‘Joint Venture Approval’ Lotte and SK Launch Hydrogen Business Targeting 30% Market Share

Fair Trade Commission Approves Joint Corporation Establishment
Plans to Complete Procedures by Next Month
Hydrogen Power Plant to Be Established in Ulsan
Electricity Production Based on Byproduct Hydrogen
Nationwide Hydrogen Charging Stations to Be Built

Key stakeholders attending the contract signing ceremony for the hydrogen joint venture between Lotte Chemical, SK Gas, and Air Liquide Korea last June. From left to right: Hwang Jin-gu, CEO of Lotte Chemical; Yoon Byung-seok, CEO of SK Gas; and Nicolas Pouliquen, CEO of Air Liquide Korea. Photo by Lotte Chemical and SK Gas.

[Asia Economy Reporters Choi Seoyoon and Lee Junhyung] With the approval of the joint venture establishment between Lotte Chemical and SK Gas, a company holding a 30% share of the domestic hydrogen production market will emerge. Globally, the hydrogen industry is still in its infancy, focusing on research into hydrogen production and ammonia decomposition technologies. The two companies plan to accelerate the hydrogen era by sharing their know-how and infrastructure through collaboration.

On the 19th, the Korea Fair Trade Commission approved the establishment of a hydrogen joint venture between SK Gas and Lotte Chemical. Earlier, in June, SK Gas and Lotte Chemical announced their intention to form a joint venture to jointly promote hydrogen business. The joint venture ownership ratio is 45% each for SK Gas and Lotte Chemical. They plan to complete the joint venture establishment process by next month.

The core of the hydrogen joint business is to establish a hydrogen fuel power plant in Ulsan to produce electricity based on by-product hydrogen and to build hydrogen charging stations nationwide. By-product hydrogen is hydrogen generated as a by-product in petrochemical processes. The joint venture will receive by-product hydrogen supplied from SK and Lotte's petrochemical plants located in Ulsan and Yeosu.

Petrochemical companies such as S-Oil, GS Caltex, Hyundai Oilbank, and LG Chem can also produce a significant amount of by-product hydrogen. For this reason, the Fair Trade Commission judged that the establishment of the joint venture would not restrict competition in the domestic hydrogen production market. Even if the hydrogen production capacities of SK Group (25%) and Lotte Group (5%) are combined, the market share change is only around 5%. Under current law, there are limits to price adjustments by the joint venture. A Fair Trade Commission official explained, "There are regulatory restrictions under the Hydrogen Act on actions related to price and production volume, making it considerably difficult to exclude competitors or implement sudden price hikes."

The situation is similar in the fuel cell and hydrogen charging station markets, where the joint venture will newly enter. The Fair Trade Commission judged that since the fuel cell and hydrogen charging station markets have active new entrants and multiple alternative hydrogen supply sources, the possibility of market foreclosure effects is low. Even if SK and Lotte's fuel cell facility capacities are combined, the expected market share remains below 15%, a low level.

Following the Fair Trade Commission's approval, Lotte Chemical and SK Gas have begun discussions on the official name of the hydrogen business joint venture. An SK Gas official said, "The name is not yet decided; it is currently under discussion." The hydrogen industry is at the market entry stage. There is a strong perception of being partners who will stably build the early market. A Lotte Chemical official said, "Through cooperation, we will combine our respective strengths," adding, "We will maximize synergy by utilizing Lotte's largest domestic by-product hydrogen production capacity and plant operation know-how along with SK's distribution network."

The global energy industry is shifting its main focus to hydrogen and renewable energy. Lotte and SK have also presented goals such as hydrogen growth roadmaps. Lotte Chemical aims to supply 1.2 million tons of hydrogen annually and achieve sales of 5 trillion won by 2030. SK Group's holding company SK Inc. has established a hydrogen business promotion team to build a hydrogen value chain. SK Discovery, led by Vice Chairman Choi Changwon, cousin of SK Group Chairman Choi Tae-won, is also expanding its hydrogen business area, and SK Gas launched a hydrogen task force (TF) in 2020.