Lotte Chemical mulls ramp-up of U.S. ethane cracker amid strong profit

South Korea’s Lotte Chemical Corp. is mulling ramping up its U.S. ethane cracker after it delivered solid profits over the last two quarters.

Lotte Chemical in May started using shale gas to produce ethylene and monoethylene glycol at its U.S. plant. In the second quarter, its U.S. unit raked in an operating profit of 9.8 billion won ($8.36 million) on sales of 42.2 billion won to post a profit margin of 23.2 percent. In the July-September period, profit surged to 34.6 billion won and sales to 141 billion won for a profit margin of 24.5 percent.

The plant has performed exceptionally well, given the average industry profit margin of below 5 percent during downturns and 15 percent even during boom periods, according to market observers.

There are two types of petrochemical facilities. One is the naphtha cracking center, which derives naphtha from crude oil. The other is the ethane cracking center, which separates ethane from natural gas. Companies use naphtha or ethane to produce ethylene, polyethylene and other raw materials used in the manufacturing of chemical products.

Currently, ethane-based ethylene costs $300 per ton to produce while naphtha-based ethylene costs $800 per ton, making ethane a significantly more cost-efficient option.

“Crude prices rose while shale gas prices were held steady. As a result, the shale gas method helped boost overall profits,” said a Lotte Chemical official.

The company has room for further growth. LG Chemical’s U.S. entity in October received about 950 billion won ($809.7 million) in proceeds after selling a part of its stake in a joint venture with U.S. partner Westlake Chemical. It announced it would spend 75 percent of the money in new businesses and the rest in servicing its debt.

“We are studying various options to employ the new capital,” the official said.

Under orders from Lotte Group Chairman Shin Dong-bin, Lotte Chemical installed a shale gas task force team in 2012 and decided in 2014 to build a plant in the United States. Betting on the potential of shale gas, the company poured 3 trillion won into the project.

Korean petrochemical firms have been switching from crude oil to cheaper LPG as feedstock for naphtha cracker facilities. Hanwha Total Petrochemical Co. in September started operating a gas cracker complex at its plant in Daesan, South Chungcheong Province. LG Chem also revealed plans to bump up its LPG ratio during its ramp-up of Yeosu and Daesan plants.

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