World Factory and World Market


Owing to the sound development environment and the market demand
potential in the petrochemical industry, China has become the
strategic target of the “world factory” for multinationals and
also the choice “world market” in the competition of
petrochemical products.


World market


In recent years major petrochemical companies in the world have
formulated long-term targets for their development in China and
staged fierce competition around the development of the Chinese
market.
   One of the major competition forms is to expand the export
of petrochemical products so as to gain a foothold in the Chinese
market. Typical examples include the Middle East region and
Korea.
   The second major form is to conduct joint venture and
cooperation and establish petrochemical production bases in
China so as to gain market shares. For example, BASF, Shell,
Exxon-Mobil, Dow Chemical and SABIC have already participated
or are ready to participate in the construction of 6 large
ethylene units in China. Companies that have made investments
in the construction of downstream units such as synthetic resins,
synthetic fibers, synthetic rubbers and organic chemicals
include American and European companies and also large
petrochemical companies from surrounding countries such as
Japan and Korea.
   The mode of internationalized competition in the domestic
petrochemical industry is in shaping. While bringing
development opportunities to the domestic petrochemical
industry, the “world market” and the “world factory” have
also produced a huge pressure on the existence and development
of petrochemical enterprises in China.


Trouble in crude oil


In the future development of the petrochemical industry in China,
potential risks in resources and raw material supply are
unavoidable. The greatest risk lies in resources and price cost
caused by the shortage of crude oil in China.
   The dependence on the overseas supply of crude oil in China
already increased to more than 40% in 2004. When the domestic
demand of crude oil reaches 400 - 500 million tons in 2010 and
2020, the dependence on the overseas supply will possibly
increase to 50 - 60%.
   To solve the inadequate supply of crude oil resources in China,
great efforts have been made in recent years to participate in
overseas oil development, expand oil import and sign oil
development and oil supply agreements with quite a few countries
to guarantee the safety and stability of oil supply. Actions have
however been launched too late. The fierce competition in this
sector has also added difficulties.
   The raw material for the ethylene production in China is light
oil mainly based on naphtha. Even in future construction plans
there is not a single unit using natural gas as cracking raw
material. In a scenario where the supply of crude oil in the world
is not abundant and the price of crude oil in the international
market is maintained at a high level, great attention should be
paid to the risk of depending on the overseas oil supply and the
risk of price cost in the development of the domestic
petrochemical industry.
   A mechanism to define the rational consumption level of
energies especially crude oil should therefore be established
in China as soon as possible so as to control the oil consumption
within the safest range of controllable domestic and overseas
resources and reduce the oil dependence risk to the minimum.


Trouble in raw material


Another problem before the petrochemical industry in China is
the availability of naphtha.
   Like other countries in Asia, the petrochemical production
in China uses the raw material route mainly based on naphtha.
The consumption proportion of naphtha in chemical light oil used
in the ethylene production has increased from around 30% at the
end of last century to 70 - 80% today. The key to the development
of the ethylene production using the raw material route mainly
based on naphtha is to get sufficient chemical light oil such
as naphtha. The reality in China however shows that it will be
very difficult.
   The oil refining capacity in China today can hardly meet the
increasing demand of chemical light oil.
   According to the calculation made by experts, the crude oil
processing amount has to increase by around 16.5 million tons
for every ethylene output increase of 1.0 million tons. In other
words, the ethylene/crude oil ratio is 1:15-1:16.5. The crude
oil processing capacity in China already reached 321 million t/a
in 2004, and the crude oil processing amount was 273 million tons.
26.12 million tons of chemical light oil was produced whereas
the output of ethylene was 6.26 million tons. The capacity of
ethylene in China will reach 14.67 million t/a in 2010. If the
output of ethylene is 10 - 12 million tons, the crude oil
processing amount will have to increase by 61.71 - 94.71 million
tons to reach 383 - 416 million tons. Nevertheless, the target
for the crude oil processing capacity is 350 million t/a in 2010
and 470 million t/a in 2020 and the supply amount of chemical
light oil will be 50 million tons in 2010 and 72 million tons
in 2020.
   There is only one way out. That is to depend on importing
naphtha from overseas markets. Naphtha is however also in short
supply in the international market.
   As the oil refining capacity in the world has failed to make
great expansion, there is a supply shortage of naphtha.
According to the data from the American East-West Center, the
demand of naphtha in the Asia-Pacific region excluding China was
96.86 million tons at the end of 2004, but the output was only
58.99 million tons, leaving a shortage of 37.87 million tons.
After offsetting the export amount, the net import amount in the
region was more than 34 million tons in 2004. Due to the expansion
of the ethylene capacity using naphtha as main raw material, the
demand of naphtha in the Asia-Pacific region is expected to reach
around 140 million tons in 2010. The output of naphtha will
however only be 92.8 million tons and the net import amount will
therefore increase to more than 46.8 million tons. As the oil
refining capacity in the world will remain to be inadequate,
there will still be a supply shortage of naphtha in the
Asia-Pacific region. The Middle East region will have a naphtha
output of around 53.0 million tons at that time and more than
41.0 million tons of naphtha can be exported to the Asia-Pacific
region, but there will still be a shortage of over 5.7 million
tons in the region.
   Resources are limited, but there are numerous buyers,
especially buyers from the Asia-Pacific region. The naphtha
trade in the world usually uses the principle of making purchases
from nearby sources. The proportion of naphtha imported by net
importers such as Japan, Korea, Thailand and Singapore from the
Asia-Pacific region and the Middle East region is more than 85%.
The import of naphtha in China also has a regional feature. Since
2000 the import of naphtha has been mainly made from surrounding
countries such as Russia and some countries in the Middle East
region. The problem is that as the import amount of naphtha in
China was very small in the past, import channels are much less
than Japan and Korea. China is