Lotte Chemical Corp. plans to set up a shale gas-based ethane cracker plant in the U.S. It is a large overseas chemical plant business with investment approaching 3 trillion won (US$2.72 billion).
Lotte Chemical and Axiall Corp. of the U.S. have finalized their joint venture arrangements to construct the ethane cracker plant in Louisiana on June 17 (local time). The project will produce ethylene, a basic petrochemical raw material derived from existing crude oil using shale gas-based ethane gas instead of naphtha.
Previously, the two companies had signed a basic contract for a joint venture in Feb. last year. With the final contract this time, they changed the amount of ownership and project details. At the time of the basic contract, Lotte Chemical and Axiall held a 50-50 ownership agreement. However, it was decided that Lotte Chemical will invest 90 percent while Axiall invests 10 percent in the plant.
With the change of ownership percentages, Lotte Chemical and Axiall will take 900,000 tons and 100,000 tons of ethylene, respectively, from an annual production capacity of 1 million tons of ethylene. Lotte Chemical agreed to sell 400,000 tons to Axiall, securing a stable source of demand.
Lotte Chemical will use the remaining 500,000 tons of ethylene to make ethylene glycol (EG) as planned earlier. The company is currently considering cooperating with Mitsubishi of Japan in a bid to stable its EG business, which was supposed to be run by itself. If so, Lotte will hold a 70 percent stake in the business, with Mitsubishi holding the rest. EG is often used in making synthetic fibers and automotive engine antifreeze fluid.
Combining the ethane cracker plant and EG business, the investment for the project is estimated at 2.9 trillion won (US$2.63 billion). However, both companies will decide the final investment in the second half of this year when the plan for engineering, procurement, and construction (EPC) becomes clear. They plan to begin commercial production at the end of 2018. Through the joint project, Lotte Chemical expects to generate US$1.5 billion (1.65 trillion won) in revenue every year from 2019.
Since the production cost of ethylene produced in an ethane cracker plant is a third of that produced in a naphtha cracker plant, petrochemical companies scramble to invest in the sector in order to reduce costs and diversify raw materials.
Once the joint venture with Axiall starts commercial production, the annual ethylene production capacity of Lotte Chemical will increase from the current 2.8 million tons to 3.7 million tons.
An official from Lotte Chemical said, “The project will reduce dependence on naphtha and increase the use of low-priced gas together with the Surgil chemical complex project in Uzbekistan, which will be completed in the second half of this year. It will play a crucial role in strengthening its global competitiveness through diversifying raw materials, production bases and sales areas.”