Opportunities Brought by China's Stimulus and Adjustment Program for Petroleum and Chemical Industry   

-- An interview with Gu Zongqin, president of China National Petroleum and Chemical Planning Institute
(Continued CCR2009 No.13 Page7)

Q: The stimulus and adjustment program for the petroleum and chemical industry states that the government will coordinate the layout of major projects. Would you like to comment on which sectors the government will increase investment in?

Mr. Gu: The stimulus and adjustment program of the petroleum and chemical industry proposes that in the future, China will speed up the integrated refining and chemical projects that are currently being built, accelerate the schedule of a number of refining, ethylene and chemical fertilizer projects to stimulate domestic demand and the development of related industries, and start a number of coal-to-olefins and coal-to-natural gas projects.

Q: The stimulus and adjustment program lays particular emphasis on the importance of technological innovation in the development of the petroleum and chemical industry. Which areas will the technological innovation of the petroleum and chemical industry focus on?

Mr. Gu: With the increasing impacts of science and technology on economic growth and competitiveness, future competition in the industry is fundamentally based on the capacity for independent technological innovation. So China must pay great attention to technological innovation and regard it as a fundamental task for the development of the petroleum and chemical industry.
    After many years of development, China's petroleum and chemical industry has achieved remarkable advances in major areas. In the refining sector, China has basically mastered today's world class technologies and successfully developed the clean fuel production, heavy oil and sour crude oil processing technologies, and heavy oil catalytic hydrocracking and hydrotreating processes. In the petrochemical sector, China has developed ethylene cracking process, aromatic extraction process and a series of production technologies of important petrochemicals such as polypropylene, styrene, polyester, caprolactum, acrylic acid and its esters, propylene oxide, adipic acid, isopropyl alcohol, MEK and acrylonitrile. In the chemical fertilizer sector, China has developed the coal-water slurry pressurized gasification process for 300 000 t/a synthetic ammonia production, the wet production process for 300 000 t/a phosphoric acid, the 600 000 t/a diammonium phosphate production process, the sulfur-based production process for 800 000 t/a sulfuric acid, the comprehensive slurry concentration process for low content phosphoric acid, and the joint production process of powdery mono-ammonium phosphate and granular diammonium phosphate. In the pesticide sector, China has developed a new type of pesticide, "flumorph", with its own independent intellectual property rights. In the coal chemical area, China has independently developed a process of making methanol from coke oven gas and the carbonyl synthesis technologies of making acetic acid and dimethyl ether from carbon monoxide. In the advanced chemical materials segment, China has developed its own production process of important chemical materials such as MDI, TDI, PBT, organic fluorides, silicones and polyether ether ketone (PEEK). In the fine chemical area, China has developed a one-step process of producing citric acid from corn, polylactic acid production technology and 10 000 t/a carbon black new process.
    In the near future, the technological innovation of China's petroleum and chemical industry will lie in the following aspects. First, make use of global innovation resources to carry out open, integrated innovations. Second, focus on the development and industrialization of major technologies and equipment. Third, encourage enterprises to carry out energy-saving and consumption reducing technological renovation and upgrading. Fourth, develop and industrialize a number of high-tech chemicals and chemical application technologies to meet the needs for improved products in petrochemical-related industries. Finally, establish a state-level platform for technological innovation and instruct large-scale state-owned enterprises to increase investment in technological innovation and undertake demonstration projects industrializing new technology.
    In the refining, ethylene and chemical fertilizer areas, China should encourage the scaling up and integration of petrochemical and chemical fertilizer production facilities to further enhance the technical level of the industry. In the coal chemical area, strengthen the development of coal-to-olefins, coal-to-ethylene glycol and coal-to-acetylene processes and the development of new coal chemicals with huge domestic market potential. In the pesticide area, strengthen the development of high-efficiency, low-persistent and low-toxicity pesticides. In the advanced chemical materials area, focus on the development of superior-performance engineering plastics. In the fine chemical field, strengthen the development of high-end specialty chemicals (such as electronic chemicals).

Q:  At present, the polarization of China's petrochemical products is very serious. The supply of high-end products cannot meet demand, but the capacity to make low-end products is excessive. The stimulus and adjustment program points out that the total output of petrochemicals should be controlled and outdated capacities should be eliminated. Does this mean that the financial crisis will become a good opportunity for the industry to re-shuffle?

Mr. Gu: In China, except for oil products, the self-sufficiency rate of ethylene is only 50%, and the self-sufficiency rate of high-end petrochemicals such as butyl rubber and caprolactum is only 30%. The local supply cannot meet the market demand. But the production capacity for low-end products has become increasingly excessive in recent years. The production capacity of calcium carbide is excessive by about 50%, coke about 30%, and both caustic soda and soda ash more than 20%. The output of methanol, acetic acid and polysilicon has become excessive too. Excessive production capacity will certainly result in vicious market competition and a waste of resources, leading to fluctuation and unsustainable development of the industry.
    In the peak stage of the industry, eliminating outdated production capacity is very difficult. Many enterprises only focus on immediate benefits. Regardless of the country's industrial policy, they expand or newly build technically backward production facilities. The production capacity of calcium carbide is a very prominent example. In the second half of 2008, only 30% of the calcium carbide production capacity was used, and 80% of calcium carbide production enterprises stopped running. Although the current market for calcium carbide is recovering a little, the operation rate on average is below 50%. In the recession period of the industry, due to the oversupply of products, the industry's margins have been significantly compressed, so it is the best time to eliminate outdated units.
    In order to control the total output of petrochemicals and eliminate outdated capacity, it is recommended that relevant government departments should create or amend industrial policies, further improve the market access system, appropriately raise the market access qualification standard for some overheating industries and strictly control the construction of high-pollution and high-energy-consumption projects or low value-added, low-end product production projects.
    In addition, I propose that the central government should study the market exit mechanism of outdated capaciti