKTI, and maybe I can go through the third question. First, starting to the background, of why we made the equity investment in [ Teong Ont ].
So if you look at the various countries across the globe, of course, all countries are trying to cut down on the carbon emissions that is coming from the process of consuming jet fuel. So as a result of that, as an alternative, there continues to be exploration of sustainable fuel alternatives, which would be biofuel and also Syncrude based oil.
If you look at [ Tagamet Ont ], this is a company that was established in 1995. And across 13 different business locations nationwide, it is able to very professionally produce UCL and Tallow, which is the material that is used to create bioaviation fuel. So as a result of that, at the SK trading international level, we did believe that there need to be a preemptive preparations for this market going forward. So that is why we decided to make this investment.
Next, maybe to introduce our broader strategy that we have for the sustainable aviation fuel our SaaS area. Of course, in the aviation area, of course, the obligatory adoption of SaaS may be a very important tool to reach Net 0. And as a result of that, the adoption of this is spreading very quickly. If we look at the International Civil Aviation Organization under the UN to cut down on CO2 and emissions in the aviation area, the overall target would be to cut down by 85% or maintain at an 85% level versus the 2019 levels until 2035.
So as a result of that, from member countries from 2027, there will be a mandatory participation requirement.
So in the EU area, reflecting this, the overall mandatory mix of [ Fastnet ] will go into the EU area will be 2% in 2025 and gradually increase to 70% by 2050. In the case of the U.S., right now, the penetration target for SaaS would be 10% in 2030 and also 100% by 2050. So right now, they're in the process of detail in the overall mandatory policy for that.
So for each country and each region, according to their own situation, of course, they are in the process of detailing and creating more details about their overall SaaS policy in terms of the size and also the timing of what is required. And as a result of that, we do believe that demand in this area will significantly grow.
So as a result of that, for SaaS material right now, the overall impact on cutting carbon is very high. However, in terms of the feed available, availability is actually not very strong in the UCL and tallow area in which we have been able to gain a early foothold and we will continue to be able to secure more SaaS material in a stable manner. In addition to that, not only on this side, but we also are planning to broaden our overall business growth to other areas. And by doing that, when the overall SaaS market does really take off, whether within the region or outside, we will be able to make timely supply accordingly.
The following question will be presented by [ Henning Yong ] from Daiwa Capital Markets.
There are 2 questions that I would like to ask you, and both questions are related to SK On. The first question is that if you look at the Q3 performance, it does seem to be that the yield in the U.S. has improved. There was a larger contribution from AMPC. And the exchange rate continued to maintain a very weak won situation, which was all in your favor. However, nevertheless, if you look at the operating losses that you had, it does seem to be continuing. So could you explain why the situation is such. And also talk about what you believe the fourth quarter will represent in terms of overall direction.
The second question that I would like to ask you is about Ford. Recently, they have announced that they will continue to adopt more mid-nickel or LFP type batteries rather than high-nickel batteries. So in terms of what your strategy and plan would be in this area, I would like to hear about that also.
So this is [ Anna Park ] from SK On, and maybe I can take your first question. If we were to talk about the main driver, it would be the negative lagging effect that we have seen due to the fall in metal prices. So nevertheless, of the situation, if you look at our overall performance in terms of the overall operating loss margins that we have or the rate at which the operating losses have taken place. The degree of that is at the lowest level since we actually spun off. And as a result of that, we do actually have high expectations for better profitability.
And in the fourth quarter and going forward, we do continue to believe that the overall trends that we see in the yield improvements in the U.S., also a higher contribution coming from AMPC will continue. And added to that, we will have cost savings efforts that we will engage upon. So we do believe that profitability will continue to improve.
This is Kevin Kim from SK On and maybe I can take your second question. So in terms of the overall situation right now, based upon the high level of technical expertise that we have. Of course, we do continue to make very steady progress in the medical area, which does require a relatively lower level of technology than [indiscernible].
So as a result of that, we will continue on staff have to be able to deal with the overall market trends and also customer demand that is becoming more diversified. In addition, on the LFP side, based upon the technology expertise or the experience that we have had in directly developing approximately a decade ago. We are actually -- have completed the development of an upgraded LFP versus the existing mainstream technology that does represent a more high energy density, faster charging and also better performance in low temperatures. So if we look at the situation of the Korean battery producers in last March at InterBattery 2023, we were able to showcase this prototype EV LFP battery.
So again, in terms of the overall sales development for LFP, this has been completed. So right now, we're engaging in discussions about possible product development and also in terms of supply with various customers. So in aligning to the overall needs that we see at the customer side and also the orders that we will secure, we are going to come up with more detailed production plans.
The following question will be presented by Jin-Myung Lee from Shinhan Investment Securities.
I have 2 questions that I would like to ask about your refinery business. The first question is that if you look at the third quarter, for the overall refinery performance, it seems to be very solid, and this was on the back of higher oil prices. and also refining margins. So what would be your outlook about -- for the fourth quarter and also for next year in terms of the market backdrop? If you could elaborate about your expectations for crude going forward and refining margins, that would be appreciated.
The second question that I would like to ask you is that if you look at the U.S. from the likes of ExxonMobil and also Chevron, there's very active M&As that are going on, on this side. So I would like to ask you, what would be your view about the peak of the market in the future? And also, what would be the overall expectations that you have or strategy for the refining business accordingly.
So this is [ Munganshin ], the performance management team leader at SK E and maybe I can address the question that you have first asked about our fourth quarter and also next year expectations.
First, to talk about the overall outlook that we have. We do actually believe that the market backdrop will continue to be very solid. And this is based upon the overall fact that in terms of demand coming from China for crude and also in the U.S. and also India. It does seem to be that there is very effective growth that continues to take place there or increases. And on the supply side, from the OPEC+ led by Saudi, it does seem to be that they are managing supplies. So we do think that the imbalance in supply and demand will be something that will continue. And added to that, because our overall inventory levels on a global basis are remaining low, we do think that, that will support the market.
So as -- in addition to that, if we look at the FOMC, that's -- that is to be scheduled in November. We do think that with that, there may be an end to the overall monetary policy cycle and also better expectations about a soft landing taking place, which would always also support on the overall market situation.
In terms of our demand for oil and crude. If you look at the market right now from institutions such as the [ IAE ], there is an overall outlook that it will be of a level of maybe 1 million barrels. And then on the OpEx side, they are forecasting 2.25 million barrels per day. So I do think that there is a mix in various views.
So if we share our view about the situation and the outlook for the market in 2024, for the reasons that we mentioned before, which would be additional global recovery that is taking place in demand and also the soft landing that is expected in the U.S. market. We would be having a view that versus the 2023 levels that the addition or growth would represent around 1.5 million barrels per day.
Maybe to move on to the second question that you asked. After the endemic took place in 2023, if you look at overall crude demand, it has normalized in terms of the overall trends. So as the global economy continues to grow, we will -- we do expect that demand for the time being, will continue.
In addition to that, if you look at EV penetration and also renewable energy use, this is an area in which there continues to be progress. However, to completely take out and also be an alternative to crude, we do think that for that transition to take place, a lot of more time will be required.
So that have been said, if we look at our outlook for the next 3 years in terms of the overall demand side for crude, we do think that it will continue to grow at a very solid pace of around 1 million to 1.5 million barrels per day, whereas in terms of the capacity addition that the refineries are releasing or putting out as of the current state. In 2023, there was around 1.8 million barrels per day. And then that would be some -- the high level. And then from '24 thereafter, it seems to be trending down to an additional 60,000 -- 600,000 rather barrels per day. So as a result of that, we do think that the new capacity additions will not be able to cover the increase that we see on the demand side. So as a result, we do think that the imbalance in supply and demand will be something that will continue going forward.
In addition to that, to talk about when we believe the demand will reach its peak in terms of global oil. Of course, according to the energy transition scenario that each institution has, I think that everyone has a different view that it will be some time around 2030 to 2035. And as a result of that, with regards to our mid- to long-term outlook, we do think that the fact in itself that there will be an energy transition in the future is probably something that is clear, however, in terms of what the speed of that will be and what the scale of that will be, is I believe, still uncertain as we can see from recent developments.
So as a result of that, for the company right now, rather than trying to correctly estimate when the overall demand peak will come. We are a bit more focused in terms of being able to set in place a business model that would be able to deal with the situations that arise in the future and also continue to generate a high level of profitability. So that is enabling us to be in a position in which we would have very strategic options is something that we want to do.
The last question will be presented by Woo Jae Chun from KB Securities.
So being mindful of time, maybe I can ask one question. And the question that I would like to ask is about your battery business. In addition to the questions asked before, in light of the overall slowdown in EV demand that is taking place. I would like to ask you is there any change to your capacity addition plans that you have, whether it be in a JV form or for SK On only capacity that you're planning?
So this is [ Colin Kim ] from SK On and maybe I can address your question. So as the market has been in concern in terms of the electrification pace of OEMs. We do see somewhat of a slowdown taking place in that area. However, if you look at the overall impact on our capacity addition schedules, we expect it to be limited.
So if you look at the main projects that we have currently ongoing, it would be the Ford JV and also Hyundai Motor JV. With regards to the Ford JV during Ford's earnings release this quarter, there was some comment about that. So for the 2026 planned Kentucky #2 factory, we are -- there is some review about possibly delaying that factory. However, that has been said for the Tennessee and also Kentucky #1 factory. That is something that will go according to schedule and start mass production in 2025
In addition, as was mentioned in recent news reports for the Hyundai Motor factory in the U.S., in actuality, the overall completion timeline has been accelerated. From 2025 to 2024. So as that indicates, for the Hyundai Motor JV, everything is going very smoothly according to schedule.
So with this, we would like to wrap up the Q&A session and also the third quarter earnings release for SK Innovation. Once again, for those of you who have taken time out of your busy schedule to participate in this call, we would like to thank you. And once again, thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]