SK Geocentric Cuts Costs by Replacing Naphtha with Ethane

SK Geocentric will begin using ethane as a feedstock in its naphtha cracking center (NCC), replacing naphtha. The company aims to enhance the competitiveness of its NCC by producing ethylene-known as the "rice of petrochemicals"-using ethane, which costs only one-third as much as naphtha. With S-Oil in the same Ulsan petrochemical complex planning to launch a process next year that produces chemical products directly from crude oil, the competition to produce low-cost ethylene is expected to intensify.

SK Innovation Ulsan CLX Panorama. Photo by Oh Jieun

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On the 20th, SK Geocentric announced that it had signed a strategic memorandum of understanding (MOU) with SK Gas to pursue the ethane business. The company stated, "We will strengthen the competitiveness of our NCC by diversifying feedstock sources and improving process efficiency." Ethane is a feedstock that offers greater price stability and higher ethylene production efficiency than traditional naphtha. With the expansion of shale gas production in North America, major petrochemical companies in China, India, and Europe are already making extensive use of ethane. In particular, the North American region has a structurally stable supply of ethane based on shale gas, so even after accounting for maritime shipping and terminal operation costs, ethane is considered to have a cost advantage over naphtha.

SK Gas is developing a terminal capable of storing and unloading ethane, leveraging its existing liquefied petroleum gas (LPG) and liquefied natural gas (LNG) infrastructure, and plans to reliably supply feedstock to major companies in the Ulsan petrochemical complex, including SK Geocentric. Choi Anseop, CEO of SK Geocentric, said, "Through collaboration in the ethane business, we will proactively enhance the competitiveness of our NCC and, based on cost competitiveness, continue to operate stably even during the structural downturn in the petrochemical industry."

This decision by SK Geocentric is closely related to the structural downturn currently facing the domestic petrochemical industry. S-Oil, through the Shaheen Project, plans to supply petrochemical products such as ethylene at lower prices than conventional NCCs. As the naphtha supply structure changes, SK Geocentric's proactive shift to ethane is seen as a move to mitigate potential supply chain risks. An industry official commented, "Amid the structural downturn, competition to reduce feedstock costs is accelerating," adding, "SK Geocentric's strategy can be interpreted as an attempt to differentiate its cost structure."

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The government's ongoing petrochemical restructuring process, which calls for companies to voluntarily reorganize their businesses and enhance competitiveness, also appears to have influenced SK Geocentric's decision. Some view this as a proactive effort to improve the company's fundamentals not only in terms of feedstock cost competition but also in the context of restructuring. Previously, in August, the Ministry of Trade, Industry and Energy announced a "Petrochemical Structural Reform Plan," urging companies to establish sustainable business models. An SK Geocentric representative explained, "The push to introduce ethane was aimed at securing feedstock cost-effectiveness while also improving the structure of the petrochemical industry."

Within the Ulsan industrial complex, SK Geocentric, S-Oil, and Korea Petrochemical Ind. are each seeking external consulting to develop their own responses, as they have not yet reached agreement on the scope of production cuts or methods of integration ahead of submitting self-regulation plans required by the government for industry restructuring. S-Oil has commissioned Boston Consulting Group (BCG) to address the post-expansion restructuring in Ulsan, while Korea Petrochemical Ind. is reviewing BCG, McKinsey & Company, and Bain & Company as candidates. SK Geocentric has also reportedly selected BCG as its consulting partner.

An industry official stated, "While SK Geocentric is seeking to reduce feedstock price volatility by introducing ethane, S-Oil is pursuing cost competitiveness based on increased naphtha production through the Shaheen Project," adding, "These differences in strategic direction could influence the restructuring process within the Ulsan industrial complex."

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