Choi Chang-won follows Choi Tae-won into hydrogen, then LNG... Accelerating independent progress

Expanding Horizons with LNG and Energy, Corporate Separation...
SK Chemicals Launches Split Corporation in December
Invests 428.1 Billion KRW in SK Multi-Utility
Full-Scale Entry into District Energy Business

Choi Chang-won, Vice Chairman of SK Discovery, is giving a greeting at a meeting with Prime Minister Kim Boo-kyum held on the 23rd of last month at SK Bioscience in Seongnam-si, Gyeonggi Province. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Choi Dae-yeol] SK Chemical, a subsidiary of SK Discovery whose largest shareholder is Vice Chairman Choi Chang-won, cousin of SK Group Chairman Chey Tae-won, is entering the liquefied natural gas (LNG) business for the first time.

SK Chemical, primarily engaged in manufacturing raw materials for synthetic resins, is expanding its scope into energy businesses such as LNG power generation for the first time. This initiative is being pursued independently from SK E&S, which focuses on LNG business within the SK Group. Until now, the business areas of Vice Chairman Choi and Chairman Chey rarely overlapped, but recently Vice Chairman Choi appears to be accelerating his independent moves into LNG following his involvement in the hydrogen business.

"Spin-off company in December, considering LNG combined heat and power generation"

According to industry sources on the 23rd, SK Multi-Utility (tentative name), which will be launched in December through a physical spin-off from SK Chemical, has decided to enter the LNG new energy business and is recently organizing internal teams to recruit experienced personnel. The new company is reviewing district energy business as a major option in preparation for building combined cycle or combined heat and power plants.

District energy business involves producing heat and electricity to supply homes or industrial complexes, combining existing city gas and electricity businesses. Heating and power supply needed in recent new towns such as Wirye and Hanam are also provided through district energy business. SK Chemical stated, "The business direction of the new company will be specifically decided after the spin-off," adding, "LNG combined heat and power generation is one of the options being considered for fuel conversion, including LPG."

The spin-off of SK Multi-Utility, decided in mid-this month, will be finalized at the extraordinary general meeting of shareholders next month. At the time of the spin-off decision, SK Chemical committed to investing 428.1 billion KRW in the new company. SK Chemical only described it as "facility investment to specialize in industrial power and steam supply business." SK Chemical has conducted district energy business on a small scale so far, but it is expected to expand the business significantly after the spin-off. According to the company, last year's district energy business was worth 37.3 billion KRW, mainly selling byproduct heat generated during processes to nearby demand sites.

The background behind Vice Chairman Choi's focus on LNG

As SK Chemical independently expands its LNG business, attention is drawn to Vice Chairman Choi's moves. Vice Chairman Choi, cousin of Chairman Chey, had jointly managed the group with his cousin after the late Chairman Choi Jong-hyun's passing, overseeing overall group management. Recently, he has focused on Discovery-related businesses as the largest shareholder of SK Discovery. SK Discovery has subsidiaries such as SK Chemical and SK Gas. It has no equity relationship with the group holding company SK Inc., and the owner family, including Chairman Chey, holds only a small stake, making it different in nature from other intermediate holding companies like SK Innovation within the group.

The industry is paying close attention to Vice Chairman Choi's selection of LNG as a new business. LNG is currently the main item of SK E&S, which has emerged as a key affiliate by expanding energy businesses comprehensively. SK E&S is a holding company for city gas businesses with subsidiaries nationwide, engaged in power generation and gas businesses, and directly imports LNG overseas, handling the largest volume of LNG among domestic private companies.

SK E&S is responsible for the future business model in the energy sector, which is central to SK. It is believed in the industry that Chairman Chey's eldest son, In-geun, chose this company as his first workplace because the energy industry’s core is expected to shift from fossil fuels to LNG, renewable energy, and hydrogen.

Panoramic view of the natural gas power plant in Paju, Gyeonggi-do

Vice Chairman Choi’s independent expansion of the LNG business despite having an affiliate with LNG capabilities within the same group is interpreted as a judgment that the market is growing rapidly due to surging LNG demand for power generation and other uses. East Asian countries including South Korea, Japan, and China, which lack a renewable energy base, have been competing to increase LNG imports in recent years.

Power plants using LNG as fuel emit fewer pollutants compared to coal and are expected to serve as an intermediate step in the transition to renewable energy. The government has also planned to increase the share of renewable energy and LNG power generation in its basic power supply plan. According to the industry, the government is internally reviewing a plan to invite new LNG power plant operators in the second half of this year.

Choi Chang-won, Vice Chairman of SK Discovery (from the left), Choi Shin-won, Chairman of SK Networks, Choi Tae-won, Chairman of SK Group, and Choi Jae-won, Senior Vice Chairman of SK Group, are watching the 6th game of the Korean Series held in Jamsil in 2018 together.

Speeding up independent management, but affiliate separation is still unlikely

Earlier, SK Gas, a subsidiary of SK Discovery, also independently expanded external cooperation alongside the hydrogen business promoted at the group level. In May, SK Gas decided to form a joint venture with Lotte Chemical within this year to operate hydrogen charging stations and fuel cell businesses. SK Group has established a hydrogen business promotion team within the holding company SK Inc., coordinating hydrogen business plans with SK E&S, SK Innovation, and others. These are also projects pursued separately by SK Group and SK Discovery. Prior to this, Ulsan GPS, where SK Gas is the largest shareholder, has been promoting a combined liquefied petroleum gas (LPG) and LNG power plant since 2018, with construction expected to begin as early as early next year.

Although Vice Chairman Choi is expanding his independent moves, the possibility of affiliate separation is still considered low by both inside and outside SK Group and the industry. This is because maintaining the SK brand while conducting energy business domestically and internationally is expected to bring significant benefits. An industry insider said, "SK Discovery and its subsidiaries operate in a practically independent management system, and although affiliate separation has been mentioned in the past, it is unlikely to be beneficial."