CH19 : Naphtha

"Stop! Where are you from?"

"I'm Woo Chan-soo from Daese Industries. I've come to see the branch manager."

David must have already mentioned my name, so they'll see me.

"Do you have an appointment?"

"I was supposed to meet him at the Ulsan City Hall welcome party today, but I have something to inform him about in advance. Please pass this along."

"If you have something to inform him about in advance..."

"Just pass it on as it is."

"Oh, yes! Understood."

In the '60s, it seemed that being a bit arrogant works better than asking politely.

As I furrowed my brows outside the car window, the gate opened immediately.

After parking near the main entrance, they contacted through the intercom and guided me right to the office.

**

"Ah, you must be Mr. Woo."

"Yes, I came on David's recommendation."

When I entered the office, a big man greeted me.

Though David had introduced me, he wouldn't have expected me to visit in person.

"I'm Eric Malton. Nice to meet you."

"Nice to meet you. I'm Woo Chan-soo."

"I've heard a lot about you. Mr. David says you're Korea's hidden brain."

"Being called a brain is too much of a compliment."

"Please, have a seat."

Malton treated me with great respect.

Perhaps because he had been informed in advance, the table was set with chocolates and strong coffee.

David must have spoken very favourably about me. It felt good to drink decent coffee after a long time.

"We still have some time before the welcome party. What brings you here?"

His tone was polite, but he didn't seem particularly welcoming.

Of course, considering he had lost the only advantage of the initial factory and wasn't making significant sales in Korea, he must be wondering why I came to Korea.

Hey, you're lucky to have met me.

You should know how fortunate you are.

"I was worried about how difficult things must be for you, so I came to see you in advance."

"You're worried about me?"

"Of course. The headquarters in the US is constantly criticizing the poor returns on their investment in Korea, the US government is pushing for participation in loan programs, and the Korean government is asking to speed up investments."

"...How do you know all this..."

Malton's face showed a mix of bewilderment and wariness.

Naturally, since I was aware of confidential matters.

"As I consult with various sectors while doing business, I naturally came to know."

"I didn't know Korea had lobbyists."

Malton regarded me as a lobbyist.

"Not a lobbyist, but as a Korean citizen, I thought I should help Gulf Corporation."

"Help us?"

"Of course. If Gulf doesn't get help now, the entire investment in the Ulsan Industrial Complex is at risk. Gulf came to Korea as a pioneer among American investors."

"Haha, a pioneer investor. Indeed, our company's motto is to become pioneers of the unknown. We aspire to be the Columbus of the 20th century."

Whether the Gulf would flee or not, in terms of opening the door for foreign investment, they had definitely contributed to Korea's industry.

Moreover, in this history, since they met me, they wouldn't be able to flee.

"A 20th-century Columbus, huh. In terms of discovering America but not making much money, it's similar to Gulf."

"...How can we make money?"

I meant it as a provocation, but perhaps due to his dire situation, instead of getting angry, he asked a question. It might also be because of David's introduction.

"That's why I'm here."

"Do you know what our problem is?"

Malton began to test my abilities. The push and pull finally started.

It was also a question to determine if I was a lobbyist or a fraud.

"Is there only one problem? Domestic demand in Korea is poor, exports to Japan are not smooth, and the first factory turned into a rag, so you had to build a new one, incurring significant losses."

"Haha..."

Malton chuckled dryly.

It seemed he wasn't too flustered yet.

He must think anyone could guess that much, right?

Hey, I'm an expert in this field!

I even came from the 21st century.

"Moreover, the quality of Middle Eastern crude oil must have been a fatal blow. You tried to refine it cheaply in Korea, where labour is cheap and there are no environmental issues, and sell it expensively to Japan, but the refining efficiency was terrible."

"...Huh..."

The mid-60s was when Japan was booming.

Gulf wanted to sell various petroleum products to such a Japanese market, and in terms of cost reduction, they planned to use Korea as a production base.

However, as soon as they started the business, they faced unexpected problems.

First, refineries sprouted like mushrooms in Japan, making price competition difficult.

Second, there was a technical issue with the quality of crude oil.

Countries in East Asia, including Korea, primarily imported Middle Eastern crude oil due to geographical reasons. Compared to American Texas crude or North Sea Brent crude, Middle Eastern crude had more residues, making it less profitable as it yielded less gasoline or diesel.

Gulf had neglected the business review.

There's a reason why localization is crucial in overseas business.

'Of course, that difficulty is temporary.'

Although it's tough due to Middle Eastern crude oil now, through the 70s, Korea's economy will rapidly grow, making Middle Eastern crude oil a jackpot.

The demand for low-grade petroleum products like naphtha and asphalt, along with gasoline and diesel, will explode.

Thanks to this, Gulf could sell the naphtha business rights to Japan at a high price.

So, this is the perfect opportunity to entice Gulf. We can't miss this chance.

"Am I wrong?"

"No, it's too accurate, I'm surprised. Honestly, I knew we had to import Middle Eastern crude oil geographically, but I didn't expect the heavy oil ratio to be over 40%."

Heavy oil, also known as bunker C oil, is a low-quality oil component.

At best, it's used as ship fuel or as material for lubricants or asphalt.

Middle Eastern crude oil, represented by Dubai Oil, has a high heavy oil content, ranging from at least 40% to as much as 70%.

Unlike American Texas oil, which is brown and has low viscosity, Middle Eastern Dubai oil is black and unusually sticky.

"I'm here to solve that problem for you. Helping Gulf is also good for our country."

Pretending to be a patriot always works well as an excuse in this era.

"Solving the problem?"

"Isn't it about increasing refining efficiency by about 5%?"

"...5%?"

Increasing refining efficiency by 5% boosts refinery sales by roughly 15%.

To increase refining efficiency by that much requires a massive investment in the tens of millions of dollars, so in terms of net profit, it goes up by roughly 5%.

A 5% net profit increase is a significant number in manufacturing.

"Of course, no investment is needed."

"Gasp!! No investment...5%...crazy!!!!"

At first, Malton had an indifferent expression, but when I said no investment was needed, he stuttered.

No one can resist this.

**

"How can you increase efficiency that much?"

"Why are you in such a hurry? Business is about aligning mutual interests. Surely, you don't think this is for free, right?"

Malton adjusted his posture as if realizing something.

"Right, what do you want in return? I need to hear that first."

"I want two things. First, the exclusive naphtha business rights from the Ulsan plant, and second, the old factory. Then, I'll increase refining efficiency by 5%."

For my business to succeed, I need to monopolize the naphtha from Gulf's refinery.

No matter how much technology I have, I can't make products without materials.

Naphtha is essential for synthetic resins, synthetic fibres, and synthetic rubber, but it's also used to make aspirin and saccharin, indicating its vast range of applications.

Until semiconductors emerged in the 21st century, "industrial rice" was referred to naphtha.

Of course, I plan to use all the naphtha for synthetic fibers. The production capacity of Gulf plant alone will be insufficient for nylon and polyester.

"Do you mean to monopolize naphtha and refurbish the old factory?"

"Yes."

I'll spend 200,000 dollars on repairing the old factory.

I don't have the money to pay for acquiring the factory.

"You'll buy naphtha at market price and refurbish the old factory. If refining efficiency increases by 5%, we'll gladly hand it over."

"Then we have a deal."

"But isn't the most important prerequisite whether the technology exists?"

Malton, having calmed down a bit, started talking specifics.

"I'll show you right after we sign the contract. If I'm lying, tear up the contract right away. Or we can specify the technology as a contract condition."

I said firmly.

Before signing the contract, never reveal the technology. Otherwise, it's like holding the knife by the blade.

"Thank you for showing it right away..."

"I clearly said if we sign the contract."

As Malton tried to rise, I sank deeper into the sofa. Malton also addressed the last item before the contract.

"Everything sounds good, but exclusive naphtha business rights are difficult. How about preemptive rights instead? Exclusive means if you can't handle it, we have to throw away the produced naphtha."

"Fine, let's go with preemptive rights."

I fully understand why Malton is doing this.

Given naphtha's broad application, the technology to handle it is not trivial.

It's such a volatile substance that transport and storage are difficult, and proper utilization requires cracking/cooling/compression/separation/refining.

In other words, once you crack naphtha, you must make products like rubber, fibres, or aspirin.

You can't just store the excess somewhere.

That's why factories related to naphtha are clustered around naphtha plants.

These factories are even tightly interconnected to the extent that they share industrial water and electricity.

How densely you cluster factories significantly impacts the final product's cost, so it's also called a combinat (combined production) industry.

In short, naphtha from Ulsan must be used within the Ulsan complex because it's hard to bring in and out.

"...Ahem... Preemptive rights mean we'll sell naphtha to others after supplying Mr. Woo. I want to clarify this."

"Just guarantee me the priority."

There won't be any leftover naphtha to sell to others.

So, preemption is monopolization.

As the Vietnam War progresses, naphtha demand will explode across Asia.

Hence, in the 70s, Japan would buy the naphtha business rights of the Ulsan plant at a high price.

"Of course, we'll ensure preemptive rights. Since you say you can handle the surplus."

For refineries, securing a solid revenue structure means selling volatile products like naphtha as soon as they are produced.

With this contract, Gulf won't worry about losing money on naphtha sales.

"But how much production are we talking about for you to worry about surplus? I'm not planning a small-scale naphtha business."

In poker, to make a big play, you must go all in when your opponent believes in their hand.

In this case, it's an easy one; just scale up the volume.

"Hmm? Do you know this plant's production capacity? We refine 7 million tons of crude oil annually, producing 90,000 tons of naphtha."

"Only 90,000 tons a year?"

I was dumbfounded by Malton's boastful words.

I expected lower production in the 60s, but I didn't expect it to be less than 100,000 tons a year.

By the late 80s, our annual consumption will surpass 1 million tons, and by the late 90s, it'll exceed 3 million tons annually.

"90,000 tons? How much is naphtha per ton?"

"Naphtha costs 20 dollars per ton. The annual purchase cost is 1.8 million dollars. It's not a small scale."

"Wow? Is naphtha that cheap? 20 dollars per ton?"

In the 21st century, naphtha prices soared to 1000 dollars per ton, making plastic as valuable as gold. But only 20 dollars?

Even considering inflation, it's too cheap.

I realized the oil shock hadn't happened yet.

It was a time when crude oil prices were dirt cheap.

Acquiring the old factory for free and getting preemptive rights to cheap naphtha is already a successful contract!

Though my heart pounded, I maintained a calm facade.

"If you agree to the naphtha price, let's sign the contract."

Misinterpreting my astonished expression as a reaction to the cheap price, Malton hastened the contract.