As the price of naphtha, which is an ingredient for petrochemical products, plummeted due to the oil price drop, domestic companies inevitably have to change their shale gas investment plans.
The petrochemical industry had originally planned on the expansion of ethane cracking centers (ECC) for shale gas, which has excellent price competitiveness. However, it is forecast to turn towards a strategy of investment based on a long-term perspective by observing the oil price trend.
According to the industry on the 16th, the international naphtha price dropped to $543 in the second week of December. The price was kept around $900 per ton in the first half of the year. Then, it started falling in August and plummeted down to around $500 this month. Oil price, which plunged in the second half of the year, affected the price of naphtha, a petrochemical product. Last year, the average naphtha price was $919 per ton.
Up until the beginning of the year, the issue in petrochemical industry had been the introduction of shale gas-based ECC. This is because ethylene production cost is far lower than that of naphtha cracking centers (NCC). Ethylene is the most basic petrochemical product. As of last year, the manufacturing cost using shale gas was $600 per ton and that of naphtha was around $1,000 ? 1,200 per ton. As companies equipped with ECC in North America embarked on production full scale, the industry in Korea started reviewing shale gas-related investments.
However, as naphtha price dropped rapidly, domestic petrochemical industry, which planned the introduction of a shale gas-based petrochemical process, are taking on a cautious approach to investment.
Recently, Hanwha Chemical suspended the review for shale gas investment in North America temporarily. Although the company had been contacting local companies under the table in order to secure ECC in North America, it decided to watch the situation for the time being. Having taken over Samsung Total, Hanwha Chemical can purchase naphtha in large volumes. In addition, it can increase cost competitiveness as it built up a diversified material portfolio with condensate and LPG. Moreover, as the trend of low oil price continued, Hanwha Chemical changed the direction towards not investing in shale gas right away.
“Our naphtha business competitiveness has improved as a result of our acquisition of Samsung Total,” said a Hanwha Chemical insider. “Considering the time required in introducing the process and the variable of oil price, it is rather burdensome to start investing in shale gas right away.”
As for LG Chem, it is reexamining the time of an ethane gas-based petrochemical complex construction, which the company has been promoting in Kazakhstan. Although the company decided to delay the time of plant operation start from 2017 to 2019, LG Chem’s policy is that it can readjust the project promotion time if its competitiveness is lowered according to oil price drop.
SK Gas, which has invested in a PDH (propane dehydrogenation) facility for propylene production using liquefied petroleum gas (LPG) as an ingredient, is also observing the situation. SK Gas went into PDH business, forecasting that LPG price would be lower than naphtha as a result of an increase in the shale gas production. The company’s cost competitiveness can suffer considerably if the low oil price trend continues.
“Considering the ethylene production cost alone, shale gas facility still has a competitive edge. However, as naphtha price dropped, the strengths of NCC, which can be used in the manufacturing of various products, are being accentuated,” said KTB Investment & Securities Researcher Lee Chung-jae. “The time of naphtha is extended as a result of the oil price drop and the petrochemical industry is establishing shale gas strategies with a more long-ranged perspective.”
Choi Ho | snoop@etnews.com