Analysis of the future trends in China’s ethylene industry (including information on projects to come online by 2020 and the proportion of various companies)!

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The world’s ethylene industry has a history of over 90 years. In 2014, the world’s ethylene production capacity was 153 million tons, with 271 ethylene production facilities in operation; the average capacity per facility was 565,000 tons per year, representing a 4.3% increase compared to the previous year. Globally, there are over 40 pyrolysis units that have been built or are under construction, with a production capacity of more than 1 million tons per year each. The United States is the world’s largest producer of ethylene; in 2014 its production capacity was 28.426 million tons, accounting for 18.5% of the world’s total capacity. China ranks second, with a share of 13.4% of the world’s total capacity. Over the past few years, both the production capacity and demand for ethylene in China have shown an upward trend. Production capacity increased from 15.365 million tons in 2011 to 21.375 million tons in 2015, with an average annual growth rate of 6.8%; output rose from 15.536 million tons in 2011 to 17.303 million tons in 2015, at an average annual growth rate of 2.2%; equivalent demand increased from 31.324 million tons in 2011 to 37.330 million tons in 2015, with an average annual growth rate of 3.6%. 1. Lower oil prices offer greater room for optimization of petroleum-based ethylene feedstocks. The technology for producing ethylene via steam cracking can utilize a wide range of feedstocks, including ethane, light hydrocarbons, liquefied gas, naphtha, hydrogenation tail oils, and diesel; the cost of these feedstocks accounts for 60% to 80% of the total cost. The production cost of ethylene varies significantly depending on the raw materials used. However, when taking into account the value of ethylene and cracking by-products, the competitive gap between naphtha cracking units and ethane cracking units narrows at current low crude oil prices. The production cost of ethylene in naphtha cracking units is approximately 4,500 yuan per ton. In North America and the Middle East, the production costs of ethylene in ethane cracking units are around 1,500 yuan per ton and 1,000 yuan per ton respectively. Units that use ethane as a raw material in the Middle East and North America still enjoy a significant competitive advantage in terms of ethylene production costs. Under low oil prices, the development of alternative energy sources and the production of olefins through non-petroleum routes such as coal and methanol will be hindered. In contrast, there is greater room for optimization in naphtha-based olefin production in terms of reducing raw material costs, diversifying sources, and integrating refining processes, thereby enhancing the competitiveness of the petrochemical industry. For integrated enterprises with capacities of tens of millions of tons in oil refining and millions of tons in ethylene production, due to the reduction in the diesel-to-gasoline ratio and the slowdown in the growth rate of refined oil consumption, oil refining will shift from producing large quantities of diesel and gasoline to manufacturing more high-octane gasoline, aviation kerosene, clean diesel, as well as low-cost chemical raw materials. This trend of change is long-term; during the 13th Five-Year Plan period, the pace of structural adjustment will accelerate, with more low-cost, high-quality raw materials entering ethylene cracking units. The advantage of the diversity of steam cracking by-products should be fully utilized to ensure the comprehensive utilization of C4, C5 compounds, and aromatics. The downstream supporting products should fully exhibit differentiation, high-end features, and high added value, in order to avoid exacerbating the surplus of generic products. 2. Coal-based olefins remain profitable at low oil prices. The cost of coal-based olefins is not closely related to changes in oil prices, whereas the cost of olefins produced from naphtha is highly sensitive to oil price fluctuations. At oil prices ranging from $35 to $55 per barrel, oil-based olefins have a clear cost advantage and greater profit potential, while coal-based olefins can also achieve break-even points. At oil prices between $65 and $75 per barrel, the costs of coal-based olefins are comparable to those of olefins produced from naphtha, resulting in decent profit levels. When oil prices exceed $90 per barrel, coal-based olefins yield good profits, while those produced from naphtha face high costs and low profits. As oil prices rise, the profitability of coal-based olefins increases. In particular, coal-based olefins can easily meet the requirement of an internal rate of return of over 12% for newly built facilities at an oil price of $85 per barrel, boasting strong profitability. In the cost structure of olefin production from methanol, the cost of methanol as a raw material accounts for over 75%; changes in this cost are closely linked to fluctuations in the price of imported methanol. An increase in the price of imported methanol leads to an increase in the costs associated with olefin production from methanol, leaving very little room for profit. Under the current low oil prices, the cost of producing olefins from methanol is significantly higher than that of producing olefins from naphtha, resulting in considerable pressure. 3. The capital intensity of coal-based olefin production is high, and water resources as well as carbon emissions will affect its further development. Coal chemical projects require substantial upfront investment, with the cost associated with gasification units accounting for as much as 50% of that total investment. Coal-based integrated plants aim to produce PE/PP as their target products, and mostly employ the second-generation MTO technology for increasing the production of ethylene and propylene. The typical scale is 1.8 million tons per year of methanol produced from coal, resulting in 680,000 tons per year of polyolefins, with an investment of around 21 billion yuan. Due to the high initial investment and difficulties in financing for coal chemical projects, especially since private enterprises have relatively weaker financial capabilities and face higher loan interest rates, resulting in higher financing costs compared to state-owned enterprises, many such projects owned by private enterprises encounter problems such as the cancellation of planned projects or delays in construction progress due to tight capital chains. Methanol-to-olefins processes require no coal gasification or methanol production facilities, so their initial investment is **lower than that of coal-to-olefins processes. The investment for an integrated facility that uses purchased methanol to produce 600,000 tons per year of olefins and polyolefins is around 9 billion yuan. Olefins are produced from coal as a raw material; the domestic supply of this coal meets the demand, and its price is largely unaffected by fluctuations in international oil prices. However, producing olefins from coal faces multiple pressures, including low oil prices, water resources, and carbon emissions. In terms of their composition, coal has a hydrogen/carbon atom ratio of 0.2 to 1.0, whereas oil has a hydrogen/carbon atom ratio of 1.6 to 2.0. Due to its high carbon content and low hydrogen content, coal contains a large amount of carbon and little hydrogen; therefore, the process of producing petrochemical products from coal necessarily involves adjusting the hydrogen/carbon atom ratio. The only scalable and cost-effective way to obtain such products is through reaction with water, which inevitably leads to the emission of large amounts of CO2, consumes substantial amounts of water, and generates significant amounts of wastewater. In contrast, oil has a higher hydrogen content and lower carbon content, so less CO2 is emitted during its conversion (or direct use). Furthermore, the carbon tax has a significant impact on coal chemical projects; currently, the cost calculations for coal-to-olefins plants do not take carbon trading taxes into account. By calculating the carbon dioxide emissions per unit of olefin based on the energy efficiency standards required in the **model project plans**, the carbon tax for olefin produced from coal amounts to approximately 100 yuan per ton. If such a carbon tax is imposed, the competitiveness of coal-based chemical projects will **decrease**. 4. Achieving high performance in products and increasing their added value is key to enhancing the competitiveness of olefin products. By using naphtha steam cracking technology, a double olefin yield of around 50% can be obtained; the by-products include butadiene, benzene, toluene, xylene, and C5 compounds, resulting in a diverse range of products. It is necessary to make full use of the advantages of producing copolymer grades, and to develop synthetic resin products such as pipe materials, automotive materials, medical materials, and high-performance membrane materials that meet market demands. This will help to break away from the homogeneous competition associated with the production of conventional homopolymer products, thereby achieving higher performance and added value in products, improving quality and efficiency, and strengthening market competitiveness. Ethylene is produced using ethane steam cracking technology, with an yield of around 80%; the yields of propylene and other products are lower, the product range is limited, and the downstream processing options are limited as well, making it difficult to achieve product differentiation. Compared with naphtha steam cracking technology, coal-based olefins (including MTO) achieve a diolefin yield of about 75%, with fewer types and quantities of by-products. The main by-product of coal-based olefins (including MTO) is mixed C4, of which butylene accounts for about 93%; the contents of butane and butadiene are very low. Therefore, the utilization methods for this C4 are completely different from those used in naphtha steam cracking technology, with ethylene and propylene being produced primarily through OCU/OCP technologies. The yield of C4 compounds from naphtha to olefins is approximately 15%, with butadiene being the main component; butadiene products are obtained through butadiene extraction processes. 5. A new pattern will emerge in China’s polyolefin market. The cost of olefins produced from coal is less correlated with fluctuations in oil prices; even when oil prices are low, the production capacity for olefins from coal continues to expand. As of March 2016, China’s production capacity for olefins derived from coal (including MTO) had reached 8.39 million tons, accounting for 18.7% of the country’s total olefin production capacity. Currently, there is an additional 8.84 million tons per year of production capacity under construction (all of which will be completed around 2020). With some projects still in the planning stage set to start construction soon, it is estimated that by the end of 2016, the total production capacity will reach 9.76 million tons per year. By 2020, the production capacity from coal-based methods will account for more than 20% of China’s total olefin production capacity, and this figure will rise to 28% by 2025. At that time, China’s olefin market will be divided among three main sources: olefins produced from oil (including propylene produced via propane dehydrogenation), olefins produced from coal, and imported olefins. At the same time, coal-based olefin manufacturers are also striving to increase the variety and quantity of downstream polyolefin product grades. For example, Zhongtian Hechuang’s polyolefin plants include a 120,000-ton/year batch-process high-pressure polyethylene facility (capable of producing EVA with a high VA content) and a 250,000-ton/year tubular-process high-pressure polyethylene facility. Their market competitiveness will gradually become evident; therefore, both in terms of capacity expansion and product structure, coal-based olefins will pose an increasingly significant threat to petroleum-based olefin companies, which deserves close attention from these petroleum firms. 6. It is recommended that, under the current circumstances in China’s economy—characterized by a new normal, low international oil prices, and increasingly fierce competition in the global petrochemical industry—ethylene producers in China face both good opportunities and severe challenges. The author suggests that efforts should be made in the following areas. (1) The development of ethylene production through naphtha steam cracking should aim at achieving integration of refining and chemical processing, using lighter and more diverse feedstocks for cracking, concentrating production facilities in specific parks or bases, and developing differentiated and high-end downstream products. It is also necessary to make full use of the diversity of by-products generated during steam cracking, as well as to comprehensively utilize butenes, pentenes, and aromatics in order to reduce production costs and enhance competitiveness. (2) Under low oil prices, the coal-based olefins industry needs to abandon its previous model of aggressive scale expansion and adopt a strategy of refined development. It should innovate in terms of construction and operation methods, refine the processes for processing raw materials, improve resource utilization rates, and reduce costs. At the same time, it must pay attention to aspects such as environmental protection, energy conservation, emission reduction, and water conservation in order to meet the more stringent environmental requirements of the future. (3) The development of methanol-to-olefins production depends primarily on a stable and inexpensive source of methanol. It is possible to consider setting up projects for converting natural gas into methanol in the Middle East, to use this methanol as a raw material for olefin production within the country. Alternatively, in line with the Belt and Road Initiative, such projects could be established in Central Asia, thereby reducing raw material costs. At the same time, it is advisable to expand the methanol-to-olefins industry chain toward fine chemical products in order to increase the added value of these products. (4) Importing ethane for ethylene production could be considered, but it is necessary to first establish a stable, continuous supply of ethane at reasonable prices, in order to avoid disruptions in production due to a lack of raw material and to prevent high operating costs resulting from soaring raw material prices. (5) Continue to research and develop methane-to-ethylene and syngas-to-ethylene technologies. Increase investment in research and development for methane-to-ethylene and syngas-to-ethylene processes, strive to achieve breakthroughs in core technologies such as catalysts and resolve engineering challenges, so as to realize industrial application at an early date. 7. Share of Chinese ethylene producers Project 2015 2016 2017 Capacity (10,000 tons/year) Percentage of total capacity (%) Capacity (10,000 tons/year) Percentage of total capacity (%) Capacity (10,000 tons/year) Percentage of total capacity (%) Sinopec 108,449.3 108,446.9 108,444.1 CNPC 59,727.1 59,425.8 59,724.3 CNOOC 9,543.9 9,541.1 9,579.9 Others 4,245.5 9.353 4,523.157 9.5236 Total 220,051 100,231 100,245,51 100 Note: The capacities of Sinopec, CNPC, and CNOOC include capacities owned by foreign investors. (Source of statistical data: CNPC Economic Research Institute) 8. Domestic ethylene projects scheduled to come online by 2020: Raw material, Unit name, Province, Participants, Additional capacity (10,000 tons/year), Construction progress. Petroleum-based: Hengli Petrochemical, Liaoning – Hengli, 150; came online in 2018. Yunnan Petrochemical, Yunnan – CNPC, 100; under construction. Shenghong Petrochemical, Jiangsu – Shenghong, 110; under construction. Sino-foreign joint venture: Zhongke Petrochemical, Guangdong – CNPC, Kuwait, etc., 80; came online in 2019. Zhoushan Petrochemical (Phase I), Zhejiang – Rongsheng, Juhua, etc., 140; under construction. Quanzhou Petrochemical (renovation and expansion), Fujian – Sinochem, 100; under construction. Total: 680. Coal-based: Silbang Petrochemical, Jiangsu – Shenghong, 60; under construction. Zhongan United, Anhui – CNPC, Wanbei Coal and Electricity, 35; under construction. CNPC Guizhou Coal-to-olefins, Guizhou – CNPC, 30; under construction. Jilin Cornell Methanol-to-olefins, Jilin – Cornell, 10; under construction. Tongmei Coal-to-olefins, Shanxi – Datong Coal Mine, 30; under construction. Others: //90/. Total: 255. Ethane-based: Satelite Petrochemical, 4 million tons of olefins for comprehensive utilization; Jiangsu Satellite, 1.25 million tons; construction started in 2018. Total: 1,060. (Source of statistical data: CNPC Economic Research Institute)