Methanol-to-olefins will become the market standard

Thread Content

Methanol-to-olefins to become the market standard Author/Source: Jin Yuhao, Ren Wenpo, China National Petroleum and Petrochemical Research Institute Date: 2017-02-17 Clicks: 14 Abstract: Once international crude oil prices recover to above $80 per barrel in the future, China’s methanol-to-olefins process will have a significant cost advantage, thereby posing a strong challenge to the traditional naphtha-based olefins production method. Olefins (ethylene, propylene) are important chemical raw materials. China’s demand for olefins is increasing year by year, with the equivalent deficit continuing to grow. In 2015, China’s total demand for olefins reached 68 million tons per year, while domestic production was only 38 million tons per year; the gap in the market had to be filled through substantial imports from abroad. With the rise of coal chemical industry in China in recent years, a new olefin production process – methanol-to-olefins (MTO) – has been introduced, providing more options for olefin supply in the country. The main source of raw material for methanol-to-olefins production in our country is purchased methanol, and this article focuses on the current status of the methanol-to-olefins industry (using purchased methanol) in our country as well as its impacts. The scale of the industry is closely related to profit margins. At present, the main routes for olefin supply in China include naphtha steam cracking, propane dehydrogenation, coal-based olefins, and olefins produced from purchased methanol. Since 2011, methanol-to-olefins plants have been continuously planned and put into operation in our country. As of March 2016, 13 methanol-to-olefins plants had been built and put into operation in China, with a total production capacity of 3.39 million tons per year. It is estimated that by 2020, China’s methanol-to-olefins production capacity will reach 5.12 million tons per year. Olefin prices are closely linked to international crude oil prices. After June 2014, international crude oil prices plummeted, and olefin prices followed this trend by dropping as well. From a full-cost perspective, methanol-to-olefins has no advantage over other process routes; the profit margin on ethylene production is slim, while propylene production even results in losses. Since the sharp drop in oil prices, some facilities in our country have ceased operations, while most of those scheduled to come online are still in operation. Considering only manufacturing costs, in 2016 China’s average import price for methanol was 220 dollars per ton, while the price of ethylene was 1,054 dollars per ton and that of propylene was 702 dollars per ton. Approximately 3 tons of raw material methanol are required to produce 1 ton of olefins, and there is still a profit margin after deducting labor costs. At present, there is sufficient market demand for olefin products in our country; as long as there is a profit margin in the methanol-to-olefins process, companies will continue to use this method to produce olefins. During periods of high oil prices, affected by crude oil costs, the price advantage of the naphtha cracking route gradually diminishes. When international crude oil prices exceed $80 per barrel, methanol-to-olefins becomes cheaper than naphtha cracking, and the profit margin expands as crude oil prices rise. As a non-renewable resource in the world, it’s only a matter of time before oil prices rise again. According to IHS data, international crude oil prices are set to return to the $80 per barrel level in 2020. By then, methanol-based olefin production will be more competitive in the market than naphtha-based olefin production. The impact of methanol-to-olefins in China on upstream industries: The development of the methanol-to-olefins industry has led to a significant increase in China’s demand for methanol. Conventional derivatives, olefin production from methanol, and fuels are the areas of methanol consumption. In 2010, China did not have a demand for methanol due to methanol-to-olefins production; during the 12th Five-Year Plan period, methanol-to-olefins plants were gradually planned and put into operation in China. Over the next five years, methanol-to-olefins may become the main driver of growth in China’s methanol demand. It is estimated that by 2020, the methanol-to-olefins process will require nearly 29 million tons of methanol per year, accounting for 31% of global methanol consumption. China’s large-scale imports of methanol have also altered the global methanol trade landscape. Between 2010 and 2015, new methanol production capacity added in North America exceeded 4 million tons per year, bringing the total capacity to 5.7 million tons per year. In 2015, North America’s methanol demand was 8 million tons per year, and about half of the shortfall in methanol supply had to be met through imports from South America. It is expected that by 2020, methanol production capacity in North America will increase to 15 million tons per year. As new projects come online one after another, methanol supply in North America will exceed demand in 2019, making the region a net exporter of methanol. Beyond cost advantages, what is more important is that the methanol-to-olefins plants in Northeast Asia, particularly along China’s coast, provide a vast market for U.S. methanol exports. At present, the main source of methanol imports for our country is the Middle East, accounting for over 80% of the total imports. As the trade role of North America changes, methanol exports from South America will gradually lose their market share. A large amount of methanol from both North and South America will be sent to Asia, particularly the coastal areas of China, to serve as raw material for methanol-to-olefins plants. In 2014, the share of methanol imports from the Middle East in China’s total imports began to show a downward trend. In 2020, North America will export over 6.2 million tons per year of methanol to Asia, while South America will export 5 million tons per year to Asia as well. This will further reduce China’s demand for methanol imported from the Middle East, thereby altering the global pattern of methanol trade. The future outlook for the industry is positive. At present, international crude oil prices are still fluctuating at low levels. According to IHS, oil prices could return to $80 per barrel by 2020, but until then they will remain low for some time. Therefore, during the short period when international oil prices remain low, methanol-based olefin production in China does not have a significant profit advantage over traditional naphtha-based olefin production, and the economic benefits are limited. Plants that have not yet been put into operation will slow down their commissioning process, while those that are already in operation will seek to reduce olefin production costs through measures such as energy savings and consumption reduction. Once international crude oil prices recover to above $80 per barrel in the future, methanol-to-olefins production in our country will enjoy a significant cost advantage, thereby posing a strong challenge to the traditional naphtha-based olefins production method. In the long term, methanol-to-olefins may become the main trend in the development of China’s olefins market in the future. Considering China’s current demand for olefins and the supply situation in foreign methanol markets for the methanol-to-olefins plants in China, it is expected that the capacity of such plants will continue to increase in the future. They will compete alongside traditional naphtha-based olefins production and propane dehydrogenation processes. As a result, large amounts of methanol from the international market will flow into China. In the future, China’s methanol-to-olefins production process is bound to expand into overseas markets, such as regions with low methanol prices in North America, South America, and the Middle East, in order to establish a methanol-to-olefins industry chain and capture market share abroad.