To boost the competitiveness of the petrochemical industry, a government-led restructuring to reduce Naphtha Cracking Center (NCC) facilities began last year, but there is a chance discussions on the Ulsan petrochemical industrial complex will spill over into next year.
Three companies run NCCs in the Ulsan complex—Korea Petrochemical Ind, SK geocentric, and S-Oil—but the reason for the delay in discussions is that S-Oil's roughly 9 trillion won "Shaheen Project" will soon be mechanically completed. The basic petrochemical feedstocks produced by the Shaheen Project—such as ethylene and propylene—are effectively the same products that NCCs make by cracking naphtha, a byproduct of crude oil refining, at high temperature and pressure.
According to the government and the petrochemical industry on the 23rd, talks on restructuring the Ulsan petrochemical complex will take place after the Shaheen Project starts up. Because the Shaheen Project is a new facility, whether it operates successfully will determine if it becomes subject to NCC capacity cuts.
S-Oil has argued that new facilities like the Shaheen Project should not be subject to cuts. Because commercial operation of the Shaheen Project will occur after November, there is a chance talks on restructuring the Ulsan petrochemical complex will take place within the year.
According to S-Oil, the mechanical completion of the Shaheen Project will take place at the end of June, followed immediately by a trial run. However, the expected timing for final completion after various permits is set for November, and commercial operation is expected to begin afterward.
A S-Oil official said, "We can enter commercial operation only when products with quality stable enough for a transaction come out at the desired Production yield," adding, "The goal is to start commercial operation by year-end."
The Shaheen Project, in which S-Oil invested 9.258 trillion won, is a project to build TC2C, which converts crude oil into basic petrochemical feedstocks, a steam cracker for ethylene production, storage facilities, and more. In the Ulsan petrochemical complex, Korea Petrochemical Ind, SK geocentric, and S-Oil produce ethylene via NCC. Each company's production capacity is 900,000 tons (t), 660,000 t, and 180,000 t per year. The Shaheen Project's ethylene production capacity is 1.8 million t per year, higher than existing production.
An official in the Ulsan-area petrochemical industry said, "My understanding is that they will run the Shaheen Project first and then discuss restructuring," adding, "Beyond calls to scale down the Shaheen Project's operating rate, there also needs to be discussion on downstream."
Korea Petrochemical Ind, which currently receives naphtha from S-Oil, will have to find a new supplier in time for the Shaheen Project's startup. That is because once the Shaheen Project is running, S-Oil will feed into it the naphtha it has produced during crude oil refining. There also needs to be discussion on how to absorb within the Ulsan petrochemical complex the increased output of basic petrochemical feedstocks such as ethylene.
However, the likelihood that the Shaheen Project will be included among NCC cut targets appears low. A petrochemical analyst at a securities firm said, "The Shaheen Project will likely start operating from the third quarter and will probably generate profit," adding, "The logic for NCC cuts has been that 'oversupply led to losses,' but if the Shaheen Project turns a profit, the argument that it should be included in petrochemical industry restructuring will lose traction."
An official at the Ministry of Trade, Industry and Resources said, "Discussions on the Ulsan complex will proceed once the Shaheen Project becomes tangible," adding, "It is not yet the stage to say whether the Shaheen Project will be included among NCC cut targets."