Skyrocketing Crude Oil Prices Push South Korean Petrochemical Players to Plan Offsetting Naphtha Feed with LPG

The Crude Oil prices, which continued on the bullish run right from the beginning of the year 2022, reached USD 95 per barrel on 7th February creating a buzz in the petrochemical sectors all around the world as the market players viewed it as the foundation for the months-long increase in the prices of crude oil value chains. To tackle the looming threat on the market fundamentals, the South Korean petrochemical players are under the plans to replace naphtha feed with liquified petroleum gas (LPG) for deriving olefins. 

The global crude oil market has been undergoing turbulences from the start of January due to back-to-back hits on its supply. The scarcity in crude oil supplies originated from the USA following the 23rd of Dec fire explosion at ExxonMobil’s Baytown refinery leading it to close the refinery operations then onwards. The volatility in the USA market paved way for higher price revisions on exported crude oil from Saudi Arabia to the Asian market. The early January unrest in OPEC+ members, Kazakhstan, and Libya, leading to huge losses in daily crude oil inventories further tightened the supplies of crude oil in the global market. 

Naphtha, which is a flammable liquid derived from the refining of crude oil, is a basic raw material to produce olefins like ethylene and propylene which underpin the proliferation of the plastic industry and most petroleum products. Any change in naphtha prices is capable of governing the market dynamics of its emulsified olefin products with an eventual impact on the rest of the petrochemical portfolio derived from them.

Analyzing the ongoing situation, the Korean petrochemical giant, Lotte Chemicals, has taken a step forward towards using LPG as an alternative for naphtha raw materials in its ethylene plants located at Yeosu and Daesan sites of Jeolla Province. The prices of LPG, which is obtained by stripping from the stream of natural gas and oil extracted from deep wells or by refining crude oil, usually term around 80-90% of naphtha prices in the global market. Hence, the company anticipates gaining a considerable profit on olefin production by levelling up the use of LPG as feeds in their facilities.

As per ChemAnalyst, the prices of crude oil look highly resistant in the current times indicating no sooner relief. The crude oil market is expected to stand strong in the upcoming months with a likely retraction in the second half of 2022. Hence, the move of South Korean companies towards replacing naphtha feed with LPG can be most opportune by relieving the petrochemical market from the possible disturbances in the crude oil prices which shall otherwise send ripples to all the crude oil derivatives, making the companies’ sustenance difficult.