How to view China’s coal-based ethylene glycol production from a global perspective?

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How to view China’s coal-based ethylene glycol production from a global perspective? Author/Source: Date: 2017-09-08 Clicks: 10 Ethylene glycol is primarily used in the production of polyethylene terephthalate (PET), antifreeze, unsaturated polyester resins (UPR), as well as lubricants, plasticizers, non-ionic surfactants, and more. It has a wide range of applications and also constitutes an important part of the fiber industry (polyester production) supply chain. Currently, there are various production methods for ethylene glycol worldwide. Generally, these can be divided into two categories: those based on ethylene and those based on coal-derived oxalate synthesis. The former can be further subdivided according to the source of ethylene – namely, ethylene produced through naphtha cracking, ethylene produced through ethane cracking (from associated gas in oil fields or shale gas), and ethylene produced from methanol derived from coal. As for the latter method involving coal-based oxalate synthesis, it is currently widely used in China. http://img.yf116.cn/image/img/20170908/927593407955.jpg China imports a large amount of ethylene glycol, resulting in a high degree of dependence on foreign sources. By 2016, China had an EG production capacity of around 8.24 million tons, with a total production volume of 5.28 million tons; of this amount, about 950,000 tons was produced from coal. Importations amounted to 7.57 million tons, resulting in a high import dependence of 59%. http://img.yf116.cn/image/img/20170908/928523413279.jpg The traditional routes for producing ethylene glycol from naphtha and natural gas involve using ethylene as a raw material in two steps: the first step is the oxidation of ethylene to produce ethylene oxide, and the second step is the hydration of ethylene oxide to yield ethylene glycol. Currently, the key technologies related to this process are held by the American company SD, the Anglo-Dutch company Shell, and the American company UCC (which was later acquired by Dow). The raw materials used for industrial ethylene production mainly include naphtha, ethane, propane, LPG, diesel, etc. Currently, ethylene production in the United States and the Middle East relies primarily on light hydrocarbons such as ethane and propane derived from natural gas, while China’s ethylene industry depends mainly on heavy hydrocarbons like liquid naphtha. From an economic perspective regarding the source of ethylene, lighter raw materials yield a higher yield of ethylene. (1) The route of producing ethylene oxide from naphtha followed by the conversion of it to ethylene glycol is the most widely used in industrial applications. This process involves a long sequence of steps, high water consumption; the selectivity of oxidizing ethylene to ethylene oxide is low, resulting in numerous by-products from the hydration of ethylene oxide. The separation and purification processes are complex, and significant energy is required. This process relies entirely on petroleum, so its competitiveness fluctuates with changes in crude oil prices. (2) The route of producing ethylene from ethane, followed by the production of ethylene glycol from ethylene oxide, has strong cost competitiveness. This process involves first producing ethylene through the cracking of ethane, and then generating ethylene glycol via the hydration of ethylene oxide; it is the main method used for producing ethylene glycol in North America and the Middle East. Relying on the cheap raw material ethane, this route offers strong cost competitiveness and is primarily exported to Asian markets such as China. http://img.yf116.cn/image/img/20170908/930343423424.jpg Overall, the route of producing ethylene glycol from naphtha is the most mature and widely used, but it also has significant drawbacks: it relies heavily on petroleum resources, which does not match China’s resource profile of limited oil and gas and abundant coal. http://img.yf116.cn/image/img/20170908/931523431233.jpg http://img.yf116.cn/image/img/20170908/932473436759.jpg Innovative routes for producing ethylene glycol from coal: Ethylene glycol is produced by using coal as a raw material, with syngas being generated through gasification and then used to produce ethylene glycol. There are three main technological approaches for this process: http://img.yf116.cn/image/img/20170908/945163511694.jpg (1) The one-step synthesis route involves using coal gasification to produce syngas (CO, H2), which is then used directly to synthesize ethylene glycol in one step. The key to this technology lies in the selection of catalysts; currently, companies such as Union Carbon in the United States and Sumitomo in Japan are working on developing this technology, but industrialization will likely take a considerable amount of time. (2) The coal-to-methanol route involves producing syngas from coal, which is then used to synthesize methanol; ethylene is obtained through the Methanol to Olefins (MTO) process, and ethylene is subsequently used to produce ethylene glycol via the traditional petroleum route. For example, in Ningbo Fude Energy Company’s project to produce olefins from methanol at a capacity of 1.8 million tons per year, the 300,000 tons of ethylene generated were used to produce 500,000 tons of ethylene glycol; this project was successfully put into operation in 2013. (3) The oxalate route: after syngas is produced from coal as the raw material, CO and H2 are separated and purified; CO is then used in a catalytic coupling reaction to form oxalates, which are subsequently subjected to a hydrogenation reaction with H2 to produce ethylene glycol. Additionally, this method can yield other economically valuable by-products such as oxalic acid, oxamide, and dimethyl carbonate. This process features a short flow path, few intermediate steps, and low costs, making it the coal-to-ethylene glycol technology that receives the most attention in China. In China, entities that have announced they possess this technology include the Fujian Institute of Physics and Materials Science, Danhua Group, and the Henan Coal Industry Consortium; the Ube Industries and Donghua Engineering Consortium represented by Gaoxue; the Tianjin University, Huisheng Engineering, and Huaben Energy Consortium; the Shanghai Pujing, East China University of Science and Technology, and Anhui Huaihua Consortium; the Wuhuan Engineering, Huashuo Technology, and Hebi BMW Consortium; as well as Shanghai Wuzheng and Huanqiu Engineering. http://img.yf116.cn/image/img/20170908/94657352171.jpg http://img.yf116.cn/image/img/20170908/947343525444.jpg Cost analysis: Coal-based ethylene glycol production has certain advantages. The production processes for ethylene glycol vary depending on the raw materials used, with two main approaches: the petroleum route and the coal-based route. The current industrial routes for producing oil involve the synthesis of ethylene from ethane, followed by hydration to produce ethylene glycol. The main competitive routes include the production of ethylene from ethane derived from associated gas in the Middle East, the production of ethylene from ethane obtained from shale gas in North America, and the production of ethylene through naphtha cracking in Northeast Asia. The coal-based route develops a completely new production process for ethylene glycol using inexpensive lignite as raw material. The cost estimates for each process route are as follows: For the oil-based route to ethylene glycol, all naphtha-based processes involve an intermediate ethylene stage, after which ethylene is used to produce ethylene oxide, which is then subjected to pressurized hydration to yield ethylene glycol. On average, 0.65 tons of ethylene are required to produce 1 ton of ethylene glycol, and the differences in the cost of ethylene glycol stem mainly from the different sources of ethylene. Overall, this route has advantages such as low investment and reduced consumption of utility resources; taking an ethylene glycol plant with an annual production capacity of 400,000 tons as an example, the total investment is approximately 2 billion yuan. Among these routes, the one with the highest production cost for ethylene glycol is China’s naphtha route, followed by the North American shale gas route; the associated gas from Middle Eastern oil fields currently has the lowest cost. Cost of producing ethylene glycol from naphtha: approximately 5,600 yuan per ton. In China, the main method for producing ethylene glycol is through the cracking of naphtha to produce ethylene. Naphtha is one of the key products of oil refining; therefore, its price is closely linked to the price of crude oil. The cost of producing ethylene glycol via naphtha and ethylene is primarily determined by oil prices. According to calculations, when the WTI oil price is around $55 per barrel, the cost of producing ethylene in China’s eastern region through the cracking of imported naphtha is approximately 5,500 yuan per ton. Taking into account expenses related to utility use and depreciation, the production cost of ethylene glycol is about 5,600 yuan per ton. When the WTI oil price is at $40 per barrel, the production cost of ethylene is around 4,800 yuan per ton; in the eastern regions of China, the production cost of ethylene glycol is approximately 5,200 yuan per ton. http://img.yf116.cn/image/img/20170908/948533533379.jpg Cost of producing ethylene glycol from natural gas: 4,500 yuan per ton for associated gas in the Middle East, and 4,800 yuan per ton for shale gas in North America. China imports most of its ethylene glycol from the Middle East and North America, where 70% of the ethylene production relies on natural gas as a raw material. The Middle East enjoys a significant cost advantage in the international market for producing ethylene, using ethane and propane derived from cheap associated gas in oil fields. However, in recent years there has been a growing shortage of lightweight feedstocks such as cheap ethane in the Middle East, and the additional ethane quotas allocated to countries in that region are quite limited. As a result, the price of ethane has risen to 2 dollars/MMbtu (approximately 99 dollars per ton), while the production cost of ethylene is around 2,400 yuan per ton. Even so, the production cost of ethylene glycol in the Middle East remains the lowest in the world, at around 3,600 yuan per ton including depreciation. However, considering the high shipping costs and tariffs associated with transporting ethylene glycol end products from the Middle East to East China, which total around 900 yuan per ton, the overall cost of ethylene glycol from the Middle East is approximately 4500 yuan per ton. North America has abundant shale gas reserves, and thanks to the shale gas revolution in recent years, natural gas production there has increased significantly. Currently, the price of natural gas in North America is around $3.3 per MMbtu, which results in a production cost for ethylene of 3,300 yuan per ton. The production cost of ethylene glycol at the downstream stage is estimated to be around 4,200 yuan per ton. When transportation costs and tariffs to East Asia (totaling about 600 yuan per ton) are taken into account, the overall cost of ethylene glycol in North America is approximately 4,800 yuan per ton, second only to that in the Middle East. The costs associated with the coal-based ethylene glycol production route: Due to China’s unique resource profile, characterized by a lack of oil and gas but an abundance of coal, this situation has limited the growth in capacity for producing ethylene glycol through oil-based ethylene production methods in China. On the other hand, it has greatly encouraged efforts to develop technologies and projects for coal-based ethylene glycol production in the country. Currently, there are mainly two process routes for producing ethylene glycol from coal as a raw material by generating syngas. The first route involves converting syngas into methanol and then into ethylene, with ethylene glycol being produced through this ethylene-based method. The second route entails separating and purifying the syngas, catalytically coupling CO to form oxalate esters, and then producing ethylene glycol via the hydrogenation of these oxalate esters. Both of these process routes are now in use at industrial scale. The cost of producing ethylene glycol from coal via methanol is 7,400 yuan per ton. In terms of investment requirements, the National Development and Reform Commission has explicitly prohibited the construction of projects for producing olefins from coal using methanol with a capacity of less than 500,000 tons per year. Projects with a capacity of 500,000 tons per year or more require huge investments; typically, the total investment for a project of 1.8 million tons per year for producing methanol from coal and then olefins amounts to around 20 billion yuan. If purchased methanol is used as the raw material, the investment threshold can be reduced significantly. Assuming the cost of purchased methanol is 2,300 yuan per ton, 1 ton of ethylene is produced from every 3 tons of methanol, and ethylene is then used to produce ethylene glycol. Under this production process, the cost of producing ethylene glycol is approximately 7,400 yuan per ton, which is much higher than that of other methods for producing ethylene glycol; thus, there is no cost advantage at all. The cost of producing ethylene glycol via the oxalate route is around 5,200 yuan per ton; compared to the method of producing ethylene glycol from coal through methanol, the production cost of the oxalate route is much lower. Generally, the investment cost for an ethylene glycol plant with an annual production capacity of 300,000 tons is around 5 billion yuan. To produce one ton of ethylene glycol under this process, approximately 6.7 tons of coal are required (5–8 tons, depending on the quality of the coal); cheap lignite or bituminous coal can be used for this purpose. Most of China’s ethylene glycol production facilities are located in the western regions where coal resources are abundant; Inner Mongolia, Xinjiang, and Shaanxi together account for 53% of the total production capacity. However, China’s main markets for ethylene glycol are found in regions such as East China and South China. Taking into account factors such as the price of lignite at the plant in China’s eastern, central, and western regions, as well as the shipping costs to the East China region for the end products, we have determined that the production cost of ethylene glycol is lowest in the western region, at an average level of around 5,100 yuan per ton (including shipping costs to East China). The production cost in the central region is approximately 5,200 yuan per ton, while it is higher in the eastern region, at around 5,400 yuan per ton. With a low oil-to-coal ratio, coal-based ethylene glycol production still holds certain advantages. The cost of coal-based ethylene glycol is moderate, offering a cost advantage compared to production using domestic naphtha and methanol. According to calculations, the production cost of ethylene glycol produced from coal in China’s western regions is approximately 5,100 yuan per ton, which is higher than that of the routes using ethane in the Middle East and shale gas in North America. Nevertheless, there is still ample room for the development of coal-based ethylene glycol production in China. The reason for this is that, for a long time, routes that use naphtha and methanol as raw materials have accounted for over 80% of China’s domestic ethylene glycol production; thus, coal-based ethylene glycol still has a significant cost advantage over those produced from naphtha and methanol. Furthermore, 5,100 yuan per ton is only an average figure; with access to appropriate coal resources, an expansion of production scale, and improved operating efficiency, there is still significant room for further reduction in the cost of coal-based ethylene glycol. For example, Xinjiang Tianye Group produces ethylene glycol using the exhaust gases from calcium carbide furnaces, eliminating the need for expensive gasification and air separation equipment, which allows its production costs to be reduced by another 20% or so compared to the average level. Supply and demand structure: Slowing foreign supply, stable downstream demand. Global ethylene glycol supply has been slowing down; in recent years, the expansion of ethylene glycol production capacity on a global scale has been gradual. The growth rate of global ethylene glycol production peaked in 2010, at 14.6%, after which it gradually slowed down over the following years, remaining around 4%. In 2016, global ethylene glycol production was approximately 29.99 million tons, with a growth rate of 3.7%. In terms of plant utilization rates, they declined between 2007 and 2010 due to the combined effects of the financial crisis and rapid capacity expansion; however, they rose again following the economic recovery after 2011, and have remained at around 88% in recent years. On the consumer side, the apparent consumption of ethylene glycol in 2016 was 26.34 million tons, with a growth rate of 3.6%. It is expected that from 2017 to 2020, production capacity and consumption will maintain a growth rate of around 3%, while the growth rate will slow down further after 2020, with an estimated annual growth rate of 2%. Three key factors to consider regarding domestic coal-based ethylene glycol production: (1) The issues related to color and purity of coal-based ethylene glycol have been addressed to a certain extent, and its quality has improved to such an extent that its share in downstream applications is increasing; (2) Coal-based ethylene glycol has cost advantages over that produced from naphtha, and it is likely to replace imported ethylene glycol from Northeast Asia in the short term. In the long term, however, due to global supply-demand balances and the presence of distributors, imported ethylene glycol from North America remains expensive. Taking into account shipping costs, tariffs, delivery times, and supply stability, companies that produce coal-based ethylene glycol can still compete with those that produce it from associated gas or shale oil; (3) The increase in production capacity for coal-based ethylene glycol has been limited over the past two years. We predict an increase of 880,000 tons in 2017 and 1.85 million tons in 2018. However, due to environmental inspections and funding requirements, the construction and commissioning of many projects will be delayed, so there is no need to worry too much about the supply side. Furthermore, current social inventory of ethylene glycol is low, and there is a need to increase this inventory before it becomes a futures commodity. Assuming an inventory level of 10% of the demand, the additional long-term demand for ethylene glycol will be around 800,000 tons, a amount that is expected to be met by production capacity based on coal as a raw material.