* Expansion to produce Euro IV fuels, meet future demand
* Refinery to process more sour crude as output falls
* New hydrocracker started operation in Q3 (Adds details)
Petronas plans to expand and upgrade its Malacca refinery to produce higher-quality fuel and meet rising demand after recently raising the plant's capacity to 290,000 barrels per day (bpd), industry sources said on Thursday.
The project comes as several other refiners have revived or are considering expansions. Around 5.1 million bpd of net refining capacity is likely to be added between 2011 and 2015, according to Wood Mackenzie.
Upgrades will allow Petronas [PETR.UL] to process more sour crude at the refining complex, as the country's sweet crude production declines, one of the sources said.
The study, which will determine the capacity and investment costs, is expected to be completed in first-quarter next year, he said.
The company could not be immediately reached for official comment.
The expansion will be carried out at the refinery's Train 1, which has a design capacity of 100,000 bpd, but operates at 120,000 bpd and processes only locally produced sweet crude, the source said.
EURO IV FUELS
Petronas plans to produce Euro-IV gasoline and diesel at the refinery ahead of a possible government mandate to raise fuel standards in the country, the source said.
"Industry players are talking to the government although there is no specific date," he said.
The company is also looking at increasing capacity to meet stronger demand in the future, he said.
The project includes increasing the refinery's base oil output, he said. Petronas has a 300,000 tonne-per-year (tpy) Group III base oil plant at Malacca.
In the third quarter, Petronas started operations at a new 50,000-bpd hydrocracker which raised the overall refining capacity at Train 2 to 170,000 bpd, the source said.
Petronas owns 53 percent of the refinery while U.S. oil company ConocoPhillips (COP.N) holds the remaining stake.
