China’s benchmark in oil refining and petrochemicals is set to emerge, with four private PTA companies poised to join the ranks of global chemical industry leaders

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In China’s PTA-polyester industrial chain, there is a severe oversupply of PTA downstream: PTA is an important intermediate product linking the petrochemical and chemical fiber industries. PTA stands for Pure Terephthalic Acid, and it is the key raw material used in the synthesis of polyesters. In China, the production capacity for PTA, which is part of the downstream segment of the entire PTA polyester industry chain, increased from 3 million tons in 2000 to 49 million tons by 2016. This represents over 70% of the world’s total production capacity, and such capacity has already exceeded the demand of the downstream markets. This directly led to a continuous decline in the prices of PTA products after 2013, resulting in a significant reduction in profitability. 　　Affected by the oversupply of PTA, the average operating rate of PTA plants in 2015 was merely 65%. The previous situation of PTA supply falling short of demand gave way to an overcapacity scenario, pushing the industry into a period of significant restructuring. Following production halts at major manufacturers and measures taken to halt the commissioning of new PTA production capacity, the industry’s concentration level continued to rise. Subsequently, the operating rate of downstream industries rebounded to 80%–85% after 2017. The top three domestic companies, Yisheng Petrochemical, Hengli Petrochemical, and Xianglu Petrochemical, account for 35%, 17%, and 12% of the total production capacity respectively, resulting in a combined share of 64% – indicating a clear oligopolistic structure. Yisheng Petrochemical, jointly controlled by Rongsheng Petrochemical and Hengyi Group, has now become the world’s largest PTA producer, commanding a market share of up to 40%. Following supply-side reforms and a thorough industry restructuring, the concentration level of China’s PTA industry chain has increased, showing a trend of recovery. 　　 　　 　　In China’s PTA polyester industry chain, the upstream xylene (PX) segment relies heavily on imports, and this PX segment accounts for the largest share of profits in the entire industry chain. 　　The scientific name of PX is paraxylene. Industrially, it is primarily used in the production of PTA; it is a key raw material for manufacturing PTA. Currently, Asia has become the global hub for PX supply and demand. In 2015, global PX production reached 37 million tons, with an average annual capacity utilization rate of approximately 79%. In 2017, China’s demand for PX alone amounted to 22.07 million tons. This applies to products within the PX-PTA-polyester industrial chain. When downstream production capacity is in a state of severe overcapacity, the profits of downstream enterprises are significantly squeezed. Nevertheless, PX will remain the most profitable link in the industrial chain. The price differential between p-xylene (PX) and naphtha has remained at $350–450 per ton, resulting in substantial profits. 85% of global demand is concentrated in Asia. With the rapid development of China’s textile industry, as well as the swift expansion of polyester production at the downstream level and PTA production at the intermediate level, demand for xylene in China has increased significantly. The annual compound growth rate from 2010 to 2016 was over 15%, with China accounting for 56% of the global total demand for PX. 　　 　　Due to the highly pungent odor associated with PX projects (which necessitate construction at sea), there have been persistent misperceptions regarding the environmental impact of such projects among the public and in media discussions. Especially after the explosion at the Tenglong Aromatics PX project, the general public developed a strong aversion toward PX factories, believing that PX products are highly polluting and toxic. In cities such as Kunming, Chengdu, Jiujiang, and Maoming, protests against PX projects took place, leading to the suspension of related projects ； On the other hand, in our country, crude oil quotas have long been under the control of the three major oil companies; private enterprises are at a disadvantage in terms of raw material supply. Moreover, the entry barriers in this industry are high and the approval processes are strict, which restricts the expansion of PX production capacity in our country. The development of PX in our country has been slow; while domestic capacity expansion is restricted, neighboring countries such as South Korea and Japan are accelerating the construction of p-xylene plants, targeting the huge downstream market demand in our country. 70% of our country’s imports come from South Korea and Japan. This segment of the industrial chain, where profits are most concentrated, is controlled by Japan and South Korea. Out of the six refineries with a capacity of 30 million tons each, three are owned by South Korea alone. The new facilities put into operation by major chemical companies such as Samsung Total, South Korea’s SK, and SK/JX have a combined production capacity of 11.4 million tons, accounting for 26% of Asia’s total capacity. In 2015, South Korea’s exports of PX to China amounted to 5.358 million tons, accounting for 92.2% of its total PX exports. p-Xylene, pure benzene, styrene, ethylene, and propylene are all at or above 50%. China’s reliance on South Korea for high-end petrochemical products is evident, causing great difficulties for domestic downstream companies. The 56% annual import dependence on p-xylene (PX) poses a serious threat to the security of China’s textile industry chain, while the polyester industry chain is related to people’s livelihoods. 　　 　　 　　 　　**The will to advance high-end, world-class private aromatic hydrocarbon refining projects centered on PX led to such initiatives. Given China’s extremely unfavorable situation in the polyester PTA industry chain, in November 2014, the **National Development and Reform Commission issued the \"2014 State Council’s Catalogue of Approved Investment Projects,\" which adjusted the policies regarding the approval of new PX projects by delegating that authority to provincial levels. In July 2015, the Ministry of Industry and Information Technology and the Ministry of Environmental Protection jointly formulated and published the \"Specifications for PX Project Construction,\" thereby setting more detailed requirements for the construction of PX projects. The delegation of approval powers and the relaxation of import quotas for crude oil have lowered the barriers for private enterprises to enter the PX industry; PTA manufacturers such as Hengli and Tongkun will all compete in this upstream sector. 　　In August 2016, the General Office of the State Council issued the \"Guiding Opinions on Adjusting the Structure of the Petrochemical Industry, Promoting Transformation, and Improving Efficiency\" (Document No. 57 issued by the General Office), emphasizing the need to optimize the industrial layout as a whole and to advance the development of the seven major petrochemical industrial bases along the coast in an orderly manner; new projects related to oil refining, ethylene production, and aromatics should be introduced into these industrial bases in a systematic way. 　　In October 2016, the Ministry of Industry and Information Technology issued the \"Development Plan for the Petrochemical and Chemical Industries (2016–2020)\\" (Ministry of Industry and Information Technology Regulation No. 318), emphasizing the need to accelerate the development of the petrochemical aromatics industry in accordance with the requirements outlined in the petrochemical industry layout plan. The three major oil companies, relying on their refining facilities, currently account for 60% of China’s production capacity; however, the production facilities owned by their subsidiaries were built relatively early, have relatively outdated equipment, and operate on a smaller scale. Moreover, when oil prices were at 80 yuan per barrel, the three major oil companies entered into numerous long-term contracts at those high prices, which left state-owned enterprises unable to fund the implementation of costly, world-class petrochemical projects. Therefore, in terms of future production plans, private enterprises, with their larger scale and better technology, are far ahead of the three major oil companies; China’s domestic PX industry is about to undergo profound changes. 　　Private enterprises, represented by private giants in the polyester filament-PTA sector, are increasing their investments and entering the refining and chemical industry on a large scale. PTA giants are currently investing over 300 billion to build four new integrated refining and chemical plants, which will add 84 million tons per year of production capacity to the industry by 2020. A significant increase in domestic production capacity is expected around 2019. The continuously expanding production capacity of private enterprises has effectively enabled them to compete with CNPC, Sinopec, and other state-owned refineries. 　　By the end of 2016, all three major private petrochemical projects in China were put into operation, including Zhejiang Petrochemical’s Phase 1 with a capacity of 20 million tons, and Phase 2 also with a capacity of 20 million tons (with Rongsheng holding 50%, Tongkun 20%, Juhua Group 20%, and Zhoushan Ocean 9%) ； Hengli Changxing Island: 20 million tons (100% owned by Hengli); Hengyi Brunei Phase 1: 8 million tons, Phase 2: 14 million tons (70% owned by Hengyi, 30% owned by Brunei) ； When the first phase of production capacity becomes available by the end of 2018, it is conservatively estimated that the performance of all four private companies will double compared to their current levels. 　　Current performance of the four leading private petrochemical companies: The net profit range for Zhejiang Petrochemical’s integrated petrochemical project is 10.2 – 16 billion yuan; for Hengli Dalian’s integrated petrochemical project, it is 5.3 – 11.6 billion yuan. The profit range for Hengyi Brunei’s integrated petrochemical project is 2.4 – 4.3 billion yuan. Due to the high investment requirements and large construction costs associated with such integrated projects, all of which amount to tens of billions of yuan, the total investment costs for Hengyi Brunei’s first phase, Hengli Dalian’s project, and Zhejiang Petrochemical’s first phase are approximately 22.4 billion yuan, 59 billion yuan, and 90 billion yuan respectively. In terms of the total investment per ton of crude oil processed, Zhejiang Petrochemical has a much higher level of investment than Hengli Dalian and Hengyi Brunei. This is because Zhejiang Petrochemical processes heavy oil, which requires more complex refining facilities and thus larger investments. In addition, Zhejiang Petrochemical is equipped with various chemical processing units for producing olefins, aromatics, polyolefins, ethylene glycol, polycarbonates, phenol, etc., focusing more on the deep processing of chemical products. Hengyi and Hengli currently only have facilities related to refining and aromatics production; they plan to add ethylene production facilities in the future. At present, Zhejiang Petrochemical’s integrated refining and chemical processing project represents the highest proportion of chemical-related activities among private enterprises, making it undoubtedly the global leader in the aromatics sector and a benchmark for the industry. Due to space constraints, this article will focus solely on an in-depth analysis of the industrial and investment value of Zhejiang Petrochemical’s project. 　　As the leader among private petrochemical projects and the king of Chinese petrochemical projects, Zhejiang Petrochemical was established. It ranks first in China and among the top five in the world. Currently, there are 67 aromatic hydrocarbon production units in Asia; among them, only 8 have a production capacity of over 1 million tons, accounting for 12%, while 28 units have a capacity of less than 500,000 tons, accounting for 42%. Among the 17 plants in China, 5 have a production capacity of over 1 million tons, accounting for 30%; only Tenglong Aromatics and CIC Petrochemicals have a capacity of over 1.5 million tons, and these are the only two such plants in entire Asia. In terms of the production capacity per unit facility, domestic aromatic compounds plants have an advantage in terms of scale, and they offer lower costs compared to foreign plants under the same process conditions. In the PTA polyester industry chain, at the same scale, the longer the production process, the higher the degree of integration, the better the product structure, and the stronger the profitability. 　　 　　Within the next two years, it is estimated that approximately 11.54 million tons per year of new PX production capacity will come online. These include Zhejiang Petrochemical’s 4 million tons per year aromatic hydrocarbons project and Hengli Petrochemical’s 4.34 million tons per year aromatic hydrocarbons project. If the new facility can be put into operation successfully, by the end of 2018, together with the existing domestic production capacity of 13.88 million tons, the total capacity is expected to reach 25.42 million tons. Among them, Zhejiang Petrochemical stands out as a benchmark in China due to its large production capacity, extensive industrial chain, and highly sophisticated equipment as well as skilled personnel; even on a global scale, it ranks among the top. 　　Zhejiang Petrochemical is the first integrated refining and chemical project in China to be planned on a one-time basis with a capacity of 40 million tons per year for oil refining. The PX production capacity has reached tens of millions of tons. Currently, there are only three refineries in the world whose capacity at a single site exceeds 40 million tons. Generally speaking, a refinery must have a capacity of 30 million tons in order to be able to handle both olefins and aromatics and to achieve comprehensive utilization of these compounds. Only refining complexes with a capacity of over 20 million tons in the future will possess international competitiveness. To date, there is no refinery in China whose production capacity at a single site exceeds 30 million tons. **The Guidelines for the Development of the Petrochemical Industry during the 12th Five-Year Plan period merely aim to help China establish several oil refining production bases with a capacity of 20 million tons each, so that the average scale of oil refining enterprises reaches over 7 million tons. The Zhejiang Petrochemical Project features larger-scale facilities, with its main units reaching large/extra-large economic scales that are at the world’s leading level; it is almost certain that Zhejiang Petrochemical will become a benchmark for Chinese refining and petrochemical enterprises. 　　The total capacity of the Zhejiang Petrochemical project is 40 million tons per year for refining; it has a production capacity of 10.4 million tons for PX and 2.8 million tons for ethylene. The company is jointly owned by four parties: Rongsheng Petrochemical (51% stake), Tongkun Group (20% stake), Juhua Group (20% stake), and Zhoushan Ocean (9% stake). Maximize the production of aromatics, ethylene, and downstream products through further processing, while significantly reducing the scale of refined oil production in order to address the reliance on imported high-end petrochemical products. Upon completion, the project will enable the company to effectively meet its own demand for PTA raw materials and significantly reduce the domestic supply gap for aromatics. Meanwhile, the Zhejiang Petrochemical project will help the company enter the downstream deep-processing sector for aromatics and olefins, thereby promoting the upgrading of related domestic industries. 　　The products produced in Zhejiang Petrochemical’s chemical industrial park include ethylene glycol, polyethylene, polypropylene, styrene, polycarbonate, acrylonitrile, MMA, etc. These are all products with a relatively high degree of dependence on imports. In 2016, the total imports of aromatics, olefins, and their downstream products reached nearly 42 million tons, with a total import value of up to $43 billion—equivalent to nearly 300 billion RMB. There is tremendous potential for import substitution in this sector. 　　 　　The project is currently in the preparation stage; the equipment for Phase 1 has been purchased, and construction work is underway. The entire process is expected to be completed by the end of 2018. According to the company’s environmental impact assessment documents, the two phases of the project are expected to generate sales revenue of 196 billion yuan (97.2 billion yuan for phase 1 and 98.8 billion yuan for phase 2), with after-tax profits of 20.3 billion yuan (9.7 billion yuan for phase 1 and 10.6 billion yuan for phase 2). Comparing Shanghai Petrochemical and Zhenhai Refining & Chemical, considering scale, processes, and product structure. We believe this estimate is rather conservative; Zhejiang Petrochemical’s actual economic benefits are likely to far exceed those of any other petrochemical project in China. 　　The combined future refining capacity of Rongsheng’s Zhoushan Zhejiang Petrochemical and Ningbo CICC dual bases is expected to reach 60 million tons. Such a large-scale refining capacity will provide the necessary raw materials for the long-term downstream processing plans of the Zhoushan Green Petrochemical Base. It will become a world-class, top-tier petrochemical hub, on par with those in the Gulf of Mexico in the United States, the three bays and one sea in Japan, Ulsan in South Korea, and Jurong in Singapore. 　　 　　Hot Topics Broadcast
Conference speakers and their topics (in no particular order)
Mr. Zhang Guosheng, former Deputy Chief Engineer at the Economic and Technological Research Institute of Sinopec, and Deputy Secretary-General of the China Petroleum and Petrochemical Engineering Research Association
Topic: To be determined
Maoming Branch of Sinopec Corporation
Topic: To be determined
Beijing Qingyuan Jiehua Membrane Technology Co., Ltd.
Topic: Advantages of using membrane technology for VOC control
Guangzhou Branch of Sinopec Corporation
Topic: To be determined
Beijing Sanju Environmental Protection New Materials Co., Ltd.
Topic: Development and industrial application of MCT super fluidized-bed technology
Fushun Research Institute of Petroleum and Petrochemicals, Sinopec
Topic: To be determined
Luoyang Kaimeisheng Petrochemical Equipment Co., Ltd.
Topic: Advanced experimental equipment is essential for achieving rapid scientific research results
Shandong Huifeng Petrochemical Group Co., Ltd.
Topic: Solid acid alkylation technology
Consov Tech (Beijing) Co., Ltd.
Topic: Application of organic amine-based technologies in the petrochemical industry
Fives Pilard Combustion Systems Equipment (Beijing) Co., Ltd.
Topic: Application of low-nitrogen combustion technology in the oil and petrochemical industries
Jiangsu Yicheng Barrier Technology Co., Ltd.
Topic: Yicheng’s environmental-friendly coating solutions – helping to keep the world free from pollution
Liaoning Runfeng Technology Group Co., Ltd.
Topic: Synergistic treatment of high- and low-concentration VOCs, as well as energy recovery from flare gas
Research Institute of Petroleum Processing, Sinopec Corporation
Topic: Catalytic cracking technologies facilitating the transformation of petroleum refining processes
Shandong Pulinlong Pressure Vessel Co., Ltd.
Topic: Novel local rapid heaters for oil tanks
China National Petroleum Northeast Refining & Chemical Engineering Co., Ltd.
Topic: To be determined
Tianjin Pule Chemical Technology Co., Ltd.
Topic: Application of Countercurrent Tray Separation Technology (CTST) in reactive distillation and divided-wall distillation
Beijing Annegy Energy Engineering Technology Co., Ltd.
Topic: Exploring pathways for upgrading the quality of National VI gasoline and diesel
Chongqing Huanji Low-Carbon Energy Saving Technology Development Co., Ltd.
Topic: Technical application of an online scale removal and heat transfer enhancement system for shell-and-tube heat exchangers
Changzhou Lanbo Purification Technology Co., Ltd.
Topic: Experts in methanol-to-hydrogen production

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Photos from the 2015 National Symposium on Oil Product Quality Upgrading and Heavy Oil Deep Processing
Photos from the 2nd National Symposium on Oil Product Quality Upgrading and Heavy Oil Deep Processing in 2016

A benchmark for China’s petroleum refining industry is set to emerge; four private PTA companies are poised to become global leaders in the chemical sector