A slew of dignitaries is lined up for a photo session after signing an investment agreement between GS Caltex and the South Jeolla Province on the construction of an olefin plant in Yeosu, Jeolla Province on Aug. 9. Gov. Kim Yong-rok of South Jeolla Province is seen on 3rd from L, and Mayor Kwon Oh-bong, 5th R, while GS Caltex President Kim Hyung-kook stands 4th L. (Photo: GS Caltex)

GS Caltex plans to invest 2.6 trillion won in the next three years to build an olefin plant in Yeosu, South Jeolla Province, to expand its petrochemical operation, the oil refiner said Aug. 9.

The oil refiner said the move is part of an agreement signed with Yeosu City in a ceremony held at its Yeosu Oil Refinery Complex in Yeosu with a slew of officials in attendance led by Gov. Kim Yong-rok of the South Jeolla Province, Yeosu Mayor Kwon Oh-bong, President Kim Hyung-kook of GS Caltex, and 50 other officials.

Olefin is a petrochemical product produced in the process of oil refining, which is used as raw material for a number of petrochemical products including plastics, chemical rubbers and synthetic fibers, among others. GS Caltex, in the meantime, said its sales in the 2nd quarter came to 9.579 trillion won with operating profit, rising to 584.6 billion won, up 30.4 percent and 178.4 percent YoY respectively, which were attributed to boosts in oil prices and the completion of the overall repair on oil refining facilities in April.

Refining officials said the oil margin has been improving since March and is expected to continue to do so for the remainder of the year, while the power consumption will also rise sharply in the unusually hot summer to continue to help boost the oil refinery’s sales and profits.

Chairman Huh Jin-soo in his New Year speech early this year, said GS Caltex will try to strengthen its existing operational set up and also build new portfolios this year with investments to strengthen the operational effectiveness and also stability and achieve balanced growth in all the operational sectors, oil refining and petrochemical facilities.

GS Caltex is set to invest 2.6 trillion won in the next three years to build the olefin plant on a lot of 462,000 square meters located next to the No. 2 oil refinery in the Yeosu Oil Refining Complex.

GS Caltex said on Aug. 7 that the company decided to build an olefin production facility capable of producing 700,000 tons of ethylene per year and 500,000 tons of polyethylene annually by investing about 2 trillion won ($1.8 billion) in a 430,000-square-meter site near its second plant in Yeosu, South Jeolla Province.

The olefins facility in the works is a mixed feed cracker (MFC) facility. MFC is a facility for producing ethylene and propylene among others which are basic materials for petrochemical products. In terms of facility systems, the facility differs from petrochemical companies’ naphtha cracking centers (NCCs) which mainly use naphtha as a raw material. In addition to naphtha, MFC has the advantage of being able to use various oils and gases such as liquefied petroleum gas (LPG) and by-product gas produced in the refinery process as raw materials.

According to market researcher IHS, the global polyethylene market is 100 million tons per year, accounting for the largest share of the total olefins market (260 million tons). The growth of global polyethylene demand is stable at an annual average of 4.2%.

"The decision to invest in MFC facilities was made to build a balanced business portfolio by entering the olefin business which has strong growth potential and can expand into a variety of downstream business items,” a GS Caltex official said. “We reached the decision in accordance with our long-term growth strategy to pursue sustainable growth in the future such as diversifying our business portfolio centered on oil refining and aromatics and pruning profit volatility.”

Meanwhile, the company's new business is also expected to contribute to the nation's economy by promoting regional development along with job creation. The oil refiner is expecting to generate 2 million jobs and expand the local economy by about 1 trillion won. The Yeosu Oil Refining Complex has the capacity to refine 790,000 barrels of crude oil, and the heavy oil cracking facilities produce such refined oil as gasoline, diesel, kerosene and lube oil sharing around 30 percent of the total oil market in Korea.