Korea's Four Oil Refineries Shift Focus to Petrochemicals

The four major Korean oil refineries -- SK Innovation, S-Oil, GS Caltex, and Hyundai Oilbank – have been shifting their focus from refining to non-refining businesses in recent years. These four companies have been investing heavily in petrochemicals facilities, including naphtha cracking centers (NCCs). Investments in oil refining, which was previously a cash cow for them, are practically over.

The four refineries have maintained or slightly improved their oil refining capacity over the past decade, but they have significantly increased their petrochemicals production capacity.

SK Innovation has maintained its daily refining capacity at 1.115 million barrels since 2008. On the other hand, its production capacity for ethylene, which is called “the rice of petrochemicals,” increased from 860,000 tons per year in 2008 to 1.14 million tons as of 2018. SK Innovation has invested 4.7 trillion won in the chemical business since 2011, when it started investing in NexleneTM, its polyethylene brand.

S-OIL has more than doubled the production of benzene and para-xylene for the past 10 years. Recently, the company is focusing on expanding the petrochemical business, investing about 4.8 trillion won in building a residue upgrading complex (RUC) and an olefin downstream complex (ODC).

GS Caltex is also rapidly turning its investment direction into the petrochemical business. The company plans to produce 700,000 tons of ethylene per year and 500,000 tons of polyethylene at a mixed feed cracker (MFC), which is expected to be completed by 2022 with an investment of two trillion won.

Hyundai Oilbank's production of benzene, toluene and para-xylene (BTX) has more than tripled over the past decade. The company recently decided to join hands with Lotte Chemical and invest 2.7 trillion won to build a heavy feed-based petrochemical complex (HPC), which produces olefins and polyolefins, using hevy fuel oil as a feedstock.

The refinery industry is seeing the expanding petrochemical business as a global trend. On the background of this move is a sense of crisis as managing profitability is difficult due to the uncertainty in international oil prices. Furthermore the oil refining business may face a big threat once the electric car market expands in the future.

Except for global refineries such as those in the US and the Middle East, refiners in Western Europe, Australia and Japan are giving up their refining business. Domestic oil refineries also remain somewhat competitive due to the large-scale facility investments in the past and accumulated know-how, but they are not able to avoid the dwindling profit in the refining business.

An official from a major refinery said, "The refining business is growing at a rate of 1% per year due to uncertainties such as oil prices and the electric car market expansion. On the other hand, demand for petrochemicals is increasing by 3% per year. It is very likely to continue to grow."

Accordingly, oil refineries are competing for NCC investment. NCC is a facility that produces high value-added petrochemical products by disassembling naphtha which has a low value. The move is from the thought that securing an NCC is the key to advancing into the high-margin downstream product market, which is held by existing petrochemical companies.