Onsan refinery case study: how much value will greater refinery-petrochemical integration add for S-Oil?

It’s no secret that refiners are increasingly embracing petrochemicals production to remain competitive as the energy transition takes hold and demand for transport fuels decreases longer term. But given the capital outlay involved, how can refiners assess potential return on investment on petrochemical integration and determine the best way to add value?

Using REM-Chemicals, we crunched the numbers on an integrated refinery to see how incorporating increased chemicals production impacts overall site competitiveness. Of the 210 integrated refineries worldwide, we chose the Onsan facility in South Korea for our case study, where S-Oil is investing in steam cracking capacity. Fill in the form for a complimentary copy of the full report detailing our findings. Or read on for a quick introduction.

A saturated market for refined fuels

The refined fuel market in South Korea is saturated, with significant surpluses of all transport fuels. As the country’s car fleet becomes electrified, kerosene for heating purposes is phased out and biofuels begin to penetrate the aviation sector, such surpluses will only increase.

Placing these exports will only get more difficult as China is becoming a major competitor to South Korea in transport fuels export in the region. Chinese exports are very competitive and expected to rise as fuels demand in China peaks in the early 2030s. Diversifying into chemicals production offers a potential solution for South Korea.

Using net cash margin to assess refinery profitability

We use a commercially-focused metric, net cash margin (NCM), to assess profitability. In addition to feedstock advantage (through the processing of lower-cost crude oils) and local pricing effects, NCM captures a site’s ability to convert crude and feedstocks into high-value products. There are two key questions for any site assessment: how does the addition of petrochemical production change the site’s competitive position, and how competitive are the chemicals it supplies?

Looking at Asia Pacific as a whole, almost all integrated sites sat within the first or second quartile for 2019 NCM performance. Our analysis shows that average NCM for integrated sites in the region stood at US$2 per barrel, almost three times the average margin for standalone refinery sites.

Within South Korea, Onsan is currently one of the weakest integrated sites. The addition of steam cracking will increase its yield of petrochemicals and therefore improve its overall competitiveness.

Modelling value uplift under different scenarios

Using REM-Chemicals we can break down the value uplift of the various petrochemical value chains, including aromatics, olefins and polyolefins. We can also measure NCM uplift against the weight percentage yield of petrochemicals across the entire complex. This makes it possible to evaluate the benefit of adding different petrochemical value streams.

Our modelling shows that the addition of steam cracker capacity improves Onsan’s NCM by US$1.80/bbl. As you can see from the chart above, it transforms the site’s competitive position within Asia, putting it on a par with China’s coastal integrated sites.

Read this case study in full 

The full case study contains a series of charts setting out the benchmarking process, the comparative cost of production of ethylene and more findings in more detail. Fill in the form at the top of the page for a complimentary copy.

Part two: will carbon costs destroy added value from refinery-petrochemical integration?​

What could carbon costs mean for profitability at the Onsan site? Find out in part two of this case study.