Lotte Chemical to launch $1.2 bn ethylene project in Indonesia, join Clean H2 fund

Lotte Chemical"s Yeosu plant. [Photo by Lotte Chemical Corp.]

South Korea’s Lotte Chemical Corp. has turned aggressive in capital expenditure to reinforce overseas capacity in its mainstay petrochemical as well as green growth of hydrogen.

Lotte Chemical said in a disclosure Thursday that its board approved a recapitalization scheme of 1.4 trillion won ($1.2 billion) through purchase of rights offering from Indonesia, PT Lotte Chemical Indonesia, to fund a massive petrochemical complex project dubbed “Lotte Chemical Indonesia New Ethylene (LINE) Project” in the Southeast Asian country.

According to the recapitalization plan, PT Lotte Chemical Indonesia will issue new shares worth 1.4 trillion won, of which Lotte Chemical and its affiliate Lotte Chemical Titan Holding Berhad will respectively take up 702.2 billion won and 730.9 billion won worth.

The new capital will go to LINE Project aimed to build a massive petrochemical complex in Indonesia that produces ethylene, one of the core source materials for various petrochemical products. Lotte Chemical will build a naphtha cracker facility with an annual ethylene production capacity of 1 million tons under a plan to vertically integrate the facility with its exiting polyethylene plant.

The Korean chemical giant expected that it would be able to raise $2.06 billion in annual sales by producing 1 million tons of ethylene at its petrochemical complex in Indonesia and 520,000 tons of propylene, and 250,000 tons of polypropylene. It estimated the project’s total cost at 4.4 trillion won with an aim to complete the project by 2025 after commencing it this year.

Lotte Chemical is pursuing the ambitious project despite concerns over the prolonged Covid-19 pandemic to enhance its market dominance in Southeast Asia where demand for petrochemical products is set to rise on the anticipated economic growth.

Lotte Chemical at the same time will move onto ride on the hydrogen bandwagon.

On Thursday, it confirmed contribution to Clean H2 Infrastructure Fund, which was created jointly by Air Liquide, co-chair of Hydrogen Council launched in 2017 in Davos, and its member TotalEnergies. The Korean firm will put up 100 million euros ($116 million) in the global hydrogen investment fund.

The 1.5-billion euro fund will be strategically invested in projects such as in hydrogen storage, retail, infrastructure, and hydrogen vehicle utilization sectors as well as hydrogen production linking renewable energy.

Lotte Chemical is one of the eight anchor investors of the fund and the only petrochemical firm from Asia.

The latest decision is part of Korea’s fifth largest conglomerate’s move to enhance its presence in the hydrogen sector. Lotte Group Chairman Shin Dong-bin recently urged group companies to strengthen hydrogen capacity and partnerships with global firms to reach carbon neutral goal in 2040.

In July, Lotte Chemical announced an environmentally-friendly hydrogen growth roadmap that includes supplying 30 percent of Korea’s hydrogen demand, and the company has been forging ties with foreign players.

Lotte Chemical and Air Liquide Korea have jointly invested in establishing hydrogen charging stations and new high pressure hydrogen shipment center using byproduct hydrogen.

Together with local firm Airrane, Lotte Chemical installed a carbon capture and utilization technology demonstration facility based on membrane gas separation technique at its factory in Yeosu on the country’s southern coast. Lotte Chemical also entered into hydrogen-related business partnership with Samsung Engineering and SK Gas.

Shares of Lotte Chemical were trading 0.62 percent lower at 240,500 won on Friday morning.

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