"Garbage Bags Hoarded After All Else Fails"... Minister's Pleas Couldn't Stop the 'Bag Crisis' Backstory [Energy Odyssey] ①

Ⅰ. South Korea in an Energy Bottleneck
The Garbage Bag Panic: How War Revealed South Korea’s ‘Energy Poverty’
A Cry from a Country Without a Drop of Crude: The ‘Energy Shock’ from Hormuz
The Transition and Restructuring Squeeze: The Basic Feedstock Dilemma
Direct Crude Conversion and Total Recycling: Rebuilding the ‘Energy Defense Shield’

Editor's NoteAmid recent supply chain crises caused by the Middle East war and the government's mega-projects, the importance of energy has become greater than ever. South Korea, a country that relies on overseas sources for the vast majority of its primary energy, now faces the daunting challenge of achieving energy security, carbon neutrality, and economic growth at the same time. This special feature series is produced by reporters covering the energy sector on the ground, analyzing key issues and exploring alternative solutions shaped by government and industry efforts.

Last spring, during the uncertain supply of naphtha caused by the war in Iran, there was a rush to hoard garbage bags, and even bundle ramen products came out offering volume-based garbage bags as promotional gifts. Screenshot of X.

# Off the coast of Seosan, South Chungcheong Province, a crude oil tanker laden with ultra-light crude oil is approaching. At the dock, the crude is pumped through pipes and stored in tanks owned by Hanwha TotalEnergies. The crude, now in storage, undergoes distillation to be separated into LPG, gasoline, diesel, and more. Naphtha—a clear liquid—also emerges in this process. Hanwha TotalEnergies, which has both a refining facility (CFU) and a naphtha cracking center (NCC), transfers the naphtha to its NCC. When naphtha is cracked at a high temperature of around 800 degrees Celsius, basic petrochemical feedstocks such as ethylene and propylene are first produced. These are then cooled rapidly, compressed, and purified to manufacture polyethylene (used for plastic bags and packaging) and polypropylene (used in tightly sealed containers, automotive parts, etc.). This is the typical route by which crude oil transported by sea is ultimately spun into raw materials for daily necessities such as vinyl products and plastic.

This vast and sophisticated supply chain began to tremble under shocks emerging from the other side of the planet.

At the end of February, as tensions grew between the United States and Iran and Iran declared it would blockade the Strait of Hormuz, crude oil prices began to skyrocket. Naphtha, known as "the rice of industry," followed suit. South Korea relies on imports for half of its naphtha demand, with 58% of those imports coming from the Middle East through the Strait of Hormuz.

As the flow of imported naphtha came to a halt, public anxiety mounted over the possibility that essential household items such as garbage bags could become unavailable, leading to widespread hoarding. Fears over blocked raw material supplies and skyrocketing prices spread rapidly across the country.

Since the introduction of volume-based waste disposal fees in 1995, it was the first time hoarding of garbage bags had taken place. Kim Sunghwan, Minister for Climate, Energy and Environment, publicly assured citizens that there was "no need to worry," but this did little to quell the panic. In the end, Minister Kim even announced he would consider restricting sales per person, similar to the mask rationing policies of the COVID-19 era.

Soaring Prices, Force Majeure Domino: A Warning on Imported Energy Dependence

Within two months, domestic naphtha prices had jumped by nearly 75%. According to raw material price data from the Ministry of Trade, Industry and Energy, the average naphtha price rose from $608.60 per ton in February to $1,018.64 after the Strait of Hormuz was blockaded in March, and then to $1,063.15 in April.

Suppliers of naphtha cracking centers (NCCs) declared force majeure one after another, as feedstock shortages made it impossible to fulfill contracts. Force majeure relieves companies from contract obligations when uncontrollable external factors such as wars or natural disasters make fulfillment impossible. Yeocheon NCC, the largest ethylene producer in Korea, was the first to inform its customers in March, citing delays in raw material arrivals. Soon after, Lotte Chemical, LG Chem, and Hanwha Solutions also flagged the possibility of force majeure as fears grew over potential factory shutdowns.

The background to a nationwide scramble for a single garbage bag lies in the stark reality of complete dependence on foreign raw materials. Although naphtha prices began to stabilize after two months, this episode exposed the deep vulnerability of Korea's supply chain—in particular, over-reliance on imports from the Middle East and the lack of alternatives. The country still lacks strategies for how to respond if a similar crisis occurs in the future.

Facility Reductions Driven by China’s Money: The Foundations of Raw Material Security Are Shaking

Since the Korea Oil Corporation era and the operation of the first NCC in 1972, South Korea’s petrochemical industry has expanded globally. After 2001, when China joined the World Trade Organization (WTO) and further boosted its economic growth through the Beijing Olympics and Shanghai Expo, China's imports of petrochemical products soared and Korean petrochemicals quickly took the top market share in China’s import market, marking rapid progress.

However, it did not take long for China to transform into the fiercest competitor. China massively expanded its facilities and released inexpensive commodity materials into the market. Overwhelmed by the sheer quantity of cheap Chinese ethylene, Korea’s petrochemical industry—centered on such commodity materials—found itself powerless. China pushed for complete self-sufficiency in basic materials and pursued state-led integrated refining and petrochemical projects simultaneously.

Unable to sell products overseas and with profitability deteriorating, both government and industry decided to restructure the petrochemical sector. In September last year, the government announced a 'roadmap for restructuring the petrochemical industry,' targeting a reduction of 2.7 to 3.8 million tons (up to 25%) out of the total domestic NCC production capacity. The aim was to reduce the output of commodity materials to alleviate oversupply and pivot toward high-value, eco-friendly products.

According to the Korea Chemical Industry Council, China topped the list with 58.23 million tons out of a global production volume of 234.16 million tons last year, accounting for 24.86%. The next largest were the United States (46.907 million tons), Saudi Arabia (17.631 million tons), and Korea (13.012 million tons).

As a result of this restructuring, the first integrated company, formed by merging HD Hyundai Chemical and Lotte Daesan Petrochemical, was officially launched on the 4th. HD Hyundai Chemical absorbed Lotte Daesan Petrochemical through a merger (H&L Advanced). Over the next three years, the new entity will reduce operations of low-profit commodity facilities. As the second major restructuring initiative, four companies—Yeocheon NCC, Lotte Chemical, Hanwha Solutions, and DL Chemical—within the Yeosu National Industrial Complex, are preparing to establish another integrated company. Korea’s petrochemical firms have agreed to scale back commodity production and instead expand high value-added businesses.

As the sector’s restructuring proceeds, output of commodity products and NCC operating rates will naturally fall. However, polyethylene, used to manufacture garbage bags, is a commodity plastic. Some caution that indiscriminately reducing commodity output—even if less competitive on price—may not be the right approach. If the production base is drastically cut for profitability reasons and foreign supply chains are disrupted, a much greater crisis could paralyze the entire manufacturing sector.

Beyond Export Controls, Toward Process Innovation: Securing Essential Energy Self-Sufficiency

With the Middle East crisis ongoing, the government has banned naphtha exports until January of next year. The supply control measures for naphtha and petrochemical products were originally set to expire on August 26 but have been extended by five months due to continued regional tensions. Under the extension, naphtha producers cannot export naphtha without prior approval from the Minister of Trade, Industry and Energy, and hoarding is also prohibited. Daily reports must be made to the ministry on naphtha production, shipment volumes, shipping destinations, and stockpiles.

There is a growing consensus that alternatives are urgently needed—methods that can leave behind the deficit model of commodity plastics while safeguarding access to essential raw materials for the national industrial base.

S-OIL is currently undertaking the ‘Shaheen Project’ at its Ulsan petrochemical complex. Unlike other petrochemical companies that are downsizing NCC operations, S-OIL is building a new plant. The Shaheen Project centers on TC2C (Thermal Crude to Chemicals), a process that directly converts crude oil to petrochemical feedstocks. Compared to conventional processes, it employs streamlined separation and catalyst technologies, resulting in a breakthrough: the yield of naphtha from the same volume of crude is more than tripled or quadrupled compared to existing facilities.

S-OIL has concluded that unless it can attain cost competitiveness at the base feedstock level (such as ethylene and propylene) relative to China or the Middle East, even the pursuit of high-value products cannot guarantee price competitiveness in the end market. This is because high-value-added goods are based not only on advanced technology but also on the availability of competitively priced basic feedstocks.

An S-OIL representative stated, “As demonstrated by the Hormuz crisis, the structure of relying on external naphtha supplies is extremely vulnerable to geopolitical risks. The Shaheen Project is expected to serve as a powerful shield in future shocks to the supply chain, enabling us to secure raw materials independently and flexibly.”

Some also suggest maximizing the use of existing facilities and infrastructure as immediate alternatives to absorb the initial shocks and pursuing stepwise, phased adaptation as a mid- to long-term task. Others recommend making full use of diversified recycling technologies and encouraging both process innovation to substitute for NCC and the transition to bio-based materials.

Lee Sora, Senior Research Fellow at the Circular Economy Research Office of the Korea Environment Institute, said, “The most immediately scalable approach is to expand the use of physical (mechanical) recycling, such as washing and shredding waste plastic to make recycled resin, first for low-end commodity product lines, using technologies that are already commercialized. In the short term, it is also possible to adjust raw material blends to flexibly increase the proportion of LPG input in place of naphtha without new investments in facilities.” She added, “In the long term, we should consider producing plastics from bio-based materials such as corn starch sugars or substituting traditional naphtha with CO2-based synthetic naphtha using carbon capture and utilization (CCU) technology.”

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