China’s DME Capacity Will Reach 13.0 Million T/A by 2015

By Yang Chuanwei, China Petroleum and Chemical Industry Federation

1. DME units transfer to produce other products

China’s dependence on imported crude oil reached 54.8% in 2011. In the same year, the dependence on imported natural gas in China also reached 21.5% and was expected to be more than 30% in 2012. Therefore, relying on rich domestic coal resources to develop coal based alternative energy can relieve the imbalance between supply and demand for oil and gas in China. As an emerging clean energy source, dimethyl ether (DME) can replace liquefied petroleum gas (LNG) as household fuel gas and replace diesel as vehicle fuel. Therefore, players are generally optimistic about the development prospects of DME.
   Since 2006, enthusiasm for investing in DME projects has been growing constantly in China, leading to rapid growth of DME capacity. As of the end of 2011, China's total capacity to make DME had reached around 9.5 million t/a. However, influenced by the factors such as insufficient policy support, incomplete infrastructure facilities and nonstandard market order, the downstream users’ approval degree to DME is not high, consequently hampering the promotion and application of DME. In the last two years, some DME units have been converted to produce other chemical products, and some DME construction projects already under way have been slowed down.
   At present, the operating rate of DME units in China remains only around 30%. Owners of many additional DME units have prepared to convert the equipment to producing other chemical products. For example, Zhongtian Hechuang Energy Co., Ltd’s 3.0 million t/a DME demonstration project is planned to be converted to make DME/methanol-to-olefin (DMTO) as well as its downstream products. Around 20 large-scale DME projects such as 1.0 million t/a of Yulin Natural Gas Chemical Industry Co., Ltd, 1.2 million t/a of Shaanxi Coal and Chemical Industry Group Co., Ltd, 1.0 million t/a of Shanxi Lanhua Group and 1.0 million t/a of Ningdong Energy Chemical Base are also prepared to apply for permission to convert to DMTO. Affected by this, in 2011 only 1.0 million t/a DME capacity was completed and put into operation, and the growth of capacity slowed greatly.

2. Popularity and application of DME are hard to expand

DME has a huge potential market demand in household fuel gas and vehicle fuel. In order to support the promotion and application of DME, China's central government and some local governments have issued a lot of favorable policies and standards. In 2007, Shandong's provincial government permitted DME to be used as a household fuel gas. “DME for Urban Household Fuel Gas,” a nationwide industry standard issued early in 2008, also gives DME legal status as household fuel gas. In the same year, the Chinese Ministry of Finance and the State Administration of Taxation reduced the value added tax of DME from 17% to 13%. In the “Access Regulations for New-Energy Vehicle Manufacturers and Products” released by the Ministry of Industry and Information Technology of China in 2009, DME vehicles are clearly included in the scope of new energy vehicles. The national standard of “DME for Vehicle Fuel” was formally implemented on November 1, 2011, offering the “access card” for DME to enter vehicle fuel market.
   These favorable policies have greatly stimulated investment in the DME industry and promoted the rapid growth of capacity. But at the same time, some problems with the use of DME become increasingly apparent and severe. First, the construction of matching facilities is slow. In the household fuel gas sector, whether it is burning alone or burning with LNG, DME needs special matching facilities like DME cylinders, stoves and cylinder-filling stations. Similarly, in the vehicle fuel sector, engines need to be modified to use DME, and the availability of special lubricants and the construction of special filling stations are also needed. Production enterprises and dealers find it very difficult to finish these tasks, however. Second, the price advantage of DME is not obvious. The calorific value ratio of DME and LNG is around 1:1.6. Thus, as a new alternative energy product entering the market, DME must offer a certain advantage in price. However, the price/calorific value ratio of DME has not much difference with that of LNG. In some regions, it is required that the proportion of DME in LNG should not be more than 20%. But some dealers often add 30% or more DME to LNG, resulting in a significant decline in the performance/price ratio of the blended fuel. Third, the market is not very orderly yet, resulting in a number of serious leaks and explosions, seriously hampering the promotion and application of DME products. Finally, the system of standards still needs to be perfected. For example, in addition to national standard, the promotion of DME for vehicle fuel also needs support from a series of related standards like cylinders, filling stations and engines, etc.
   In 2011 China’s demand for DME was only around 3.0 million tons, a slight growth year-on-year. Within that, the demand for DME was around 2.5 million tons in the fuel gases sector and around 500 thousand tons in other sectors. The overall operating rate of DME units in China was only 32%.

3. Factors that affect the competitive edge of DME plants

Methanol is the main raw material for the production of DME, accounting for 70%-80% of the production cost of DME. Therefore, having a sufficient supply of cheap methanol is crucial for DME producers to reduce their costs and improve their competitive edge. The construction of DME units with matching methanol units has already become the inevitable choice for DME enterprises here. As of the end of 2011, around 60% of DME capacity in China had auxiliary methanol units. In addition, in the case of DME units being constructed or planned for construction, more than 80% of DME capacity had auxiliary methanol units. However, around 80% of DME capacity in China is constructed in the eastern region with relatively scarce coal resources. In view of the long-term bullish trend of coal prices, even if the DME enterprises have auxiliary methanol units, it is going to be very difficult for them to keep production costs within a profitable range due to their lack of control of the raw material supply This will become the biggest bottleneck that restricts DME enterprises to grow larger and stronger.
   The international oil price is also an important factor affecting the competitive edge of DME products. Therefore, since the possibility of international oil price increases being constantly slowed down for a period of time cannot be ruled out, China’s LPG market will be inevitably affected by the suppressed domestic price of LNG,  directly affecting the competitiveness of DME products as well as the market promotion of DME.

4. Technological innovation

In 2009, Guangzhou Institute of Energy Conversion (GIEC), Chinese Academy of Sciences successfully began a trial run of a 1 thousand t/a biomass-to-DME unit producing DME through biomass gasification. The unit uses proprietary technology developed by Guangzhou Institute of Energy Conversion (GIEC), Chinese Academy of Sciences, and biomass raw materials like wood powder. Based on the principle of biomass thermochemical conversion, biomass is first oxidized by oxygen-rich air into crude fuel gas, which is then purified and reformed into syngas. Under certain pressure and temperature, the resulting syngas is synthesized into DME liquid fuel through a one-step catalytic reaction. The key techniques of the unit include low tar fluidized bed oxygen enriched-steam composite gasification, crude syngas one-step oxidation reforming modulation, high temperature dust removal and synthesis process optimization.Further research in catalysts for the synthesis of DME is being conducted. At present, the unit operates stably, the composite gasification of the biomass exceeds 82% efficiency, and the conversion rate of syngas into DME is better than 70%.
   If the industrialization of biomass-to-DME technology can be smoothly achieved and at the same time, the problems of catalysts and production costs are solved, China can not only reduce the DME sector’s dependence on coal resources, but also push the domestic biomass chemical sector toward high-end products.

5. Conclusion

Two standards -”Mixed fuel Gas of LPG and DME” and “Mixed fuel Gas Cylinder of LPG and DME,” planned to be completed in June 2012, will be promulgated and implemented in the first half of 2013. The advance of standards formulation also indicates that China remains optimistic about the development prospects of the DME sector, and expects DME to play a greater role in alleviating the tight energy supply and reducing the dependence on oil and gas resources.
   However, influenced by factors like the sluggish economic situation and hindrances in product promotion, the capacity expansion of DME is expected to slow down. It is expected that China’s capacity to make DME will reach 13.0 million-14.0 million t/a by 2015. During 2011-2015, some DME enterprises with small-scale, outdated technology and poor competitive edge will withdraw from the market, and the domestic DME sector reshuffle.