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Will domestic coal-based ethylene glycol face significant challenges in the future? Author/Source: Huahua Net Coal Chemicals Date: 2019-03-18 Clicks: 12 The growth rate of global MEG production capacity from 2018 to 2020 increased once again, with a particularly significant increase in China. During the three years from 2018 to 2020, global ethylene glycol production capacity is expected to increase by 14.31 million tons, primarily in China and the United States. In China alone, the新增 capacity will reach 10.58 million tons, accounting for 74% of the total global increase. This新增 capacity in China mainly stems from coal-based production processes, while in the future, the新增 MEG capacity in the United States will primarily come from ethane cracking processes. Looking at the growth in domestic ethylene glycol and polyester production capacity, between 2019 and 2020 there was a divergence in the growth rates of MEG capacity and polyester capacity: the growth rate of polyester capacity declined, while ethylene glycol capacity continued to show an upward trend. So, can China’s ethylene glycol market in the future move from a high degree of import dependence, as is the case with PTA, to self-sufficiency? The answer is no. Compared to the downstream polyester market, China faces a significant shortage in ethylene glycol capacity. At present, the country’s reliance on imports of ethylene glycol remains around 60%. Although the domestic self-sufficiency rate for MEG has been increasing steadily over the past few years and is likely to continue rising, it will be difficult to achieve complete self-sufficiency, as the Middle East and the United States have a clear cost advantage in producing MEG. From a global supply and demand perspective, there is an excess of ethylene glycol in the Middle East and North America, and these regions’ MEG markets will likely continue to serve China. If low-price competition arises in the MEG market, then China’s coal-based MEG industry will face considerable challenges. 01 Major global production processes for ethylene glycol. Since ethylene glycol is primarily used in the chemical fiber industry, China’s chemical fiber industry has developed from the downstream sector upward; starting with the textile industry, it gradually moved towards upstream processes such as polyester, followed by the development of PTA and MEG. Currently, efforts are being made to develop chemical products such as PX and ethylene. As can be seen from Figure 1, the entire production process of polyester products is illustrated; starting from the ethylene chain, it primarily involves the production of ethylene oxide followed by the production of ethylene glycol. Depending on the raw material sources, the international production of ethylene glycol can be divided into two process routes: oil-based and coal-based. The oil-based route further includes the naphtha-based method and the ethane-based method; both involve producing ethylene first, which is then converted into ethylene oxide to ultimately yield ethylene glycol. The coal-based route comprises the oxalate ester method, methanol synthesis method, and direct synthesis method. The proportion of each production method used for manufacturing ethylene glycol in China is shown in Figure 2. (1) Oil-based ethylene glycol production process: At present, the vast majority of plants both internationally and domestically use the petroleum route to produce ethylene glycol. In most parts of the world, the naphtha-based method is used for production. The advantage of the oil-based ethylene glycol production process is its maturity, while the disadvantages include high water and energy consumption, high costs, and the fact that the key technologies are largely monopolized by three companies: Shell in the UK and the Netherlands, SD in the United States, and UCC in the United States. Oil routes can be divided into two methods: the naphtha-based method and the ethane-based method. The naphtha feedstock method follows the route of \"crude oil → naphtha → ethylene → ethylene oxide → ethylene glycol\", and its production capacity accounts for about 70% of the total capacity of global oil-based production methods; it is currently the widely used production method worldwide. The ethane feedstock method follows the route of “ethane → ethylene → ethylene oxide → ethylene glycol”, and its production capacity accounts for about 30% of the total capacity from the petroleum-based route worldwide. It is the main production method used in the Middle East and North America at present, with Saudi Basic Industries Corporation and Dow Chemical being the largest producers. (2) Coal-based ethylene glycol production process: At present, coal-based ethylene glycol production is widely industrialized in China. This production method takes advantage of the country’s resource profile, characterized by a shortage of oil and gas but abundant coal resources. Compared to the petroleum-based approach, it offers advantages such as a shorter production process, lower energy consumption, lower water usage, reduced emissions, and better profitability. The processes for producing ethylene glycol from coal are mainly divided into the oxalate method, the methanol synthesis method, and the direct synthesis method; generally, when referring to ethylene glycol produced from coal, it is the oxalate method that is meant. The oxalate method uses coal as a raw material; through gasification, conversion, purification, and separation, CO and H2 are obtained. CO is then used in catalytic coupling reactions and refining processes to produce oxalates, which are subsequently subjected to a hydrogenation reaction with H2 and further refined to yield polyester-grade ethylene glycol. This process features a short production cycle and low costs, making it the coal-to-ethylene glycol technology that has received the most attention in China at present. The quality of the coal-to-ethylene glycol products produced by Xinjiang Tianye and Tongliao Jinmei in China has reached polyester-grade standards. The remaining coal-based ethylene glycol can be mixed in up to 20% at most. The problem with coal-based ethylene glycol is that it cannot be supplied continuously and reliably, as the instability of the catalysts in the production process results in inconsistent product quality across different batches. Since 2015, the quality of coal-based ethylene glycol has improved slightly; polyester manufacturers in Cixi have begun using coal-based ethylene glycol to produce short fibers and black yarns. Coal-based MEG is mainly transported by ship and rail. Methanol synthesis method: namely the MTO method. The production process involves coal → methanol → olefins → ethylene oxide → MEG. This technology is mature, but the investment costs associated with the methanol production stage are high. If Ningbo Fude Energy needs to purchase methanol externally, it is difficult to control the costs associated with raw materials; there are limitations in the supply of these raw materials, and numerous by-products are generated. Direct synthesis method: Syngas (CO+H2) is produced by gasification of coal, and ethylene glycol is then synthesized directly from this syngas in a single step. The key to this technology is the selection of catalysts. Currently, the catalysts used in this process are relatively expensive, high reaction pressures are required, and the selectivity for ethylene glycol is low; therefore, industrialization is difficult to achieve for a considerable period of time. 02 Profit Analysis of Various Ethylene Glycol Production Processes: This section compares the profits generated at different stages of the ethylene glycol production chain. Currently, there are three main methods for producing ethylene glycol in China: production from ethylene, from naphtha, and from coal; in other words, through petroleum-based and coal-based routes. The profit margins associated with these two routes are analyzed below. (1) Analysis of production profits for the petroleum route: The most mature and widely used production method at present is the traditional ethylene route (producing ethylene glycol from naphtha or imported ethylene). Below, the MEG cash flow scenarios for ethylene produced from naphtha and ethylene sourced externally are primarily compared. The calculation method for producing MEG from naphtha is based on the US dollar, using internationally accepted formulas. The cost of MEG on the external market is equal to 0.81 * naphtha price + $150 per ton. As shown in Figure 3, the profits from producing MEG from naphtha have been quite substantial in recent years; in 2018, the average profit was $262 per ton. Currently, the cost of producing MEG from naphtha is around 3,800 yuan per ton. The calculation method for MEG production from ethylene is converted into RMB using the internationally accepted formulas. The cost of MEG produced domestically is calculated as 0.605 * Northeast Asian ethylene price * 1.16 * 1.01 * RMB exchange rate + 1,000 yuan per ton. As shown in Figure 4, MEG production from ethylene has been profitable for the most part over the past two years, although there were periods of loss as well. In 2018, the average profit from producing MEG from externally sourced ethylene was 375 yuan per ton. Recently, due to a significant drop in ethylene prices, profits from this method have increased; currently, the cost of producing ethylene glycol in this way is around 5,200 yuan per ton. Furthermore, the profit margin from producing ethylene glycol from naphtha remains high at present. It is not yet clear how to calculate the profits of integrated refineries that produce ethylene in-house, but the cash flow from producing ethylene glycol using purchased ethylene is rather unstable. (2) Analysis of production profits for the coal-based route: The cost calculation for this route is based on a project with an annual production capacity of 200,000 tons of ethylene glycol, assuming 100% operational capacity. In Inner Mongolia, lignite is used as the raw material (5.6 tons per ton of product), while in the central regions (Shanxi and Henan), anthracite is used as the raw material (3.2 tons per ton of product). Additionally, since the main consumption areas for ethylene glycol are in China’s eastern region, and most companies that produce ethylene glycol from coal are located in the northwest region, the transportation costs associated with ethylene glycol must also be taken into account. Regarding the profits from coal-based MEG production, the results are shown in Figure 5. Thanks to the lower coal prices in the northwest region, the overall profit level for coal-based MEG is relatively good. However, the profits associated with coal-based MEG experience significant fluctuations. This is because coal prices in the northwest region remain relatively stable, while the fluctuations in the profits of coal-based MEG stem mainly from changes in MEG prices. Since September 2018, as MEG prices dropped sharply, the profits from coal-based MEG also decreased significantly. Currently, the cost of producing coal-based MEG lies around 5200–5500 yuan per ton (including shipping costs). The cost calculation method for MEG produced via the methanol MTO process is: 1.74 * methanol price + 1,500 yuan per ton. As shown in Figure 6, in the past two years, the production of MEG from methanol has been profitable for the most part, with losses occurring in certain periods. In 2018, the average profit from producing MEG from methanol was 372 yuan per ton. However, since the third quarter of this year, the sharp drop in MEG prices has led to significant losses in this process; currently, the cost of producing MEG from methanol is around 5,800 yuan per ton. http://img.yf116.cn/image/img/20190318/1026323759284.jpg 03 In the future, coal-based ethylene glycol production will face significant challenges. (1) A substantial expansion in global ethylene glycol production capacity: In recent years, driven by the rapid growth in demand in the global polyester market, the industry related to ethylene glycol has developed quite swiftly. In 2003, the total production capacity of ethylene glycol worldwide was only 15.862 million tons; it rose to 18.7973 million tons in 2006, and further increased to 22.151 million tons in 2009 ； In 2010, with the completion and commissioning of several new or expanded ethylene glycol production facilities in mainland China and the Middle East, production capacity increased significantly, raising the global MEG production capacity to 24.67 million tons ； By the end of 2015, global ethylene glycol production capacity was 29.51 million tons, with output at 24.95 million tons; the capacity utilization rate was 84.5%. Global consumption totaled 25.61 million tons, resulting in a basic balance between supply and demand worldwide ； The rate of new capacity additions slowed down significantly between 2011 and 2017; by 2017, the global capacity for ethylene glycol was 31.25 million tons ； From 2018 to 2020, the growth rate of global MEG capacity expanded once again, with a particularly significant increase in China. During the three years from 2018 to 2020, global ethylene glycol production capacity is expected to increase by 14.31 million tons, primarily in China and the United States. In China alone, the新增 capacity will reach 10.58 million tons, accounting for 74% of the total global increase. This新增 capacity in China mainly stems from coal-based production processes, while in the future, the新增 MEG capacity in the United States will primarily come from ethane cracking processes. By 2020, the global ethylene glycol production capacity will reach 45.56 million tons. (2) China’s coal-based ethylene glycol industry is set to undergo restructuring. In recent years, most of the new ethylene glycol production facilities built in China have used coal-based processes. According to CCF statistics, as of November 2018, China’s total ethylene glycol production capacity was 10.56 million tons, of which the capacity derived from coal-based processes was 4.26 million tons, accounting for 40.36% of the country’s total ethylene glycol production capacity. The coal-to-ethylene glycol route has its own advantages for China. Firstly, China is a major coal-producing country; secondly, the costs involved are relatively low. In the future, with technological advancements, coal-based ethylene glycol will come to occupy an increasingly important position in the ethylene glycol market in China. The share of domestic coal-based ethylene glycol production increased year by year, from 19% in 2013 to 40% in 2018. However, in the previous few years, domestic polyester manufacturers were reluctant to use coal-based ethylene glycol; the main reason was that the operational efficiency of the coal-based ethylene glycol production process was not stable, which made it impossible to ensure a steady supply for polyester manufacturers ； Secondly, coal-based ethylene glycol contains certain impurities that may affect the toughness of polyester filaments or the transparency of plastic bottles, especially for products that require high quality standards or are intended for export. In recent years, with improvements in the technology for producing ethylene glycol from coal, and given that its price is 150–250 yuan per ton lower than that of ethylene-based ethylene glycol (resulting in a cost reduction of 67 yuan per ton for producing 1 ton of polyester products), some polyester manufacturers have begun to blend coal-derived ethylene glycol into their production processes. Nevertheless, overall industry acceptance of this product still needs to be improved. Currently, the level of acceptance for coal-based raw materials varies among different products as follows: short fibers > filaments (conventional filaments) > bottle chips/filaments (such as fine-denier filaments and other non-conventional filaments). Polyester products intended for export do not use coal-based ethylene glycol, and foreign buyers require strict testing of the specifications of such exported goods. However, it is expected that in the future, as coal-based production methods and related technologies improve, downstream polyester industries will be more willing to accept coal-derived ethylene glycol. Looking at the growth rates of ethylene glycol production in China and globally from 2018 to 2020 (see Figure 7), both China and the world saw an increase in ethylene glycol production during 2018 and 2019, with China’s growth rate being higher than that of the global market ； In 2020, the growth rates of ethylene glycol production in China and around the world began to diverge: China’s ethylene glycol production capacity continued to grow at a rate of over 30%, while the global growth rate started to decline, though it still remained at around 15%. In terms of comparing the growth rates of domestic ethylene glycol production capacity and downstream polyester production capacity, CCF data shows that since 2010, China’s ethylene glycol production capacity has been growing at an average annual rate of around 14%, while the average annual growth rate of polyester production capacity is approximately 9% ； In 2018, both the growth rate of ethylene glycol production capacity and that of polyester production capacity in China were on an upward trend, but the growth rate of ethylene glycol production capacity was much higher than that of polyester production capacity ； During 2019–2020, there was a divergence in the growth rates of MEG production capacity and polyester production capacity: the growth rate of polyester capacity declined, while ethylene glycol production capacity continued to show an upward trend. So, can China’s ethylene glycol market in the future move from a high degree of import dependence, as is the case with PTA, to self-sufficiency? The answer is no. We are aware that, compared to the polyester market further downstream, China has a significant gap in its ethylene glycol production capacity. At present, China’s reliance on imports of ethylene glycol remains around 60%. Although the domestic self-sufficiency rate for MEG has been increasing steadily over the past few years and is likely to continue rising, it will be difficult to achieve complete self-sufficiency, as the Middle East and the United States have a clear cost advantage in producing MEG. From a global supply and demand perspective, there is an excess of ethylene glycol in the Middle East and North America, and these regions’ MEG markets will continue to be oriented toward China. If low-price competition emerges in the MEG market, then China’s coal-based MEG industry will face significant challenges. Due to differences in ethylene glycol production processes, the production costs of ethylene glycol vary significantly. Among these, the cost of producing ethylene glycol from ethane in the Middle East is the lowest. This is because most of the ethane in the Middle East is a byproduct of oil and gas extraction, resulting in very low production costs. Additionally, thanks to the development of shale gas in the United States, the cost of ethane there is also relatively low; thus, the cost of ethane cracking in the U.S. is second only to that in the Middle East. At present, the cost of producing ethylene glycol via ethane cracking is around 3,000 yuan per ton, or even lower ； Furthermore, the profitability of producing ethylene glycol from naphtha is also good; in 2018, the average profit from producing MEG from naphtha was around $262 per ton, while currently the cost of producing MEG from naphtha is approximately 3,800 yuan per ton. The costs of producing ethylene via external procurement and producing ethylene glycol via the MTO process from methanol are relatively high; currently, both of these production processes are operating near the break-even point. Due to the uneven distribution of coal resources in China and significant differences in costs across regions, the current average cost of producing ethylene glycol from coal is approximately 5,000 yuan per ton. In the past few years, due to the good profitability of coal-based ethylene glycol production (especially when oil prices were high), most of the new ethylene glycol production facilities built in China have adopted this coal-based process. At present, the coal-based ethylene glycol market has not seen any restructuring due to the relatively high profits of upstream manufacturers. However, over the next two years, around 12 million tons of new production capacity for ethylene glycol will come online globally. With this increase in production capacity, the industry is likely to undergo restructuring. Given that the cost of producing ethylene glycol from ethane in the Middle East and North America has certain competitive advantages, the influx of new production capacity will inevitably lead to reduced profits for those involved in coal-based ethylene glycol production, posing a challenge to domestic manufacturers in this sector. In this process, companies with high equipment costs may face elimination or be forced to upgrade their coal-based ethylene glycol production technologies.