[Report] "Operating Rate Exceeds 90% Thanks to Vertical Integration, Yet We're Told to Cut"... Warning Signs of Conflict Among Petrochemical Complexes

Government Sets Only Total Reduction Target,
No Plan for Allocation by Complex
Ulsan Maintains High Operating Rates
Thanks to Small Capacity and Vertical Integration
Talk of Merging KPIC and SK Geocentric Faces Limitations

On August 28, in front of the main gate of SK Innovation Ulsan Complex (Ulsan CLX), a factory with rusted pipes and concrete structures stood desolately. This is Plant 1 of the nation's first naphtha cracking center (NCC), which began operations in 1971. SK Geocentric proactively shut down this aging facility, the first of its kind in Korea, ahead of the government's voluntary restructuring policy.

It has now been five years since SK Geocentric halted the operation of this 200,000-ton facility in 2020, and only a "No Entry" sign remains on the site. A company official said, "The estimated demolition cost runs into tens of billions of won," adding, "We would only spend on demolition if there were plans to install replacement facilities, but currently, there is no solution." In the past, there were new production items to replace aging facilities, but as the petrochemical recession has dragged on, there are no longer any businesses capable of replacing the existing facilities.

During the visit to the Ulsan petrochemical complex, there was significant dissatisfaction with the government's voluntary restructuring policy. Recently, the Ministry of Trade, Industry and Energy announced a policy for the industry to voluntarily reduce the annual ethylene production capacity of all NCCs nationwide to a maximum of 3.7 million tons. However, on-site reactions included, "We expected at least a breakdown of reduction ratios by industrial complex." Since no standards have been set for how much each complex should reduce, the industry is left in a state of uncertainty.

The facilities of the nation's first naphtha cracking center (NCC) Plant 1, located opposite the main gate of SK Innovation Ulsan CLX, have been left rusting and abandoned. SK Geocentric halted the operation of this plant in December 2020, citing equipment aging and production capacity adjustments as reasons. Ulsan ? Photo by Oh Jieun

There is a consensus that, although NCCs produce basic petrochemical feedstocks such as ethylene, it is necessary to maintain hubs at the industrial complex level due to the difficulty of storage and transportation. In addition, given the value chain structure intertwined with refining and chemical affiliates, if one site drops out, the supply structure must be reorganized. However, differences in the characteristics of each complex are a variable. Some complexes are vertically integrated through affiliates all the way to downstream processes, while others rely heavily on supplies from other companies. Since efficiency and demand structures vary, the industry believes that detailed coordination is inevitable regarding how much reduction each complex should bear.

The biggest complaint from the Ulsan petrochemical complex is that, among the three major complexes including Yeosu in Jeonnam and Daesan in Chungnam, Ulsan has the highest operating rate. As of the first half of this year, SK Geocentric operated at 100%, and Korea Petrochemical Ind. at over 95%. All ethylene produced is used in downstream processes such as synthetic resins and rubber. According to the Korea Chemical Industry Council, over the past three years, the NCC operating rate in Daesan was 70.0% and in Yeosu about 80%, both below the industry break-even point of 85%. In contrast, Ulsan has maintained over 90% during the same period. An SK Geocentric official said, "NCC alone would be in the red, but we have optimized operations based on vertically integrated facilities to meet downstream demand."

However, in terms of ethylene production capacity alone, Ulsan is the smallest of the three complexes. While Yeosu has 6.42 million tons and Daesan 4.78 million tons, Ulsan has only 1.74 million tons (900,000 tons from Korea Petrochemical Ind., 660,000 tons from SK Geocentric, and 180,000 tons from S-Oil). S-Oil is constructing a state-of-the-art Crude Oil-to-Chemicals (COTC) facility, scheduled for completion in the first half of 2026, which will add another 1.8 million tons of new production capacity.

An official from the Ulsan petrochemical industry said, "Combined, Korea Petrochemical Ind. and SK Geocentric are just about able to meet demand within Ulsan itself."

On-site, there are concerns that if the NCC reduction is uniformly applied by region, the Ulsan industrial complex could face supply-demand imbalances. A Korea Petrochemical Ind. official explained, "Most of the ethylene and propylene produced at the Onsan plant is consumed internally, so if reductions are forced, we would immediately need to find new external supply chains." Since petrochemical complexes receive raw materials through pipelines, if NCCs are reduced and shortages occur, supplies would have to be brought in by ship or other means, increasing costs.

SK Innovation Ulsan CLX overview. On the right side of the photo, the country's first naphtha cracking center (NCC) Plant 1, which has been halted for five years, appears dark. SK Geocentric stopped operating this plant in December 2020 due to aging equipment and production capacity adjustments. Ulsan ? Photo by Oh Jieun

However, it remains uncertain whether these arguments will be accepted during discussions on voluntary reductions. A Korea Chemical Industry Council official said, "To achieve the total amount set by the government, every complex will have to share some of the burden," adding, "While Ulsan's regional characteristics should be considered, it is inevitable that it will have to play a reasonable role."

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