Korea's oil refiners get creative in push to cut emissions

The production complex of SK Incheon Petrochem, SK Innovation's subsidiary. [SK INNOVATION]

Oil refiners are desperately looking for new opportunities to keep their business afloat as Korea pushes to become a “zero carbon” society.

Korea has the fifth-largest oil refining capacity in the world, but the industry's high carbon emissions mean that title also comes with serious concerns about sustainability.

“The oil refinery business is one of Korea’s top six export industries, but it’s expected to go through serious difficulties as [the government] implements policies for carbon neutrality,” said Lim Jae-kyu, a senior researcher at the Korea Energy Economics Institute, on Thursday. “Other than reducing the size of the refinery business, [companies] should quickly find ways to prepare for this new era.”

In response, Korean refiners are shifting toward petrochemical production, for which they can use existing refining facilities, and investing in hydrogen as a future revenue source.

SK Holdings, for example, announced earlier this month it would pour 18 trillion won ($15.9 billion) in the next five years to build a “hydrogen ecosystem.” SK Holdings is the largest stakeholder of SK Innovation, Korea’s largest oil refiner.

According to the company, the five-year project is largely composed of two parts: Building a hydrogen production cluster in Incheon by 2023 using hydrogen gas that’s created as a natural by-product at SK Innovation’s refining facilities and building a factory that can produce hydrogen from liquefied natural gas.

The new facility will be built by subsidiary SK E&S, and will have a capacity of 250,000 tons per year, which SK claims would be the largest production plant of its kind by the time it’s completed in 2025.

GS Caltex is betting on hydrogen fueling stations.

In partnership with Hyundai Motor Group, the oil refiner last year launched a one-stop refueling center catering to every type of vehicles — gasoline, diesel, liquefied petroleum gas (LPG), electricity and hydrogen vehicles. Located in Gangdong District, eastern Seoul, this was the first hydrogen station to be built on privately-owned land in the city.

GS Caltex's charging station in Gangdong, eastern Seoul. [GS CALTEX]

Instead of producing hydrogen on the spot like existing hydrogen stations, the Gangdong facility has hydrogen delivered from elsewhere, which the company says is safer for the community. It can fuel up to 70 vehicles a day.

Hyundai Oilbank and its parent company Hyundai Heavy Industries are also developing ways to make inroads to the hydrogen business. Earlier this month, the oil company signed an agreement with Saudi Arabia’s state-owned Aramco, one of the world’s top crude oil suppliers.

Under the deal, Hyundai Oilbank will import LPG, a natural byproduct of crude oil refining, and use it as fuel to power Hyundai’s hydrogen production facilities. The produced hydrogen will be used to operate desulfurizing facilities or as fuel. Hyundai Oilbank plans to set up 300 hydrogen fueling stations by 2040.

S-Oil is making its way into hydrogen through fuel cells. Fuel cells are devices that produce electricity with hydrogen and oxygen and are one of the key parts of the hydrogen economy.

On March 7, the company acquired a 20 percent stake in Fuel Cell Innovations, a Korean company that provides fuel-cell based clean energy solutions. Through S-Oil’s investment, FCI said it will establish production facilities with more than 100-megawatt capacity, committing 100 billion won through 2027.

While the rush for hydrogen is relatively new, for years oil refiners have been widening their scope to petrochemicals. Produced in crude oil refining, naphtha serves as the basic material for petrochemical products like plastic, polyester and nylon.

In the past, oil refiners sold naphtha to petrochemical companies but they have taken on doing this on their own by establishing naphtha cracking centers that can produce various petrochemicals using this ingredient. Compared to oil refining, producing petrochemicals creates less carbon emissions and therefore is under less pressure from environmental regulations.

Hyundai OIlbank is partnered with Lotte Chemical. Their joint venture Hyundai Chemical will have the capacity to produce 850,000 tons of polyethylene and 500,000 tons of polypropylene per year by August.

GS Caltex is also constructing facilities to annually produce 700,000 tons of ethylene and 500,000 tons of polyethylene. The goal is to start mass production this year.

“It’s impossible for oil companies to follow the call for carbon neutrality solely by doing what they do best: Refining,” said Yoo Seung-hoon, Seoul National University of Science and Technology professor of energy policy.

“Like British Petroleum and Royal Dutch Shell, it’s time they push for transformation into a comprehensive energy group that engages in the refinery business, developing natural gas and power generating.”

BY KANG BYUNG-CHUL [song.kyoungson@joongang.co.kr]