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The Kaohsiung Gas Explosions

Petrochemicals: Welcome Worn Out?

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Petrochemicals: Welcome Worn Out?

Source:CW

Five petrochemical industrial zones provide Greater Kaohsiung with over 10,000 jobs. With public outcry over the recent tragedy at a boil, will the city ask the industry to take a hike?

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Petrochemicals: Welcome Worn Out?

By Liang-Rong Chen
From CommonWealth Magazine (vol. 553 )

The culprit that took the lives of 30 people in Kaohsiung was a 20-plus kilometer underground gas line. A chemical transport ship docked in Kaohsiung Harbor pressurized the propylene on board and sent it to the LCY Chemical Corporation's Ta She facility. As the route passed through densely populated areas including the Qianchen, Lingya, and Sanmin districts, it left heavy casualties when it exploded.

The Kaohsiung Environmental Protection Bureau relates that the Tashe facility also has another propylene line that links to the neighboring China Petroleum Corporation (CPC) Kaohsiung main refinery (the Fifth Naphtha Cracker plant), but that it is not in operation.

In other words, the upstream raw materials required by LCY were not supplied by neighboring CPC, but actually imported from abroad.

This is one of the indirect factors that contributed to the tragedy.

So why did LCY look so far away for its supplies?

"Because the Fifth Naphtha Cracker ceased operation recently," relates Daniel Y.J. Ho, CEO of Danny Material Intelligence (DMI).

Apart from the Sixth Naphtha Cracker facility in Mailiao, this was the island's largest petrochemical raw material production base, outputting 500,000 tons of ethylene and 250,000 tons of propylene per annum. The number five facility closed for maintenance in July and has not resumed operation to date, clearly in anticipation of the deadline for the plant's closure that looms ahead. This is a major event as a turning point in the history of both Taiwanese environmental protection and the petrochemical industry.

In September 1990, following numerous bloody protests by local residents, then premier Hau Pei-tsun went to Kaohsiung's Hojin area, where the Fifth Naphtha Cracker was to be built, and dug in for the night, backed by over a thousand armed storm troopers. In exchange for the uneventful construction of the plant, Hau promised that 25 years hence (2015) the facility would be relocated.

With the promised closing date approaching next year, CPC president Paul Chen announced not long ago that the Fifth Naphtha Cracker, which had over 60 refineries, was down to just 16 operational refineries as of the end of May. CPC Shell Lubricants Co., a lubricant plant jointly invested by CPC and Royal Dutch Shell, will also cease operations and pack up in September.

In view of this, several petrochemical industry people CommonWealth Magazine interviewed for this story all speculated that in the wake of the Kaohsiung explosions – Taiwan's worst petrochemical accident ever – the government and CPC will likely "go with the flow" and allow the Fifth Naphtha Cracker facility to relocate ahead of schedule, taking some of the edge off the public's current rage against the chemical industry.

After 40 years closely connected to the petrochemicals industry, the Tashe Industrial Zone, which the Fifth Naphtha Cracker has called home, could likely become the next "victim" down the line.

Many of Taiwan's big industry names are located close together in Tashe, including LCY, Dairen Chemical (a joint venture under the Chang Chun Group), CPC, Grand Pacific Petrochemical, and the Taiwan Man-made Fiber Industries Association. The seat of the petrochemicals industry in southern Taiwan, with output value of NT$72 billion, it has also been the target of environmental protests in Kaohsiung for many years.

Environmental groups claim that in 1993 Chiang Pin-kung, then Minister of Economic Affairs, promised that the Tashe Petrochemical Industrial Zone would be relocated together with the Fifth Naphtha Cracker facility. However, to date the Kaohsiung city government has only approved the reclassification of Tashe to a Level B industrial zone, where highly polluting industries will no longer be permitted (effective in 2018), a move locals see as merely a stall tactic.

None of the companies in the zone are currently planning to move.

Public Sentiment to Accelerate Relocation

One outcome of the heavy loss of 30 lives in the August 1 explosions could be that it finally prompts the central and local governments – long hesitant to decide between GDP and the environment – to take action on industry relocation.

"This incident will strike a big blow," admits a Dairen Chemical executive.

Dairen Chemical Corporation (DCC), based in the Tashe industrial zone, has generated profits of NT$20-30 per share for years on end, for which it has earned the nickname of the "top student in the petrochemical industry." In recent years, following Chang Chun Petrochemical chairman Suhon Lin's aggressive overseas expansion strategy, the company has invested in the establishment of new plant facilities in Singapore, as well as Liaoning and Jiangsu provinces in China.

Although propylene is also the main raw material for the company's new Kaohsiung facility, it nonetheless decided to locate at the southernmost area of the city, the Dafa Industrial Park 60 kilometers away.

"These are all new transport lines here. They feature the latest anti-corrosive technology, and do not pass through the city," explains S.K. Su, Chang Chun Plastics president and group spokesman.

What attracted Suhon Lin in particular was the CPC Linyuan facility next door. The Third Naphtha Cracker facility affiliated with that plant dates back to the 10 National Development Projects period, and with the imminent retirement of the Fifth Naphtha Cracker, CPC poured nearly NT$50 billion into a complete overhaul of the Linyuan plant, augmenting the entire line of refining equipment to transform it into a highly efficient, environmentally friendly refinery that will replace the northern Kaohsiung Fifth Naphtha Cracker as the pillar of CPC's petrochemical operations.

Like Dairen Chemical Corp., a number of petrochemical companies have set up new facilities around Linyuan, signifying the steady migration of Kaohsiung's petrochemical industry cluster south out of the city and into the countryside. And the trend can only be expected to accelerate further in the wake of the recent tragic explosion.

According to the Ministry of Economic Affairs annual report, Taiwan's chemical industry is worth up to NT$4.4 trillion per year, of which Formosa Plastics contributes around 70 percent.

Although CPC's upstream and downstream production system, the core of which is in Kaohsiung, accounts for only around 30 percent of this output, strong shockwaves of negative popular sentiment in the aftermath of this public safety disaster could impact the entire four-trillion (NTD) chemical industry.

Research findings issued by Morgan Stanley on August 1 cautioned that steps should be taken to guard against a public backlash against the petrochemical industry to prevent damage to other companies including the Formosa Plastics Group.

The impact was already evident on the stock market the day after the explosion. Share prices of the four listed companies in the Formosa Plastics Group, namely Nan Ya Plastics, Formosa Chemicals and Fiber, Formosa Plastics and Formosa Petrochemicals, jumped out of the gate strongly before a net decline by the market's close.

DMI's Daniel Ho offers that at first foreign investors simply reasoned that the damage to CPC would be advantageous to Formosa Plastics, but later, when they discovered the unprecedented scale of the casualties, "they became worried it might lead to a general stoppage (of the petrochemical industry), so stocks fell back down."

Whether these fears materialize has the petrochemical industry and environmental advocacy groups alike watching with baited breath.

Translated from the Chinese by David Toman

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