[Reports] A Net Zero Roadmap for South Korea's Petrochemical Industry
Climate-related trade regulation and global supply gluts are the two major challenges facing South Korea’s petrochemical industry.
Climate regulations are becoming intertwined with national trade policies across the globe, making carbon emissions management essential to corporate survival and competitiveness. The European Union’s Carbon Border Adjustment Mechanism (EU CBAM), as well as the US’s Clean Competition Act (CCA) and Foreign Pollution Free Act (FPFA), are spearheading the rush of slapping carbon costs on carbon-intensive products. Government-led expansions in China’s petrochemical industry are stifling South Korea’s petrochemical exports to its massive neighbor, and oil-rich Middle Eastern countries are flurrying into this overcrowded industry, fueling the global oversupply. While capacity expansions in China and the Middle East are squeezing South Korean petrochemical manufacturers, forcing them to scramble for increasingly elusive profits, the planned introduction of thermal-crude-to-chemicals (TC2C™) by S-Oil is expected to trigger a realignment of the competitive landscape in the South Korean market. Since 2022, South Korean players have been underperforming. The picture was no different in the first half of 2024.
Exacerbation of supply-demand imbalances and high-flying oil prices are weighing heavily on South Korean petrochemical producers. Notably, those with portfolios dominated by commodity products are floundering deep in the red. Credit rating agencies are downgrading one petrochemical chemical corporation after another, piling additional financial pressure onto them.
Restructuring and diversification are called on to turn the tide.
Without swift and decisive restructuring momentum in South Korea’s petrochemical industry, the plague of financial difficulties could worsen further, particularly for weaker players. With corporate treasuries draining, the sector may lose financial resources for investing in decarbonization technologies, risking a downward spiral of eroding mid- to long-term global competitiveness and threatening its sustainability. In recent years, upstream-focused portfolios have been taking a heavy toll on their owners, and some companies have turned to asset-light strategies and restructuring to mitigate the risks. Plant assets do not appear to be easy sells, though.
South Korea’s petrochemical industry must proactively shift its strategies towards specialties with particular focus on high-value-added products and ecofriendly products. High-performance plastics may reward South Korea with high profitability and a competitive edge over China in the global market, if the country fully leverages its technological advantages. Bioplastics and recycled plastic materials will serve as stepping stones to a circular economy, sharpening competitiveness in the global decarbonization race.
Decarbonization technologies must be actively adopted to reduce the carbon intensity of products.
To ensure minimal regulation costs and long-term competitiveness in the midst of the shifting international trade dynamics, companies must adapt by introducing ecofriendly production methods. The petrochemical industry—a well-known heavy emitter of greenhouse gases (GHGs)—is expected to see a yawning gap in product differentiation, depending on corporate investment in carbon emission reduction technologies.
A vast share of GHG emissions from the petrochemical industry occurs in the course of producing basic feedstocks, especially the naphtha cracking process, which generates more than 70 percent of total GHG emissions from the sector. This requires zeroing in on the decarbonization of the naphtha cracking process.
Fuel Substitution Strategy for Petrochemical Decarbonization: Byproduct Methane-Based Hydrogen Production and Electrification
South Korea’s petrochemical industry can resort to a two-pronged fossil fuel substitution strategy: byproduct methane-based hydrogen production and electrification of its industrial complexes through the introduction of electric heating furnaces (e-furnaces) and heat pumps, and other advanced equipment. Byproduct methane and natural gas should be replaced by hydrogen and renewable electricity as fuels for naphtha cracking, and conventional fuel-powered boilers for steam production equipment used across-the-board in a petrochemical complex can be replaced by heat pumps powered by renewable electricity.
BASF, the German based petrochemical giant, is currently piloting methane pyrolysis-driven hydrogen production and e-furnaces, with the aim of commercializing them by 2030. From 2030 onwards, commercial-scale fuel substitution facilities are expected to be ready technologically for petrochemical complexes in South Korea. In the case of heat pumps, their more affordable capital investment costs suggest a possibility of commercial operation even before 2030. However, challenges in securing renewable power, high operational costs, and other practical constraints necessitate robust institutional and financial support from the government.
Feedstock Substitution Strategy for Petrochemical Decarbonization: Greater Use of Bio- Naphtha and E-Methanol and Pyrolysis Oil
Approximately 60% of the emissions generated throughout the lifecycle of petrochemical products can be attributed to the production of naphtha and the incineration of petrochemical waste. Discussions on the decarbonization of the sector would be incomplete without giving due attention to ways to curtail emissions from the first and last stages of petrochemical product lifecycles. Hence feedstock substitution strategies are quintessential. Feasible alternative feedstocks include bio-naphtha (derived from biomass) and e-methanol (produced by combining hydrogen and carbon dioxide captured from petrochemical processes through carbon capture, utilization, and storage (CCUS) technology). Mechanical recycling (also known as physical recycling) can not only reduce naphtha consumption; it can also boost the share of recycled raw materials, along with chemical recycling, such as producing pyrolysis oil from used plastics. Feedstock substitution must overcome two major obstacles—R&D for technology advancement and procurement of resources such as biomass and hydrogen.
A Net-Zero Roadmap for South Korea’s Petrochemical Industry: Sharpening Competitiveness and Supporting the 1.5°C Goal
This report maps two pathways leading South Korea’s petrochemical industry towards the goal of carbon neutrality. In the Base Scenario, current naphtha cracking facilities remain unchanged into 2035 when companies eventually decide to shut down their naphtha crackers, whereas the more proactive Restructuring Scenario posits that about one-third of the current naphtha cracking facilities will undergo restructuring, accompanied by the minimization of commodity products in product portfolios. The two scenarios, however, share common propositions regarding production projections for basic petrochemical feedstocks and the adoption timelines for decarbonization technologies. Both scenarios cover Scope 1 emissions exclusively.
In the short run, as international oversupply will hit basic petrochemical production in South Korea, emissions will drop sharply, and from 2030 onwards, emissions will fall further, with the introduction of byproduct methane-based hydrogen production and e-furnaces. Starting in 2035, the adoption of clean feedstocks such as bio-naphtha and e-methanol will bring down the input of traditionally produced naphtha. All these, in combination, will pull down total emissions from the petrochemical industry to 7.6 million tCO2 by 2050. This represents a reduction of more than 85 percent from 2021 levels.
In the Base Scenario, the emissions reduction trajectory progresses at a gradual pace until 2040—dropping from 27.8 million tCO in 2030 to 22.7 million tCO in 2035. On the other hand, the Restructuring Scenario
follows a steeper trajectory, accelerated by the simultaneous adoption of decarbonization technologies and restructuring in 2030. The cumulative emissions gap from 2030 to 2040 between the two scenarios amounts to about 60 million tCO2, which exceeds annual total emissions from the petrochemical industry today.
Between 2040 and 2050, these two scenarios converge on the same emissions trajectory as the implementation of decarbonization technologies is scaled up progressively. Increased production of alternative feedstocks reduces dependence on fossil fuels, enabling the petrochemical industry to target 7.6 million tCO2 by 2050, a reduction of more than 85 percent from 2021 levels. Lagging in commercializing decarbonization technologies, the sector’s net emissions will linger in positive territory but will eventually converge on net zero as the share of clean raw materials increases.
Electricity will progressively replace fossil fuels, representing 40 percent of total fuel input by 2050.
With the advent of heat pumps and e-furnaces, electricity begins to oust petroleum, coal, and gas. However, the scale of electrification will grow only gradually due to the high CAPEX and limited technological readiness. By 2030, electricity is expected to account for 20 percent of the petrochemical industry’s fuel input in terms of calorific value, with the proportion rising to 36 percent by 2040 and 40 percent by 2050.
Clean feedstocks replacing crude oil-based naphtha will gain ground at a gradual pace, representing five percent of total naphtha input by 2030 and reaching 56 percent by 2050.
Traditionally produced naphtha is expected to resist rapid replacement because technologies to replace it with cleaner alternatives are still under development and because the initiative relies on resources that are scarce domestically such as biomass and green hydrogen. A meager five percent of crude oil-based naphtha will be replaced by bio-naphtha, e-methanol, and pyrolysis naphtha, and this ratio will rise gradually to 22 percent by 2040 and 56 percent by 2050.
The primary drivers of petrochemical decarbonization are byproduct methane-based hydrogen and electrification.
Until 2050, fuel substitution involving primarily hydrogen and electrification will be the most conspicuous driver of emissions reductions in South Korea’s petrochemical industry. Hydrogen will replace byproduct methane and electrification will replace fossil fuel, both resulting in fewer emissions. Production of methane- based hydrogen and electrification will be feasible within one or two years, and these decarbonization strategies will play a critical role in steadily reducing emissions from 2025 to 2050.
Decreased output volumes from naphtha cracking operations, driven by the streamlining of naphtha cracking facilities and the increasing share of recycled raw materials, will also contribute to the gradual reduction in emissions from the present till 2050. The emissions reduction impact of clean and recycled feedstocks will be rather limited. However, CCUS technology will play a significant role as it will handle emissions from the treatment of residual naphtha, capturing 9 million tCO2 annually.
2025.02.19 / Sugang Kim et al
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