"The company has decided to spend $890 million to build the propylene plant to tap into petrochemical markets at home and overseas,' SK Gas said in a regulatory filing.
"Revenue of propylene is expected to reach $980 million annually when the plant starts commercial production by 2016," it added, forecasting the propylene price at $1,450/mt.
Propylene is a raw material used for making auto parts, textiles and home appliances. The product would be sold at home and in overseas markets, the company said.
"The company wants to diversify its business portfolio by building the propylene plant that would create synergy with its LPG business,' it said.
The plant will be in the country's southeast industrial city of Ulsan, home to its affiliate and the country's top refiner and chemical maker SK Innovation. SK Gas runs an LPG storage facility in Ulsan with a capacity of 290,000 mt.
SK Gas is owned by SK Group, a family-run business conglomerate which controls many affiliates in various industrial segments, including SK Innovation, the country's leading city gas provider SK E&S and No. 1 wireless telephone service provider SK Telecom.
SK E&S runs a gas-fired power plant that has been importing 600,000 mt/year of LNG directly from Tangguh since 2006.
SK Gas also said it is considering importing US shale gas-based LPG as feedstock for its petrochemical business.
"We are considering purchasing US shale gas-based LPG if its price remains low," a company official said.
South Korean importers have recently avoided lifting LPG from Iran due to ambiguity over the latest EU sanctions aimed at curbing natural gas exports from Iran.
E1 Corp. SK Gas's smaller rival and the country's second-largest LPG importer, signed a deal in November to buy 180,000 mt/year of LPG produced from US shale gas in 2014 from Enterprise Products Operating LLC, a subsidiary of US gas company Enterprise Products Partners, and said it would consider importing US LPG beyond that year.
The deal marks the first time that E1 will import US shale gas-based LPG and indicates growing interest from South Korean and Japanese buyers for US-origin LPG.
The deal is part of efforts by South Korea to tap a US shale gas boom. The country aims to import more than 8 million mt/year of LNG produced from shale gas by 2020, mainly from North America, which equates to 20% of South Korea's total LNG demand.
