South Korean oil refiners to jointly build SAF plant

SK Energy’s SAF production line was completed in 2024 (Courtesy of SK Energy)

South Korea’s four major oil refining companies will jointly build a sustainable aviation fuel (SAF) plant in the country, for which the government may offer subsidies and tax cuts, according to industry sources on Friday.

SK Innovation Co., GS Caltex Corp., S-Oil Corp. and HD Hyundai Oilbank Co. have recently discussed the joint SAF plant construction plan with the Ministry of Trade, Industry and Energy and the Ministry of Land, Infrastructure and Transportation, said the sources.

The four oil refiners will share the construction cost and jointly operate it through a special purpose company.

It will be located in one of South Korea’s four main petrochemical complexes in Ulsan, South Gyeongsang Province; Yeosu, South Jeolla Province; Seosan and Daesan in South Chungcheong Province.

Constructing an SAF facility will likely cost more than 1 trillion won ($700 million), based on a capacity of processing 250,000 tons of fuel, the sources added.

They expect the SAF-dedicated plant, once completed, to improve their SAF production yields, which currently is less than 10%. However, their joint facility is expected to convert 60-80% of bio-based feedstock into SAF.

Except for SK Innovation, the plant will likely become their first SAF plant. Last year, SK Energy Co., a subsidiary of SK Innovation, completed the country’s first SAF-dedicated production line and became the first Korean oil refiner to export the low-emission fuel to Europe.

The move comes as the global transition into SAF blends threatens South Korea’s No. 1 position in the aviation fuel export market.

In 2023, the European Union passed a law stipulating that 2% of jet fuel must be sustainable as of 2025 and 70% by 2050. South Korea will make it mandatory that 1% of aviation fuel is environmentally friendly alternatives from 2027. 

S-Oil’s refinery plant in Ulsan, South Gyeongsang Province

The government will designate SAF as a national strategic technology and cut taxes on SAF-dedicated facilities by up to 15%. Currently, tax cuts for oil refining plants amount to 3%.

It is also considering providing subsidies to SAF facilities, while buying SAF feedstocks on behalf of domestic refiners struggling with export quotas by palm oil producers.

To do so, South Korean government may enter direct negotiations with Southeast Asian countries such as Indonesia and Malaysia, rich in palm oil, to secure SAF feedstocks in long-term contracts.

South Korea heavily relies on imports of SAF feedstocks such as waste cooking oil, animal fats, palm oil and biodiesel.

(Courtesy of Getty Images)

According to Stratistics MRC, a research company, the global SAF market is forecast to grow at 45.7% annually to 21.8 trillion won by 2030 from 1.6 trillion won in 2023. 

SAFs emit about 80% less carbon than conventional jet fuel, but cost about two to five more than fossil fuel such as kerosene. So the shift to SAF would lead to an increase in airline ticket prices, with fuel accounting for about 30% of the cost of one flight.

Starting this month, Korean Air Lines Co. and Asiana Airlines Inc. replaced more than 2% of jet fuel with SAFs for both passenger and cargo planes departing from Europe.

By Woo-Sub Kim, Sang-Hoon Sung and Hyung-Kyu Kim

duter@hankyung.com 

Yeonhee Kim edited this article.

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