Petroleum Industry's Chemical Business in 'Chunqiu Jeon-guk'... Will the Market Reshape in the Second Half?

Refining Big 3 to Produce 1.75 Million Tons of Ethylene in H2
GS Caltex to Produce 700,000 Tons, Hyundai Oil 850,000 Tons Newly
Refining Industry's Performance Expected to Diverge Based on Chemical Business

[Asia Economy Reporter Hwang Yoon-joo] A shift in the domestic refining industry landscape is expected starting this year. Refiners will begin full-scale production of ethylene, known as the "rice of petrochemicals," from the second half of the year. Until now, crude oil refining capacity has determined refiners' market dominance, but going forward, chemical businesses are expected to influence performance and industry rankings.

According to industry sources on the 14th, the ethylene production by the three major domestic refiners?GS Caltex, Hyundai Oilbank, and S-OIL?will increase from the current 150,000 tons to 1.75 million tons starting in the second half of this year. The ethylene production scale of these three refiners is expected to expand to 3.55 million tons by 2026. This marks a significant move as refiners, which have mainly focused on producing fuel oils such as gasoline, diesel, and jet fuel, are now making a full-scale entry into the petrochemical business.

First, GS Caltex will begin commercial operation of its olefin production facility (MFC) as early as August. The MFC is a facility that produces ethylene and other products, representing a large-scale project jointly invested with Lotte Chemical, with 2.7 trillion KRW invested over three years since 2019. With the operation of the MFC, GS Caltex will produce 700,000 tons of ethylene and 500,000 tons of polyethylene (PE) annually. Most of the produced products will be supplied to Lotte Chemical. GS Caltex expects to generate over 400 billion KRW in operating profit annually from the olefin business alone.

Hyundai Oilbank will also begin commercial operation of its heavy oil petrochemical facility (HPC) by the end of August. This facility, a joint venture with Lotte Chemical, will produce 850,000 tons of ethylene and 500,000 tons of polypropylene (PP). Hyundai Oilbank's greatest strength lies in its cost competitiveness compared to competitors. While most companies produce chemical products by refining naphtha, Hyundai Oilbank's facility can use desulfurized heavy oil, a residue from crude oil refining, and by-product gases, significantly reducing production costs. Hyundai Oilbank expects both sales and operating profits to improve substantially from the second half of this year. The company plans to reduce the refining business sales ratio from the current 85% to around 40% by 2030, using the HPC project as a turning point.

S-OIL has been producing 405,000 tons of PP and 300,000 tons of propylene oxide (PO) through its residue upgrading complex (RUC) and olefin downstream complex (ODC) since the end of 2018. Most of S-OIL's operating profit in the first quarter came from RUC/ODC and lubricating base oils. S-OIL plans to invest 7 trillion KRW next year to start the second phase of petrochemical facilities (the Shahin Project). Upon completion in 2026, the Shahin Project will enable annual ethylene production of 1.8 million tons, ranking fourth after LG Chem (3.3 million tons), Lotte Chemical (2.33 million tons), and Yeochun CC (1.95 million tons). Additionally, new PE production is planned.

The main reason domestic refiners are expanding their chemical businesses is the limited margin growth in petroleum products. Although petroleum demand is increasing due to vaccine rollouts, refining margins have remained below the breakeven point (4?5 USD) for over a year. In contrast, demand for chemical products derived from crude oil is rising, and margins are trending upward. Ethylene prices have surged 197.5% year-on-year to 1,106 USD per ton, and PP prices have increased 144.4% to 1,141 USD. The industry expects steady growth in chemical product demand through 2050. Consequently, over the past two to three years, the refining industry has actively invested in chemical facilities as a new business.

An industry insider said, "The chemical business is a new venture that refiners can easily enter due to cost competitiveness and synergy expansion. Once chemical business performance is reflected, the number one position in the refining industry could change."

This content was produced with the assistance of AI translation services.