Petrochemical industry moves to secure tax breaks for ethane facilities, citing need to diversify away from naphtha

South Korea's petrochemical industry is accelerating efforts to establish a legal basis for tax incentives on ethane-related facilities, as the prolonged conflict in the Middle East and a broader restructuring of the sector push companies to reduce their dependence on naphtha and shift toward alternative feedstocks. With the government showing stronger interest than ever in diversifying raw material supply chains, the industry's prevailing view is that a unified voice is needed to secure large-scale policy support.

According to the Korea Chemical Industry Association, the association is accepting bids through Wednesday for a research project titled "Study on Tax Exemption Technology Designation for Petrochemical Ethane Import Facilities." The project will be funded entirely by the association's own budget, not government funds — a sign that the industry intends to build its own analytical case before approaching policymakers. "In the wake of the Middle East conflict, interest in feedstock diversification and supply chains has grown considerably, and this appears to be driven by a desire to lay the groundwork for support discussions," one industry official said.

The central aim of the research project is to secure a basis for applying tax exemptions to investments in facilities that import ethane and other alternative feedstocks, as supply instability for petrochemical raw materials has become a real concern since the Middle East crisis. The industry has consistently pursued diversification to reduce its near-total reliance on Middle Eastern naphtha. Ethane stands out as a practical option: it produces fewer carbon emissions than naphtha and offers superior economics, making it a realistic path to advancing carbon neutrality goals and improving profitability at the same time.

The transition has repeatedly been stalled, however, by a lack of basic infrastructure — including large dedicated import terminals — and the enormous capital costs of retrofitting existing facilities. That is why the industry sees expanded tax support as essential.

The project's scope calls for examining multiple pathways to have ethane import technology classified under either the "new growth and source technology" or "national strategic technology" categories. The tax benefits available to companies vary dramatically depending on which category applies. For large companies, investment in general-technology facilities qualifies for only a 1 percent tax credit. Recognition as "new growth and source technology" raises that to 3 percent, while designation as "national strategic technology" — reserved for technologies central to supply chains — would unlock a 15 percent credit.

The project also calls for cost-benefit analyses of ethane import facility investment at both the company and national levels, as well as estimates of investment induced, jobs created, and tax revenue effects if the credit is applied. Surveys of facility investment support regimes in major ethane cracker-adopting countries such as the United States, and analyses of domestic and international ethane cracking technology levels and commercialization status, are also included.

Individual companies are also moving faster on ethane adoption. The Ministry of Trade, Industry and Energy's "Petrochemical Industry Competitiveness Enhancement Plan," announced at the end of 2024, included a fast-track permitting scheme for the construction of dedicated ethane terminals and storage tanks, acknowledging that some petrochemical firms were already pursuing ethane imports to strengthen their competitiveness. The most active domestic proponent of importing American ethane has been HD Hyundai Chemical, located in Daesan, South Chungcheong Province.

The Daesan complex is home to several energy affiliates within the HD Hyundai group, creating potential synergies — and the group also has the capability to build dedicated ethane carriers. "We are continuing to review the import of American ethane," an HD Hyundai Chemical official said. "Ethane is a more economical feedstock compared with conventional naphtha, and it enables cost reductions."

Beyond HD Hyundai Chemical, several other petrochemical companies with factories in the Daesan complex are also understood to be interested in ethane imports. Lotte Chemical, meanwhile, has already taken a proactive approach to global feedstock supply chain diversification by investing in large-scale ethane cracking facilities in the United States.