Feasibility Analysis of Using Overseas Methanol to Develop China's Ethylene Industry  

By Li Jianxin and Sun Baowen, China Petroleum Planning & Engineering Institute

In recent years, the world's methanol production has continued to shift to the Middle East, South America and Oceania, where natural gas resources are abundant. Meanwhile, with the rapid development of China's coal chemical industry, its methanol capacity is also growing rapidly. Although the global methanol capacity is growing fast, the market demand for methanol has not increased as quickly as expected. As a result, the global methanol market is in serious oversupply. At the same time, some new technologies for the processing and utilization of methanol, such as methanol to olefins (MTO) and methanol to propylene (MTP), continue to improve. They will greatly boost the demand for methanol in the future. From the aspect of globalization, making good use of overseas methanol resources and developing MTO and MTP have become the new development direction of China's olefins industry.

The global methanol industry has been in overcapacity

Other countries mostly use natural gas as the raw material to produce methanol, but China uses coal as the main raw material. Overall, the world's methanol capacity has grown quickly. From 2005 to 2008, the average annual growth rate of the global methanol capacity reached 14.5%, far higher than that of the global ethylene capacity - 3.1%. Over the same period, the average annual growth rate of the global demand for methanol was 6.5%. In 2008, the global methanol capacity and output reportedly reached 68.59 million t/a and 41.26 million tons, respectively, and the average operating rate of methanol plants around the world was 60.7%. The global methanol market has fallen into oversupply.
   At present, a large number of methanol units are still being built in China and the Middle East countries such as Saudi Arabia, Qatar, Oman and Iran. They will be gradually put into production in the coming years. By 2013, the global methanol capacity is predicted to reach 112 million t/a, and overcapacity will become more serious.
   Before 2008, China imported about 1.4 million tons of methanol every year. But since the global financial crisis occurred in 2008, due to the declining demand for methanol in other regions, a large amount of excess methanol has begun to flood into China, with the result that China's methanol import volume in 2009 reached 5.29 million tons, an all time high. Because the Chinese Ministry of Commerce has begun to investigate the dumping of methanol imported from Saudi Arabia, Malaysia, Indonesia and New Zealand since June 2009, China's methanol import volume has declined slightly. But in the first ten months of 2010, China's methanol import volume still amounted to 4.27 million tons. It will exceed 5 million tons for the whole year of 2010. It can be seen that there exists a strong impetus in other countries to export methanol to China.
   Cost competitiveness comparison of the MTO process and the naphtha-to-olefins process

The MTO process  

Assume that purchased methanol is used as the raw material for a 3 million t/a MTO unit (consuming 3 million tons of methanol per year) to produce ethylene and propylene. The cost change of olefins with methanol price fluctuations is investigated based on the price index in the end of 2009. The calculated results are listed in Table 1.

Table 1 Full cost of per ton olefin varying with methanol prices upon a MTO unit that treats 3 million tons of methanol per year               RMB/ton
Methanol price in China    Full cost of olefin
1200                        4004
1500                        4941
1800                        5882
2100                        6840
2400                        7917
Note: value added is included

   Based on the above data and disregarding cost changes caused by the scale of olefins units, it can be concluded that the methanol price and the full cost of olefins have an approximately linear relationship. The full cost of MTO-based olefins (RMB/t) is 3.242 times the methanol price (RMB/t) plus 81.

The naphtha-to-olefins process

The cost of ethylene produced with the conventional naphtha steam cracking process is closely related to naphtha prices, which change with crude oil prices. According to Brent crude oil FOB prices and naphtha FOB prices in the Singapore market, the import price (CIF + tariff + value-added tax) of naphtha in China's eastern ports can be estimated. The correlation formula of the Brent crude oil FOB price and the imported naphtha price at Chinese ports (RMB/t) is 63.55 times the FOB crude oil price (US$/barrel) plus 379.
   According to the investment, raw material structure and raw material consumption of China's huge new ethylene projects, the full cost of olefins (ethylene + propylene) produced with the steam cracking process can be estimated (Table 2).

Table 2 Full cost of per ton olefin varying with crude prices upon a steam cracking unit
Brent oil price (FOB), US$/barrel    30      50      80      100
Imported naphtha price at Chinese port, RMB/ton    2285    3556    5463    6734
Full cost of olefin, RMB/ton    4014    6282    9685    11952
Note: value added is included

   Based on the above data, disregarding cost changes caused by the scale of olefins units, it can be concluded that the crude oil price and the full cost of olefins have an approximately linear relationship. That is, the full cost of olefins by the naphtha steam cracking process (RMB/t) is 113.4 times the FOB crude oil price (US$/barrel) plus 610.
   According to the above analysis, the cost comparison of MTO-based olefins and CNSC-based olefins can be obtained under different methanol prices and oil prices. From the figure, when the full costs of MTO-based olefins and naphtha steam cracking-based olefins are equal, their raw material prices can be easily calculated. The raw material prices under different oil prices are shown in Table 3.

Table 3 Competed price between crude oil and methanol upon same full cost for olefin
Brent oil price (FOB), US$/barrel    30      50      80      100
Full cost of olefin, RMB/ton        4014    6282    9685    11952
Competed methanol price, RMB/ton    1213    1913    2962    3662

   Generally, when oil prices are above US$60/barrel, the MTO process is more cost competitive than the naphtha steam cracking process.

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