Korea's petrochemical industry on edge as Aramco project in Ulsan threatens to render producers obsolete

For decades, Korea's petrochemical industry has run on the same basic formula: refine crude oil into naphtha, crack naphtha into chemicals. An upcoming project in Ulsan, southeastern Korea, could make that model obsolete.

Local oil refiner S-Oil's Shaheen Project, which has cost more than 9 trillion won ($5.8 billion), could upend how petrochemicals are made. The petrochemical project at the Onsan Industrial Complex is nearing its first operational test — and the industry is watching closely. The plant is set to have an annual ethylene production capacity of 1.8 million tons, but what has the industry on edge is not its size. Shaheen, if successful, will be the first facility in the world to validate, at full commercial scale, a technology that converts crude oil directly into chemical products, bypassing the naphtha refining step that has been the backbone of petrochemical production for decades.

Though the project bears S-Oil's name, the real protagonist is Aramco, the local refinery's largest shareholder.

As electric vehicle adoption and carbon neutrality targets erode future fuel demand, Aramco has been advancing a "Barrel to Chemicals" strategy — converting crude oil into plastics and chemical feedstocks rather than burning it for gasoline or diesel to maximize value. Shaheen is the project through which Aramco's core technology for that strategy, Thermal Crude to Chemicals (TC2C), is being put to the world's first commercial-scale test.

Under the conventional production model, refiners process crude oil into naphtha, which petrochemical companies then crack into base chemicals such as ethylene. TC2C integrates the refining and petrochemical processes, significantly raising the proportion of chemical feedstocks produced. S-Oil says the technology can push the yield of petrochemical feedstock fractions above 70 percent. If that target is achieved at commercial scale, industry observers say existing NCC-based producers could face a fundamental challenge to their cost competitiveness.

Aramco's choice of Ulsan over Saudi Arabia as the site for its first commercial-scale deployment is telling. "For Aramco, Ulsan is a kind of test bed," one industry source said. "Whether it succeeds or fails there will lay the foundation for overseas expansion."

The implications extend well beyond Korea. If TC2C proves more cost-competitive than conventional NCC production, both Korean and Chinese commodity petrochemical producers could find themselves in a fundamentally different competitive environment.

"Given the capital-intensive nature of the industry, Korean and Chinese producers cannot easily switch processes," said Lee Duck-hwan, emeritus professor of chemistry at Sogang University. "Aramco's strategy is to commercialize TC2C first, using its enormous financial firepower, and reshape the entire structure of the East Asian petrochemical industry."

Skepticism remains, however. Technology validated at laboratory and pilot scales faces an entirely different challenge in sustaining consistent yields and quality over the long term. The standard petrochemical development path runs from laboratory to pilot to demonstration plant to commercial production — and TC2C is now entering a final verification stage. 

Others point to economics rather than technology as the ultimate test. How efficiently the project handles and monetizes inevitable byproducts such as asphalt and LPG could determine its commercial viability. "If stable sales channels for the byproducts can be secured, the chances of success are high," Lee said. "But if byproduct disposal proves difficult, TC2C's economics may fall short of expectations."

BY LEE SU-JEONG [[email protected]]