▲ CEO of SK Energy Cho Kyung-mok

The second guest of SKinno News’ interview series “SK Innovation executives talk about plans in 2022, the first year of SK Innovation’s Financial Story execution” is CEO of SK Energy, Cho Kyung-mok. Let’s check how the company will celebrate its 60^th anniversary and transform itself into an “unprecedented energy company” to embrace the era of carbon neutrality and ESG.

Q1. Carbon neutrality has become a hot topic to SK Group and the whole world as well, and we cannot talk about it without mentioning the energy industry. What is your new year’s resolution as the CEO of the largest energy company in Korea?

2022 marks the 60th year of SK Energy, the first oil refinery company in Korea. Since the beginning, SK Energy has played various significant roles as a cornerstone of Korea’s economic development, leading the energy & chemistry industry. Likewise, the company has been showing its competence as ”The engine that moves the world” inside and outside the country. Based on such potential, SK Energy is going to take the lead in creating a company that is essential in the carbon-neutral era, with a new identity of “an unprecedented energy company.”

Q2. There are many stakeholders carefully watching how the oil refinery industry will transform itself to embrace the era of carbon neutrality and ESG. What kind of plan does SK Energy have?

In order to respond to the era of carbon neutrality and ESG, SK Energy has been contemplating, analyzing, and preparing countermeasures for a long time. We are fully aware that some still doubt the coexistence of the oil industry and carbon neutrality. However, if you look at it from a broader perspective, this may not be the case. I am confident that we, who know this business best, will also be the one who has the best solutions for the ‘carbon neutrality, ESG’ direction that the oil industry should advance. Therefore, SK Energy is establishing a set of response strategies with the goal of growing as a ‘role model for the oil refinery industry in the carbon-neutral era’.

We will conduct the green transformation for low carbon and decarbonization, while changing the business portfolio boldly and actively. Above all, SK Energy will be the most ‘Earth-friendly’ ESG enterprise by communicating with and being recognized by the planet. I would like to emphasize once again that this is the direction of the Financial Story that SK Energy aims to achieve.

▲ (Left) CEO of SK Energy Cho Kyung-mok (second from left, front row) participated in the “SK Innovation Story Day” event held in July 2021 / (Right) CEO of SK Energy Cho Kyung-mok appeared in the CEO’s special lecture ‘Five Steps to Happiness’ through ‘mySUNI’, a platform for strengthening the capabilities of SK Group members.

Q3. In the recent New Year’s Greetings, you emphasized ‘implementing the Deep Change through innovation in business portfolio’. Could you please elaborate on it?

Like I said in the previous question, the oil refinery industry is most susceptible to the changes in the global environment toward carbon neutrality. Such a challenging atmosphere against the industry will intensify, pushing it for profound transformation. We all have already been in severe pain under the threat created by COVID-19 in 2020.

The outlook for the oil refinery industry is that the recovery of oil demand in the short term will make good margins, but in the long term, it is prevailing that Energy Transition will become the trend of the times under the ESG basis, eventually leading to the limit of demand growth. In this changing mood, SK Energy is planning a bolder and more active innovation in the business portfolio to push ahead with the deep change. Carbon neutrality is indeed a challenging task for us. Nonetheless, we have approached it from a perspective of necessity, asking ourselves ”Why do we need Deep Change?”, rather than just taking it as a threat.

At the SK Group level, carbon neutrality had officially been declared at the CEO seminar last year and announced once again at CES 2022. In this changing atmosphere, SK Energy has reformed its organization and newly established the P&M CIC (Platform & Marketing Company in Company) and the R&S (Refinery & Synergy) CIC to drive the active transformation of the business portfolio last year.

We will certainly make 2022 the beginning year for the Big Reap by eagerly conducting the ‘Deep Change Journey,’ the Financial Story of SK Energy.

Q4. The CIC (Company in Company) system that you mentioned earlier, has entered its second year in 2022. What are your thought on it?

In line with the paradigm shift in the energy industry, SK Energy introduced the CIC system in Dec. 2020 to continue the development of existing businesses and search for new eco-friendly businesses. There are currently two CICs: the R&S(Refinery & Synergy) CIC to strengthen business synergy across the value chain from oil refinery to trading, and the P&M(Platform & Marketing) CIC to promote growth as a platform company based on marketing network. Both CICs were built out of a strategic consideration to enhance the entire company’s initiative toward Deep Change. In other words, this is the SK Energy version of the ”Separately yet Together” frame.

The R&S CIC established the “Net Zero Roadmap” for carbon dioxide reduction last year. And from the perspective of Net Zero as a ‘duty and opportunity,’ we have been pushing ahead with the Biz Portfolio innovation in the direction of reducing carbon energy and expanding green energy.

As a measure to reduce carbon energy, we are considering converting the refinery operating system centered on green operation, such as improving energy efficiency and introducing low-carbon raw materials. Also, a review is underway to transform the existing facilities to innovate product portfolios, taking into account the prospect of losing demand in the long-term. As for the Green Growth expansion, we plan to acquire and commercialize the Carbon Capture Utilization and Storage (CCUS)-related technology, which is considered as ‘the only technology that directly eliminates carbon dioxide and contributes to Net Zero.’ We also plan to secure bio renewables raw materials, and use them for commercialization as well as producing and supplying eco-friendly products, leading the market reformation.

Through this Biz Portfolio innovation process, the Net Zero goal will be actualized, and ultimately, we will grow into the “Net Zero Energy Co.”, the most successful company that has transformed to achieve the Energy Transition.

As for P&M CIC, we will keep up with the work from last year, which include strengthening the fundamental competitiveness of the petroleum marketing business, and creating a business structure that achieves sustainable growth through the platform business.

Various platform business models are under planning as of now. These include: “Energy Solution Platform” that builds electric/hydrogen vehicle charging stations on top of the existing petroleum marketing infrastructure, and “Total Transportation Service Platform” that provides fueling customers with an innovative and integrated car life service as well as an enhanced user experience by utilizing mobile and the Internet of Things(IoT) technology. Another example would be the “Local Delivery Platform” that offers on-demand delivery of various products and services by utilizing the company’s business bases, including gas stations, nearby our customers. The first one is happening right now. We are building the first demonstration facility of the eco-friendly integrated energy station, installed with chargers for the hydrogen fuel cells and electric vehicles, in the gas station. Once the hydrogen fuel cell power plants are safely operated to produce eco-friendly energy with completion of the demonstration stage of identifying the demands of the electric vehicle drivers, we plan to supply the eco-friendly energy infrastructure across the country.
These two CICs have created significant changes that enable the “The Big Picture of an unprecedented energy company” over the past year, and will continue to develop as the two principal axes for SK Energy’s Green Transformation.

Q5. The oil refining industry has a wide range of business, and there is no insignificant part in it from a carbon neutral point of view. Could you introduce a carbon neutral projects that you are working on?

▲ (Left) Ulsan Complex power boilers only use LNG, eco-friendly fuel / (Right) SK Energy’s carbon-neutral petroleum product sales campaign ‘Drive To Zero’ to be held until the end of February 2022.

Carbon neutrality in oil refining industry is very complicated because it is impossible to change everything at once. That is why SK Energy created two CICs by dividing the business areas, and we are developing and operating low-carbon/decarbonization projects that fit each CIC under under one big principle of carbon neutrality.

First and foremost, R&S searched for the possible methods to put into action and worked on them right away. As a result, we have improved the facility and operation and replaced the Bunker C oil with LNG – low-carbon and eco-friendly fuel – in every process happening in the Ulsan Complex. Moreover, we are expanding the partnerships to create the Net Zero Oil ecosystem, such as participating in the Net Zero Crude Oil production project under the belief that the true Net Zero is to even reduce the amount of CO­2 emission during drilling process and at consumer usage stage.

In addition, to lead the market and reorganize, we are going to expand the eco-friendly products that can still meet the demands even during the energy transition. These are eco-friendly asphalt, bio-ship fuel, products made of waste plastic pyrolysis oil, and so on.

In case of P&M CIC, the representative Net Zero project would be the ‘Net Zero Oil product,’ which was launched for trial in last November for the first time in Korea, and now is on sale. This product neutralizes greenhouse gas emissions by offsetting the amount of greenhouse gases generated in all processes such as production, transportation, and consumption with high-quality carbon credits issued through afforestation and deforestation prevention projects.

This project demonstrates our commitment to carbon neutrality, and it is even more crucial and challenging because it is voluntarily participated by our customers. After more than 3 months since launch, it has been confirmed in the market that customers are passionate about carbon neutrality. Now that more customers are participating in the project than we expected, we are thinking of expanding it further. This case reminded us that in order to promote carbon neutrality, we need a Net Zero promotion storyline that can elicit understanding and participation of the entire value chain, including end-users.

Q6. You are in charge of SK Group’s Carbon Reduction Certification Center. So could you explain the meaning of this center?

I am the Chair of the Green Parity Sub-committee of the Environmental Business Committee of SK Group. I think the reason why I got to take charge of it is that I am the CEO of SK Energy, the company that knows the most about carbon within SK Group. It also signifies the important role and responsibility SK Energy is taking in the achievement of carbon neutrality, as well as what I am taking as the CEO.

Last year, SK Group is the first enterprise in Korea that has established Carbon Reduction Certification Center to enforce ESG management. I believe this is a significant move because it shows how SK Group is taking the lead in promoting carbon neutrality. We have established the carbon reduction performance measurement standard for the products and services of member companies. Such standard is necessary for the group’s Net Zero initiative, and based on this, we plan to issue voluntary carbon credits for the first time in Korea in the first half of this year.

Taking an example for our efforts, in Southeast Asia, we are conducting the Mangrove Reforestation Project funded by the 1% Happiness Sharing Fund, in which SK Innovation members voluntarily contribute 1% of their base compensation. This reforestation project has been registered as the methodology for carbon credit through our Carbon Reduction Certification Center, and is expected to show visible result this year. This is such an encouraging program since it was driven by the effort of many SK Innovation’s members to realize Net Zero.

▲ (Left) Green Points donated for the Mangrove Reforestation Project by visitors are shown on the large screen inside SK exhibition hall at CES 2022 / (Right) SK Innovation has been operating the Mangrove Reforestation Project in Vietnam since 2018

Q7. Do you have any message for the stakeholders, SKinno News readers, and SK members before we end the interview today?

I am proud that SK Energy, which was established in 1962 to pave the foundation of economic development in Korea, has been prominently playing its role as the leading energy company in the country. Based on our competence, SK Energy will turn carbon neutrality from a business threat into an opportunity, a blessing in disguise. to create ”an unprecedented energy company.”

We have overcome countless unexpected challenges to reach where we are now. Therefore, with our passion and eagerness, I am certain that all of us, who are experiencing the uncertain New Normal era, will be able to find the answers, and embrace a better tomorrow, a more promising future.

2022 is an important year to create tangible results through strong execution of the Financial Story. Literally, we are going to make the company ”a world-class eco-friendly company, communicating with the Earth and is recognized.” Now is the time for the company, the employees, and all the stakeholders across the value chain to stick together and be ready for a big leap. I will be there remaining my position in the middle of the movement all the time.