Petroleum industry: In 2018, these industries will become the \"stars\"”

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In 2017, the prosperity of the petrochemical industry, represented by large-scale refining and chemical projects, remained at an extremely high level. Looking ahead to 2018, although there is a certain degree of structural surplus in domestic refined oil products, the supply and demand situation for higher-grade oils remains favorable as these oils are upgraded to National VI standard. With the gradual increase in production capacity in China, the prosperity of the PX industry is expected to decline, with profits in this industry shifting to the downstream PTA and polyester sectors. As domestic natural gas supply falls short of demand, the profitability of LNG receiving stations is set to be quite high. Ethane cracking projects will continue to attract attention. Refined oil: Strong supply and demand for high-grade oil. At present, although the overall supply of refined oil in China is sufficient, there are significant structural deficiencies. After the nationwide adoption of National V gasoline in our country, the Ministry of Environmental Protection plans to upgrade to National VI within the next two years; it is expected that most cities will enter the National VI era this year. Looking at the composition of China’s refining capacity, catalytic cracking and delayed coking account for an excessive proportion, while the hydrogenation capacity needed to produce high-octane fuels is significantly insufficient. There is no surplus of high-octane fuels; in fact, it is foreseeable that these fuels will become scarce in the future as some companies are unable to upgrade their facilities in a timely manner. Moreover, with the implementation of the policy of \"better quality at higher prices,\" high-quality refined fuels can command higher sales prices, thereby ensuring greater profitability. Polyester industry: Profit structure undergoing changes. From the perspective of PX supply and demand, the current high profits are largely due to a favorable supply situation. The polyester industry chain consists of three stages, from top to bottom, namely PX, PTA, and polyester fiber. In terms of profit distribution within this chain, the profits among these three stages alternate over time. From 2009 to 2011, thanks to the increase in textile and apparel exports, polyester experienced a period of strong growth. From 2010 to 2012, polyester began to decline, while the price gap for PTA widened rapidly due to insufficient production capacity. PTA becomes a profit center. After the expansion of PTA production, starting in 2012, there was an oversupply of PTA capacity while PX capacity was insufficient, causing profits in the industry chain to shift towards PX. In the future, as several large private petrochemical projects come online, the profits in the polyester industry chain will undergo another round of restructuring. The author has compiled the expansion plans for the polyester industry chain up to 2020; among these, the PX segment is experiencing the fastest growth, with an expected capacity increase of 120% by 2020. The expansion rates for PTA and polyester fiber are lower, at 22% and 11% respectively. It is highly likely that profits in the polyester industry chain will shift toward downstream sectors in the future. Natural gas: LNG receiving stations enjoy substantial profits. Driven by the shift from coal to natural gas, China’s natural gas consumption growth this year has far exceeded expectations. Looking ahead to 2018, 148,000 tons more of industrial coal-fired boilers need to be upgraded, which is 3.6 times the amount upgraded in 2017. In the North China region, there are still 27 million households that have not switched from coal to gas for heating, which is 9 times the number of households that were upgraded in 2017. If these upgrades are completed within the next 5 years, it will result in an additional demand of 11.8 billion cubic meters per year. From the supply side, domestic gas production is likely to see little rapid growth in the future. The pipeline imports consist only of the China-Russia East Line, which came online in 2019, and the Central Asia D Line, which was put into operation in 2020. However, given that capacity is being increased gradually, the additional pipeline import supply is also limited. Therefore, the author estimates that an additional 11 million tons of LNG imports will be needed in 2019; with a production capacity of 82 million tons at that time, the utilization rate will reach 88%. This also means that in the future, domestic LNG supply and demand will be able to maintain a reasonable turnover rate even during off-peak periods, while there will be significant supply shortages during peak periods. At that time, the LNG receiving stations, being the biggest bottleneck in the entire industrial chain, will benefit the most. Taking a 3 million-ton (4 billion cubic meters) LNG receiving station as an example, if the long-term contract price is 2,000 yuan per ton, which is 80% of the current average price, the author estimates that the total gross profit for such a station would be 3.2 billion yuan. With an investment amount of 4 billion yuan, both the profitability and the payback period for the project are quite favorable. Ethane cracking: Continuing to capture attention. Since 2011, the biggest star industry in the petrochemical sector has undoubtedly been propane dehydrogenation projects; looking ahead, the next star industry in this sector will surely be ethane cracking projects. The global ethylene industry will remain in a period of strong growth over the next two years, with prices staying high. Ethane prices will be at relatively low levels, and the price difference between the two is expected to remain high. Ethylene is priced on a global basis; during the rise in oil prices in the third quarter of 2017, ethylene prices also surged significantly, showing a stronger trend than those of crude oil, which indicates that supply and demand for ethylene worldwide are extremely tight. In contrast, the capacity additions for ethylene produced from natural gas in North America and from coal in China in recent years have been significantly lower than expected. Among them, the ethylene production projects from ethane in North America are subject to various restrictions such as local labor laws and environmental regulations, resulting in extremely slow construction progress. In 2017, the actual production capacity for ethane cracking in North America was 3.59 million tons, and it is still not possible to be overly optimistic regarding the future development of ethane cracking operations in that region. Therefore, with extremely high global capacity utilization, production progress falling short of expectations, and strong demand, ethylene prices are likely to remain high. From the perspective of the supply of raw material ethane, according to EIA projections, U.S. ethane production is set to increase by 14 million tons per year in 2018 compared to 2017. However, the demand for ethane as a fuel grows very slowly, and the chemical industry is not capable of absorbing such an increase. According to the current plans, the combined increase in demand for ethane from ethane cracking units in regions other than China between 2018 and 2020 will be only 10 million tons per year; even if we take into account the fact that most of the projects planned in China will come online by 2020, the total demand will still be around 16.3 million tons per year. Therefore, it is expected that ethane prices will remain low in the coming years, and ethane cracking will continue to be highly economical.