China Sees Growth in LPG Supply and Demand

By Xu Jingsheng

1. Increasing Supply and Demand

As a clean energy source, liquefied petroleum gas (LPG) is mainly used in the fields of civil/commercial gas, petrochemical feedstocks, fuels dedicated to vehicles, and refining petroleum. Major ingredients of China’s LPG are propane, butane (n-butane, iso-butane), n-butene (mainly cis-2-butene and trans-2-butene with a little bit 1-butene), isobutene (small in quantity and generally applied to MTBE), butadiene, diisobutylene, triisobutylene and C5. LPG can be obtained through refining petroleum, recovery of natural gas and oil field gas, ethylene/propylene produced via steam cracking, methanol to olefin, etc. Almost all domestic manufacturers depend on refining, which contributes around 95% (or above) of the LPG supply, while foreign corporations generally obtain it by recovery of natural gas and oil field gas. LPG from different sources will be diverse in both ingredients and applications. Major domestic producers include PetroChina, Sinopec, and some local refineries.
   Because most of China’s LPG is a refinery by-product, the domestic LPG output – with an annual growth rate of 3.9% from 2005 to 2010 – has fluctuated along with the crude yield , up from 16.11 million tons in 2005 to 19.34 million tons in 2007, down to 18.6 million tons in 2008, rebounding to 19.29 million tons in 2009, increasing to 20.52 million tons in 2010, gaining 6.3% YOY to 21.81 million tons in 2011.
   In the next five years, China’s refining capacity is expected to rise 100 million tons, adding 3-4 million tons to the LPG capacity, calculated based on the output ratio of 3%-4%. According to the operating rate of 80%, the State’s LPG output will reach 24.3 million tons in 2015, with an annual increase rate of 2.7% from 2011 to 2015.

2. Import and Export

Propane and butane are two main ingredients of imported LPG. In 2011:
· Liquefied propane gas (HS: 27111200) – the nation imported 2.03 million tons, up 13.5% YOY; exported 460 000 tons, up 42% YOY;
· Liquefied butane (HS: 27111390) – imported 1.37 million tons, down 2% YOY; exported 709 000 tons, up 19.8% YOY;
· Other LPG and hydrocarbon gas (HS: 27111990) – imported 1 591 tons, dropping 41%; exported 1 550 tons, soaring 88.3%.
   The Middle East and the Asian-Pacific region are two major exporters. LPG from the Middle East saw a decrease in absolute quantity last year, but has still become a larger percentage of the nation’s total import volume. In 2011, China imported 95.0% of LPG from six countries – Qatar (27.2%, No.1), Iran, UAE, Kuwait, Saudi Arabia and Australia – and exported 98.0% to six countries/regions – Vietnam (29.1%, No.1), Hong Kong, the Philippines, Malaysia, Korea and Macao.

3. Petrochemical Industry Boosts LPG Demand

China’s LPG is mainly used in the fields of civil/commercial fuels, petrochemical feedstocks, industrial fuels and automotive fuels. Growing 1.3% annually from 2005 to 2011, domestic LPG consumption climbed from 22.22 million tons in 2005 to 24.05 million tons in 2011, and is now expected to rise 4% annually in the next five years to 28.15 million tons in 2015, when 3-4 million tons will likely be imported to meet the demand.

(1) Civil/Commercial Fuels
In the field of civil/commercial fuels, manufactured gas, LPG (60%) and natural gas are most consumed. However, challenged by the rapid growth of the natural gas supply and its lower price, by dimethyl ether, and by the marsh gas generally used in remote regions, LPG consumption fell from 16.4 million tons (73.8% of the output) in 2005 to 15 million tons (62.4%) in 2011, with an annual decline of 1.5%. Though natural gas is expected to seize more market share from LPG, the latter will continue to play a role in the market in a long term.

(2) Petrochemical Feedstocks
Due to high international oil prices, LPG has been increasingly used as a petrochemical feedstock. China’s enterprises are also making efforts to promote LPG applications in the chemical industry. Because of starting late, the domestic consumption in the field of deep processing was just 41 000 tons (0.2% of the total) in 2005, but benefiting from the construction of LPG aromatization units at small refineries in Shandong province, consumption surged to around 3.22 million tons (13.4%) in 2011, soaring 106.9% annually for five years.
   In 2011: finished aromatization projects (44 enterprises) boasted a total capacity of 7.3 million t/a and with an operating rate of around 50%, mainly distributed in Shandong (54%), China’s Northeast (16%), Henan (10%), Hebei (5%), and some other projects were in planning; propane dehydrogenation projects (10 enterprises – eight with UOP technology and two with Lummus technique) completed or to be constructed, 5.6 million t/a, eight projects in very early stages; more than 120 MTBE units exist, 3.6 million t/a; 15 sets of alkylation gasoline unit with a capacity of 1.34 million t/a, a 300 000 t/a unit (one enterprise) to be constructed; there were 12 small refineries, which produce partial propylene and isobutene with C3/C4 as raw materials through dehydrogenation; in cities like Panjin, Daqing and Maoming, plants for producing isobutene-MTBE via isobutane dehydrogenation were constructed, with another 280 000 t/a project in planning; Yantai Wanhua constructed a 240 000 t/a epoxypropane unit and a 750 000 t/a MTBE unit, with the technology of iso-butane and propylene co-oxidation; projects (five enterprises) for making cis-butenedioic anhydride by n-butane boasted a total capacity of 90 000 t/a, with two projects (130 000 t/a) under construction; there were 19 sets of MTBE/1-butene cogeneration unit with a total capacity of around 464 000 t/a, and two sets (100 000 t/a) were in planning; two sets of 1-butene unit (ethylene dimer method), 7 000 t/a; SECCO constructed a project on producing propylene through the disproportionation of n-butene and ethylene; there were two projects for producing propylene through C4 cracking with a total capacity of 450 000 t/a, and three projects (1.5 million t/a) were in planning; a 100 000 t/a butadiene unit with the technology of 1-butene oxidation dehydrogenation was constructed in Shandong, where three units were in planning, with a total capacity of 450 000 t/a; Beijing Yanshan Petrochemical Corporation was constructing a 200 000 t/a 2-butene to propylene unit, which is expected to be completed in 2012; with a total capacity of 440 000 t/a, eight plants for producing sec-butyl alcohol-MEK by 2-butene were constructed by enterprises including Qilu Petrochemical, Fushun Petrochemical, Xinjiang Tianli and Zibo Qixiang Tengda Chemical; there were eight polyisobutene manufacturers, which boasted a total capacity of 117 800 t/a; more than 10 tertiary butanol units with the technology of isobutene hydration, 80 000 t/a; two isobutene to MMA units, 190 000 t/a; six projects for making sec-butyl acetate by LPG and acetic acid, 380 000 t/a, seven projects (650 000 t/a) in planning.
   Manufacturers are developing technologies for producing ethylbenzene through C4 catalytic cracking and dry gas, making butadiene via butene oxidation and dehydrogenation, manufacturing propylene by means of the disproportionation of butene and ethylene, and on propylene-butene copolymer.

(3) Industrial Fuels
China’s LPG consumption in the field of industrial fuels increased from 4.4 million tons (19.8% of the total) in 2005 to 4.5 million tons (18.7%) in 2011, up 0.4% annually. As the consumption in industrial fuels is influenced by the macro-economy, which is expected to continue growing in the coming five years, with 7% growth in GDP, LPG consumption will maintain slow growth.

(4) Automotive Fuels
China has developed vehicles with LPG as fuel for just 10 years. In 1999, the Ministry of Science and Technology of the PRC initiated the “Clean Car” activity, and promoted LPG vehicles – the focus of the activity – in 12 major cities. The consumption of LPG dedicated to automotives reached 450 000 tons once in 2002. Since that year, due to rising prices, the products have gradually lost advantages compared with gasoline and diesel.
   With an annual growth rate of 10.3%, the consumption in automotive fuels grew from 444 000 tons (2.0% of the total) in 2005 to 800 000 tons (3.3%) in 2011.

(5) Other Fields
In 2011, other areas like the food industry, brewing industry, grain drying, tobacco processing, breeding industry and jet fuels consumed more than 470 000 tons of LPG, accounting for 2.0% of the total.

Conclusions

Since 2005, the growth of the world’s LPG output has decelerated, but in the coming five years, consumption will be propelled by the petrochemical industry and civil/commercial fuels, and the supply is expected to grow more rapidly in the Middle East and Asia.
   Though China increased its LPG self-sufficiency rate to 93.0% in 2011, imports will still be required in the long term. At present, the field of civil/commercial fuels consumes 62.4% of LPG, but the demand for LPG as a petrochemical feedstock will grow rapidly. With more and more petrochemical enterprises paying attention to comprehensive utilization of LPG, corporations that intend to construct LPG units should ensure a stable supply of raw materials.