 Impact on the Plant Industry in Korea Caused by Oil Companies’ Entry into the Petrochemical MarketYongwon Cho ()
No 19-13, Industrial Economic Review from Korea Institute for Industrial Economics and Trade Abstract: Private oil companies in Korea such as GS Caltex, S-Oil and Hyundai Oilbank have recently announced plans to invest in petrochemical production facilities and have begun entering the chemical market in earnest. These investments include building a Naphtha Cracking Center (NCC) where naphtha, a product made at existing refining facilities, is used as a raw material to produce ethylene products. As private oil companies have started entering the petrochemical market in Korea, both the supply of petrochemical products and the demand for increased production capacity are expected to rise. Forward integration of chemical businesses led by refineries is a common sight not only in the domestic but also in the global petrochemical market. This trend is attributed to a decline in profit margins at traditional oil companies, along with a rise in demand for upstream petrochemical products due to the global economic recovery. In addition, Saudi Arabia and the United Arab Emirates have shifted their energy development policy from existing refineries to vertical integration, covering the petrochemical businesses. It is believed that this will boost demand for plants. Since 2016, global crude oil prices have risen, leading to improved financial conditions at major oil producers and a reduced cost burden for the construction of petrochemical production facilities. As a result, the demand for petrochemical plant orders is expected to increase. In fact, the Downstream Capital Cost Index (DCCI), which tracks capital expenses for the construction of refining facilities and petrochemical production facilities, was most recently at 182, reflecting a drop from 2004 to 2005 levels, when plant orders surged. As oil companies have started entering the global petrochemical market, the demand for plants has increased. This is a new opportunity for the Korean plant industry. Therefore, it is timely to analyze the causes and types of oil companies’ entry into the chemical market and identify the impact on and opportunities for the Korean plant industry. This study aims to predict the impact on the demand for petrochemical plants caused by global oil companies’ strategies to invest in the vertical integration. It is hoped that this study is used as a basic guide for the domestic plant industry to come up with measures to respond in the future. Keywords: petrochemicals; oil; petrochemical industry (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ris:kieter:2019_013 Access Statistics for this paper More papers in Industrial Economic Review from Korea Institute for Industrial Economics and Trade Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea. Contact information at EDIRC. |
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