Hydrogen Production Market Share at 30%
Market Share Change Only 5%
Fair Trade Commission Sees No Competition Concerns
Both Companies Share Capabilities in Hydrogen Business
A view of 'SK Happiness Charging Nonhyeon Charging Station' in Namdong-gu, Incheon. It is SK Gas's first hydrogen and LPG combined charging station. Photo by 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 cooperation.
The Fair Trade Commission approved the establishment of the hydrogen joint venture between SK Gas and Lotte Chemical on the 19th. Earlier, in June, SK Gas and Lotte Chemical announced their intention to create a joint venture to jointly pursue hydrogen business. The joint venture ownership is split with SK Gas and Lotte Chemical each holding 45%. The remaining 10% stake is invested by the Korean branch of the French industrial gas company Air Liquide. The joint venture establishment process is planned to be completed 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 significant amounts of by-product hydrogen. For this reason, the Fair Trade Commission judged that the establishment of the joint venture does not pose concerns about restricting 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 also limits on 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 there are multiple alternative hydrogen supply sources, the possibility of market closure 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 serious discussions on the name of the hydrogen joint venture. An SK Gas official said, "The name is undecided and 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 hydrogen fuel cell power plant to be constructed by the joint venture is expected to have an annual electricity production capacity of 500,000 MWh. This amount can supply electricity for 120,000 households (assuming 4 persons per household) for one year. As the largest domestic producer of by-product hydrogen, Lotte Chemical will provide raw material supply as well as related business sites within its Ulsan plant. The company plans to secure demand through group affiliates to create a stable business environment in the early stages. SK Gas will secure and supply by-product hydrogen through its affiliates in Ulsan and will leverage its existing power generation capabilities and LPG charging station distribution network and operational know-how to drive the joint venture’s long-term growth.
Hwang Jin-gu, head of Lotte Chemical’s Basic Materials Business, emphasized at the event for establishing the hydrogen joint venture in June, "It is highly meaningful to focus each company’s core competencies to lay the foundation for an eco-friendly hydrogen market and form the early ecosystem of the hydrogen industry." Yoon Byung-seok, CEO of SK Gas, also stated at the same event, "I hope the establishment of the joint venture will serve as an important catalyst for revitalizing South Korea’s hydrogen economy and contribute to the future transition to a domestic hydrogen society," pledging to mobilize SK Gas’s hydrogen business capabilities.
The global energy industry is shifting its main focus to hydrogen, renewable energy, and others. 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 KRW by 2030. SK Group’s holding company SK Inc. has formed a hydrogen business promotion team to build a hydrogen value chain. SK Discovery, led by Vice Chairman Choi Chang-won, 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.
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