CPC Grapples with Challenging Business Environment

The CPC oil refinery in Taoyuan's Guishan District. Photo: Wikipedia

The state-owned company looks to invest in high-value-added chemicals and green projects at home while exploring upstream opportunities overseas.

The CPC Corp. was established in Shanghai as the Chinese Petroleum Corp. in 1946 and relocated to Taiwan three years later. The state-owned firm plays a crucial role in ensuring Taiwan’s energy security, and is also expected to post a profit for the government. CPC’s business lines include exploration and production of oil and gas, refining, petrochemicals and other chemicals, lubricants, and solvents. It is also Taiwan’s main importer and supplier of liquefied natural gas.

CPC’s new chairman, Jerry J.R. Ou, who took up the position in March, recently responded to questions submitted by Taiwan Business TOPICS. Ou is a former director general of the Ministry of Economic Affairs’ Bureau of Energy. When in that role, he served on CPC’s board. Ou holds a doctorate in engineering from National Chiao Tung University.

Jerry J.R. Ou, chairman of the CPC Corp., Taiwan’s national oil company. Photo: CPC

What do you see as the primary strengths of the Taiwanese petrochemical sector?

Taiwanese petrochemical companies have extensive industry experience, strong technological capabilities, and excellent process management – which help control costs and boost efficiency. For example, the Formosa Plastics Group is constantly thinking about how to achieve better performance at lower cost, which helps to ensure that profits grow steadily.

Changchun Group’s president, Lin Shu-Hong, emphasizes his company’s focus on industrial safety by constantly visiting Changchun’s factories. All of the employees notice that, and it makes them pay extra attention to operational safety, minimizing the possibility of accidents and reducing unnecessary losses.

Taiwan also has a complete, high-quality, integrated petrochemical plastics and rubber supply chain, developed over the past five decades. It’s extremely comprehensive – from the most upstream naphtha cracking to polyester composites, glass fiber, carbon fiber, and other polymer composite materials; plastic products processing and production; and related machinery, equipment, and peripheral parts.

What are the toughest challenges facing the local petrochemical industry?

It’s hard to ensure an adequate supply of olefins. Downstream companies need about 1.5 million tons annually, and we’re currently only able to supply about 1.07 million tons of ethylene to them. Since they can’t get enough ethylene from the global market and their pumping capacity is limited, they can’t produce at their maximum capacity of 1.74 million tons per year. The additional transportation cost to import ethylene also reduces the competitiveness of domestic petrochemical downstream operators.

Another issue is that environmental regulations are not always clear and consistent. All domestic petrochemical investment cases need to be reviewed through an Environmental Impact Assessment (EIA), but the process is not as transparent as it could be. Government at both the local and national level should comprehensively consider the contribution the petrochemical industry creates, clarify the quantitative criteria for environmental assessment, and speed up the review process.

Given the restrictions the industry faces from air-pollution control, the government should encourage investments in high-value-added chemicals and the circular economy. This could help Taiwan to accelerate its industrial transformation, achieving a win-win between economic development and environmental protection.

How much progress has Taiwan made to date in moving up the chemical value chain?

We have a number of companies who are suppliers of important electronic-grade special chemicals, such as Changchun Group, Eternal Group, Everlight Chemical Corp., Shiny Chemical Corp., and LCY Chemical Corp. Taiwan has an opportunity to increase its market share of high-value added chemicals used in the IT industry, which is another of our pillar industries besides petrochemicals.

We should learn from the trade dispute between Japan and South Korea. Japan’s decision to stop exports of high-purity hydrofluoric acid and photoresist materials to South Korea is seriously affecting the Korean IT industry. Taiwan should learn from that, and encourage the domestic petrochemical industry to invest in developing specialty chemicals [to ensure self-sufficiency].

In what ways does CPC plan to modify its business operations to take the changing character of the Taiwan chemical industry into account?

We plan to add a vacuum distillation unit (VDU) and solvent deasphalt (SDA) unit in our Talin plant in Kaohsiung in line with IMO 2020 marine fuel regulations, domestic fuel environmental protection regulations, and market demand. This plant is needed because there is currently no vacuum distillation plant and tar supply source in southern Taiwan following the closure of the CPC-Shell lubricant unit and the Kao-hsiung refinery.

We also plan to invite Taiwanese petrochemical downstream manufacturers to jointly invest in green projects with us. We hope to integrate the development of upstream and downstream, introduce green production mechanisms and technologies, and develop raw materials and products that can be recycled and reused. As the same time, we will invest in R&D for high-end composite materials, and install smart machinery to improve production efficiency and safety.

What are CPC’s primary near-term goals in the Taiwan market?

For decades, CPC has supplied petrochemical raw materials to domestic manufacturers through long-term contracts. At present, CPC’s primary goal is to get more value from the heavy oil at the bottom of topping units. For instance, there has been research on the manufacturing process of using heavy oil from the cracking process to produce soft carbon, used for battery cathodes. We also plan to develop the process to purify DCPD (dicyclopentadiene) as the resin for 5G network high-frequency substrates.

How important will overseas business be to CPC in the future?

Considering the abundant demographic dividends of Indonesia and India, the petrochemical industries there have strong potential – although they are currently at a nascent stage. Based on the needs of our business operations, CPC is currently conducting a feasibility assessment for investing in the Indian and Indonesian petrochemical industries, and working together with CPC’s customers among downstream petrochemical manufacturers to expand the petrochemical market overseas.