SK Geocentric, Korea Petrochemical Ind., and S-Oil, which operate naphtha cracking centers (NCC) in the Ulsan petrochemical industrial complex, are struggling to reach an agreement on NCC reductions. As they push the task of cutting NCC capacity onto one another, they have not even decided on the scale of the reductions.
An industry official said on the 24th, "The three companies are trying to get consulting to decide who should shut down facilities first, but I understand they have not even decided which consulting firm to hire, as each claims its own competitiveness."
An NCC is a facility that cracks naphtha, a byproduct of crude oil refining, at high temperature and pressure to produce petrochemical feedstocks such as ethylene and propylene. Ethylene is a basic petrochemical product known as the "rice of petrochemicals," and is used not only in everyday products like plastic and vinyl but also to make various components for major industries such as automobiles and electronics.
As demand fell and difficulties intensified due to a supply glut from China, the petrochemical industry decided to cut NCC operations, but it has not decided who will cut and by how much. SK Geocentric, Korea Petrochemical Ind., and S-Oil produce 660,000 tons (t), 900,000 t, and 180,000 t of ethylene annually. In addition, when S-Oil's "Shaheen Project," into which 9.258 trillion won has been invested, begins commercial operation in the second half of next year, an additional 1.8 million t of ethylene will be produced annually.
S-Oil plans to feed most of the ethylene produced by the Shaheen Project into its polymer plant as raw material to produce polyethylene and polypropylene. However, it is known to be difficult to consume all 1.8 million t. Multiple industry officials said, "S-Oil can consume 1.32 million t of ethylene on its own, so it must sell 480,000 t to downstream companies (which use ethylene and propylene to produce various petrochemical products), but that will not be easy." Because ethylene is a gas, it is not easy to supply it to other industrial complexes.
S-Oil argues that the Shaheen Project is not subject to cuts, but others in the industry believe the project should also reduce output. An industry official said, "From S-Oil's standpoint, it would hope that Korea Petrochemical Ind. or SK Geocentric cut by the 480,000 t of ethylene it needs to sell, but that could spark a free-riding controversy."