As talks proceed to cut naphtha cracking center (NCC) capacity at the Ulsan, Yeosu, and Daesan petrochemical industrial complexes, companies are jockeying over whether S-Oil's Shaheen project, set to begin operations in the second half of next year, should also be subject to reductions. Some in the petrochemical industry say S-Oil should join the NCC cuts, but S-Oil's position is that demanding reductions for facilities that have not yet started up is unreasonable.
An industry official said on the 29th, "In the Ulsan petrochemical industrial complex, SK Geocentric and Korea Petrochemical Ind. are discussing cutting NCC facilities, but the key effectively lies with S-Oil," adding, "Depending on the reduction scale S-Oil sets, the cutback sizes in Ulsan as well as in Yeosu and Daesan could change."
Ten petrochemical corporations and the Ministry of Trade, Industry and Energy held the "industry-led restructuring agreement ceremony for a petrochemical industry rebound" on the 20th of last month and agreed to reduce annual NCC production by 2.7 million to 3.7 million tons (t). The government laid out three directions for restructuring: ▲ reducing excess capacity and shifting to high-value specialty products ▲ securing financial soundness ▲ minimizing impacts on regional economies and employment, and it asked the industry to submit restructuring plans by the end of the year. NCC is a process that uses naphtha derived from crude oil to produce basic feedstocks such as ethylene.
S-Oil's Shaheen project, with an investment of 9.258 trillion won, is a project to build TC2C, which converts crude oil into basic petrochemical feedstocks, a steam cracker for ethylene production, and storage facilities. In the Ulsan petrochemical industrial complex, Korea Petrochemical Ind., SK Geocentric, and S-Oil can produce ethylene, with respective capacities of 900,000 t, 660,000 t, and 180,000 t per year. The Shaheen project's ethylene production capacity is 1.8 million t per year, larger than the current output.
Some in the petrochemical industry argue that running the Shaheen project as originally planned is inconsistent at a time when NCC reductions are under discussion. An industry official said, "Minister Kim Jeong-gwan of the Industry Ministry has noted that the government will respond firmly to corporations trying to free ride on the benefits of other companies' facility cuts. With restructuring talks underway, isn't there something S-Oil should do?"
S-Oil is said to interpret the currently discussed NCC capacity cuts as shutting down existing facilities. In other words, new facilities like the Shaheen project are not subject to reductions. S-Oil said, "There is no official position."
A Ministry of Industry official said, "The NCC capacity reduction target came from a study commissioned and carried out autonomously by the industry," adding, "The 14.7 million tons referenced when we said at the voluntary agreement ceremony that 'cutting 2.7 million to 3.7 million tons of NCC would reduce the current 14.7 million-ton capacity by 18% to 25%' includes the Shaheen project's production capacity (1.8 million t)."