[비즈한국] With the approval of the 'Daesan No. 1' project, a full-scale restructuring of the domestic petrochemical industry has begun. The government and the industry aim to resolve the issue of oversupply and improve their constitution into high-value, eco-friendly businesses through this restructuring. However, criticism has been raised that actual industrial transition measures for carbon neutrality are insufficient. We examine what is needed for the restructuring to go beyond simple production cuts and lead to a true 'transformation'.
The recent naphtha crisis clearly showed why the petrochemical industry has no choice but to cling to 'raw material substitution.' Naphtha is the starting point for producing basic fractions like ethylene and propylene. Materials derived from this go into plastic containers, automotive parts, electronic products, textiles, and packaging materials. In other words, when naphtha is unstable, the cost and supply chain of the entire industry are shaken together. In fact, when naphtha prices surged and concerns about shortages grew amid the supply instability originating from the Middle East this year, the government even considered supporting import costs, while the industry turned to alternative import sources and diversification of raw materials.
The solution the petrochemical industry is focusing on now also starts here. In a situation where the profitability of general-purpose plastic products is falling and pressure to reduce carbon is increasing, the judgment is that it is difficult to survive by relying solely on naphtha as in the past. Therefore, moves to replace naphtha with alternative raw materials such as ethane, bio-naphtha, and waste plastic pyrolysis oil are accelerating. Rather than an electric NCC that replaces the entire factory, a method that keeps the skeleton of existing facilities and changes only the raw materials has emerged as a realistic option for now.
However, changing raw materials does not immediately become a survival strategy. In particular, while ethane is advantageous for reducing carbon emissions, its products are skewed toward ethylene, which could conflict with the industry's long-term strategy to expand its portfolio into high-value materials. The petrochemical industry's calculations are becoming complex over whether raw material substitution is a breakthrough for the crisis or a repetition of reliance on another general-purpose product.
How far have clean alternative raw materials come?
Clean raw materials currently being reviewed and introduced to replace naphtha include ethane, bio-naphtha, and waste plastic pyrolysis oil. Ethane is a light gas extracted from US shale gas, etc., and is classified as a raw material with carbon emissions up to 50% lower than existing general naphtha. Bio-naphtha is produced based on biomass such as vegetable oil or waste cooking oil and is an alternative to reducing the use of fossil fuels. Waste plastic pyrolysis oil is part of a circular economy model that chemically decomposes collected plastics and returns them to refined oil at the level of petrochemical raw materials. The government has also set a policy to promote large-scale R&D investments in bio-based raw material conversion and advanced material development for mid- to long-term high-value, eco-friendly transformation.
Domestic petrochemical companies are investing in infrastructure to accelerate the introduction of these alternative raw materials. Three companies at the Daesan Petrochemical Complex—LG Chem, HD Hyundai Oilbank, and Hanwha TotalEnergies—signed a Memorandum of Understanding (MOU) for the joint purchase of ethane. Hanwha TotalEnergies has established a plan to build an ethane terminal in the Daesan complex by 2030 and partially convert existing facilities into an Ethane Cracker (ECC) to install an ethane pipeline. The government also included fast-track support for the licensing of the Daesan complex ethane terminal in its competitiveness enhancement measures. In addition, LG Chem is executing investments in chemical recycling, such as pushing for a waste plastic pyrolysis plant in Dangjin, South Chungcheong Province.
Jang Yong-hee, leader of LG Chem's Low Carbon Promotion Team, said, "Electric NCC takes a long time to verify the durability of materials and electricity that can withstand ultra-high temperature environments reaching 950 degrees, and byproduct gas (methane), which was previously used as fuel, remains as surplus, creating an additional task of processing it in an eco-friendly way." He added, "On the other hand, the use of bio-raw materials and waste plastic recycling products have relatively high technical maturity and the advantage of being able to immediately utilize existing production facilities."
Ethane in the spotlight, but with structural limitations
Although the raw material substitution card is receiving attention, structural limitations are also being pointed out. In particular, ethane, which is preferred in terms of greenhouse gas reduction, has aspects that do not align with the direction of business reorganization centered on specialty (high-value products) that the domestic petrochemical industry is urgently pursuing.
When existing naphtha is decomposed, various co-products and aromatic compounds such as propylene, butadiene, and BTX (benzene, toluene, xylene) are produced in addition to ethylene. Petrochemical companies diversify their profit structures by processing these various byproducts to produce high-functional chemical materials and various downstream specialty products. On the other hand, ethane is produced mainly for ethylene as a single item when decomposed, limiting downstream scalability based on various high-value byproducts. If the proportion of ethane is significantly increased while restructuring is carried out to resolve the oversupply of general-purpose products, the result could be that the product portfolio is trapped in general-purpose ethylene again.
This sustainability risk of the ethane ECC process is also observed in the United States, the home of ethane gas. A large-scale ethane cracker facility built with total effort by global energy company Shell in Monaca, Pennsylvania, has recently recorded poor performance due to the aftermath of a global supply glut and deteriorating market conditions, contrary to the initially optimistic profitability outlook. This suggests that the advantage of low raw material costs alone is not enough to overcome the structural stagnation and supply volatility of the global petrochemical market.
“Plastic reduction and reuse must take precedence before raw material substitution”
Besides ethane, eco-friendly raw materials such as bio-naphtha or waste plastic pyrolysis oil also face many obstacles in the mass production and commercialization stages. The absolute supply of these alternative raw materials is currently woefully insufficient to handle the huge processing capacity of domestic petrochemical plants, and it is uncertain whether the stability of raw material supply can be secured in the long term. Especially in the case of pyrolysis oil, the industry is closely reviewing the economic feasibility of investment due to technical advancement costs and rising costs for securing high-quality waste resources.
SK Geo Centric invested 1.8 trillion won to build the world's first comprehensive plastic recycling complex, 'Ulsan ARC (Advanced Recycling Cluster),' combining pyrolysis, high-purity polypropylene (PP) extraction, and PET depolymerization technologies on the site of the Ulsan Mipo National Industrial Complex. Upon completion, it was planned to recycle 320,000 tons of waste plastic annually, but the construction schedule was postponed indefinitely due to the burden of increased investment costs and the aftermath of the SK Group's business reorganization (rebalancing). In particular, as PureCycle Technologies of the U.S., which was intended for a joint venture, agreed to stop investing, the momentum for the business temporarily weakened, leading to restructuring such as the reduction of internal departments and layoffs of executives.
Experts point out the limitations of policies focused solely on simple raw material substitution. For the sustainability of the petrochemical industry, 'reduction' and 'reuse' policies that reduce the absolute production and consumption of plastic products themselves must be the top priority. It is pointed out that before chemical recycling, which consumes a lot of energy in the processing, organizing a 'mechanical recycling' system—where plastics are collected by type, shredded, and then molded again by applying heat—aligns with the essential purpose of resource circulation and carbon reduction.
Jeong Seok-hwan, leader of the Petrochemical Team at Solutions for Our Climate, emphasized, "Just as existing crude oil-based naphtha emits greenhouse gases during the extraction and refining process, the actual reduction effect of alternative raw materials depends on the origin of the raw material and how clean the manufacturing process is. In the current crisis of the petrochemical industry, policies centered on production of oversupplied goods should not be prioritized; rather, reduction, reuse, and mechanical recycling must come first."