[Choe Jin-suk Column] Predicted Petrochemical Crisis

Saudi Arabian Crown Prince Mohammed bin Salman laughing heartily while high-fiving Vladimir Putin, the President of Russia, was grotesque. Bin Salman, accused of being behind the assassination of Saudi journalist Jamal Khashoggi, met with Putin during a time when Western criticism was intense. In December 2018, at the G20 summit in Buenos Aires, Argentina, Putin approached bin Salman, who was standing alone, waving his arm. He shook bin Salman's hand without hesitation and laughed so hard his head tilted back. To the Western eye, it must have seemed very strange.

If Putin was the one who opened the dialogue with the world for bin Salman, Xi Jinping, the President of China, was the one who solidified his regime. Xi was present at the G20 meeting where Putin's flamboyant gestures were displayed, but he remained expressionless throughout. However, their rapport existed before, during, and grew stronger after. The relationship between the two was publicly confirmed in December 2022. Xi's state visit to Saudi Arabia was marked by a grand ceremony, with bin Salman sending four fighter jets to escort Xi's plane. Six aerobatic planes spewed green smoke, performing a bombing parade. The world took notice of the grand ceremony.

The focus should be on the business deals they signed at the time. The contract size between the two sides exceeded 50 billion dollars, most of which was in the energy and petrochemical sectors. Saudi Arabia's desperation that oil alone has no future was evident even before bin Salman took power. Saudi Arabia officially declared its shift from oil to chemicals in the mid-2000s. Around that time, Saudi Aramco and SABIC began researching technology (CTC) to produce chemical products directly from crude oil without naphtha, and the technology was completed in the 2020s. Leading global companies like France's Total and America's ExxonMobil were deeply involved in this project.

Despite numerous political controversies, bin Salman's contribution lies in commercializing this technology and elevating petrochemicals to a core strategic industry for Saudi Arabia. The destructive power of CTC technology exceeded expectations. In terms of cost competitiveness, existing companies were incomparable. The world's largest petrochemical consumption market, China, inevitably caught Saudi Arabia's attention. From China's perspective, Saudi Arabia was the best partner for energy security and as a countermeasure against the U.S. Meanwhile, it was natural for China, the world's factory, to dream of self-sufficiency in chemical products. China focused on technology (CTO) to extract olefin products directly from coal. This technology is further upgraded with Saudi cooperation. The explosive increase in ethylene production in China after 2020 is the background.

The 2022 flamboyant meeting between bin Salman and Xi Jinping can be seen as a preview of the tectonic shift in the global petrochemical market. Currently, Saudi Arabia is investing astronomical amounts to build CTC complexes in various parts of China. Not to mention the large-scale facility expansions within the country. Even those who have harshly criticized bin Salman's 'Vision 2030', which focuses on post-oil projects like Neom City, highly praise the petrochemical industry. Saudi Arabia and China have thus become emerging giants in the petrochemical commodity market.

At one time, Korean petrochemical companies, which raced ahead of the world, have come to a halt in the face of the unstoppable momentum of these countries. They are struggling in a quagmire of deficits, and their operating rates have plummeted to the 60% range. While the direct providers of the crisis are China and the Middle East, the fundamental responsibility lay within us. Warning signals to prepare for oversupply have been sounding for 10 years. When a country decides to enter a large-scale equipment industry, individual companies cannot withstand it. For companies, it's either betting their fate on insurmountable technology or shutting down the business.

In the 1970s, the government declared the industrialization of heavy and chemical industries, identifying six major sectors as future food sources: steel, machinery, non-ferrous metals, electronics, shipbuilding, and chemicals. These were the main industries that led the miracle of the Korean economy. Now, many sectors are following a similar crisis path as the petrochemical industry. The sudden change in the U.S., aiming at the heart of the alliance to catch China, is not a light adverse factor. The government says it will announce a petrochemical restructuring plan within this month. The key is substantial content, as it is already late. Instead, there should be no political calculations. Market competitiveness comes first. Rebuilding manufacturing, time is tight.

jins@fnnews.com Editorial Writer