With the business restructuring plans for Daesan and Yeosu industrial complexes, the country's largest petrochemical hubs, approved, the business restructuring plan for the Ulsan complex—seen as the final piece of the puzzle—is expected to take shape around next year.
This is because the Shaheen Project by S-Oil, the biggest variable for the Ulsan complex, needs to secure objective data through test runs on how efficient it is compared with other companies' facilities. The industry says concrete talks with Korea Petrochemical Ind and SK Geocentric, the corporations subject to restructuring, will be possible only after checking the figures.
With the Ministry of Trade, Industry and Resources approving the final plan for petrochemical business restructuring at the Yeosu complex on the 22nd, the petrochemical industry's attention is turning to Ulsan, the last key site.
The three companies at the Ulsan complex—S-Oil, SK Geocentric and Korea Petrochemical Ind—are holding talks on reducing NCC (naphtha cracking center) capacity, among other issues, but have not narrowed their differences. They have not even produced a restructuring plan.
An official at corporations in the Ulsan complex said, "We are continuing consultations," adding, "Unlike Yeosu and Daesan, Ulsan's supply and demand are balanced, and the share of aging facilities is low. The government is aware of this difference. We are discussing and mapping out restructuring tailored to regional characteristics."
The biggest variable for the Ulsan complex is S-Oil's Shaheen Project. About 9 trillion won has been invested in the Shaheen Project, which recently completed mechanical construction and is now undergoing facility verification. After verification, it will begin test runs and aims to start commercial operation in early next year. Once completed, it is expected to have annual production capacity of 1.8 million tons of ethylene and 770,000 tons of propylene.
When the Shaheen Project goes online, ethylene production at the Ulsan complex will rise significantly. That would move in the opposite direction from the companies in the Daesan and Yeosu complexes that are cutting ethylene output through NCC closures and integrations. The industry sees it as unfair if the Ulsan complex is left out of reduction talks.
An outline of the Ulsan complex restructuring plan is expected as early as early next year. This is because specific figures—such as the Production yield of extracting petrochemical feedstocks directly from crude and how strong the price competitiveness is after the Shaheen Project begins commercial operation—are needed before restructuring talks with other corporations can proceed.
The traditional method of producing petrochemical products distills crude to separate naphtha, the basic feedstock, and then goes through secondary downstream processes. By contrast, TC2C applied to the Shaheen Project features refining using new separation and catalyst technologies instead of distilling crude. In other words, it draws petrochemical feedstocks directly from crude.
The government's position is to preemptively reduce the supply-glut shock before the Shaheen Project starts up. A Ministry of Trade and Industry (MOTI) official said, "When the Shaheen Project begins commercial operation next year, the market will be in an oversupply of petrochemical products. We are preparing restructuring plans in advance and coordinating to implement them in step with the start-up."
The relatively solid earnings of corporations in the Ulsan complex are also cited as a factor delaying restructuring. Unlike the Yeosu and Daesan complexes, which were hit hard by a China-led supply glut due to their higher share of petrochemical facilities, Ulsan companies do not have large NCC capacity and have a lower ratio of aging facilities.
S-Oil and SK Geocentric benefit from vertical integration that operates refining and petrochemical facilities simultaneously. Because they refine crude to extract naphtha and immediately make chemical products, they have stronger cost competitiveness than chemical corporations that must buy naphtha externally. Korea Petrochemical Ind has a portfolio centered on specialty materials such as polyethylene (PE) for secondary battery separators.
The prolonged Middle East crisis is another variable. At the end of February, the international oil price surged due to the Middle East crisis and naphtha supply instability deepened, delaying restructuring in the domestic petrochemical industry. With even talk of shutdown risks, stabilizing feedstocks and supply took priority. The government's stance is that there are no issues with short-term crude supply for now, but it is closely watching the situation while preparing for a prolonged period of instability in the Middle East.
Meanwhile, the Ministry of Trade, Industry and Resources said it approved the final plan for petrochemical business restructuring at the Yeosu complex submitted by four companies—Yeochun NCC, Lotte Chemical, Hanwha Solutions and DL Chemical. This is the domestic petrochemical industry's second restructuring approval, following the first project in Daesan released in February (HD Hyundai Oilbank, HD Hyundai Chemical, Lotte Chemical).
The reason the government is leading restructuring in the domestic petrochemical industry is to respond to the fallout from a China-led supply glut. As fears grew that Korea's entire petrochemical industry could collapse together, the government stepped in to coordinate so that bleeding competition would stop and the sector could shift toward high value-added products.
On the same day, Vice Minister Mun Sinhak of the Ministry of Trade and Industry (MOTI) said, "For the restructuring of the petrochemical industry to succeed, every complex must participate with no free riders," adding, "Following Daesan and Yeosu, we will also push swiftly for restructuring talks in the Ulsan region."