S-Oil’s Shaheen Project Set to Boost Ethylene Capacity Amid South Korea’s Restructuring Push

South Korea’s efforts to restructure its petrochemical industry are facing fresh challenges as S-Oil’s $6.9 billion Shaheen project in Ulsan moves closer to completion. The complex is scheduled to begin commercial operations in 2027 and is expected to add 1.8 million tons/year of ethylene capacity, raising concerns that the expansion could undermine the country’s planned capacity reductions.

According to local media reports on November 3, restructuring negotiations involving S-Oil, SK Geo Centric and Korea Petrochemical have remained deadlocked for nearly a year. Disagreements over financial responsibilities and the future of existing production facilities have prevented the companies from reaching an agreement. Government officials have indicated that finalizing a concrete restructuring plan by the end of 2026 may be challenging.

Shaheen Expansion Could Offset Planned Capacity Cuts

The South Korean government aims to reduce domestic ethylene capacity by 2.7-3.7 million tons/year to address persistent oversupply, driven largely by competition from China and the Middle East. Restructuring proposals covering 2.49 million tons/year of capacity have already received approval in other major petrochemical regions, while negotiations in Ulsan remain unresolved.

Ulsan currently has around 1.74 million tons/year of ethylene capacity. Korea Petrochemical accounts for 900,000 tons/year, SK Geo Centric for 660,000 tons/year, and S-Oil for 182,000 tons/year.

One of the main proposals under consideration is the closure of SK Geo Centric’s aging 660,000 tons/year naphtha cracker. However, even if the unit is permanently shut down, the commissioning of Shaheen would still increase Ulsan’s overall ethylene capacity by approximately 1.14 million tons/year.

S-Oil has maintained that Shaheen’s advanced technology and improved energy efficiency support the government’s objective of replacing older and less competitive production facilities with more efficient assets.

Disputes Over Feedstock and Polymer Operations Stall Talks

The potential shutdown of SK Geo Centric’s cracker has also raised concerns regarding its downstream polymer facilities, which currently rely on ethylene from the unit. Closing the cracker would require alternative feedstock arrangements to sustain polymer production.

According to reports, SK Geo Centric has proposed redirecting naphtha supplies from SK Energy to Korea Petrochemical. Under the proposal, S-Oil and Korea Petrochemical would jointly manage SK’s downstream polymer operations, potentially distributing the restructuring costs among the companies benefiting from reduced competition.

However, S-Oil and Korea Petrochemical have reportedly been reluctant to accept the arrangement before evaluating the profitability of SK’s polymer facilities.

Another option, under which SK Geo Centric would retain its polymer businesses while receiving competitively priced feedstock from the other companies, has also failed to gain consensus.

South Korea Faces a Difficult Restructuring Balance

The ongoing impasse highlights the challenges facing South Korea’s petrochemical restructuring strategy. Authorities are attempting to eliminate inefficient capacity while preserving the competitiveness of newer and technologically advanced production assets.

Government officials have acknowledged that the companies’ differing positions could make it difficult to secure a concrete restructuring agreement before the end of 2026.

With Shaheen expected to introduce substantial additional ethylene capacity in 2027, the industry faces a difficult balance between modernization and reducing oversupply. The project’s start-up could complicate efforts to achieve meaningful net capacity cuts amid weak margins and growing competition from overseas producers.

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