What Is the Path Forward for China’s Ethylene Industry?

By Qu Yansong, Gao Chunyu and Yang Xiuxia, Economics & Development Research Institute of Sinopec

After 2008, the world entered a new round of ethylene capacity expansion. In a short span of three years, more than 20.0 million t/a was added around the world, bringing the total to 147 million t/a, up 16.6% from 2008. At the same time, due to relatively low prices of natural gas, the favored raw material shifted toward the lightweight gas, and the proportion of heavier raw materials was reduced from 52.3% in 2005 to 44.1% in 2011. In recent years, China has been expanding its own capacity at a historic pace. During 2009-2011, China added 5.28 million t/a, bringing its total to 15.29 million t/a. Its share of the world's total rose from 7.9% in 2008 to 10.4% in 2011. However, it is noteworthy that in recent years, international crude oil prices have remained high, greatly reducing the competitiveness of ethylene made from naphtha. Under the pressure of competition, domestic ethylene makers have begun to cut back production in recent two years. What is the best way forward for China’s ethylene industry? This is an important subject.

1. Rapid development

China’s ethylene sector has developed rapidly, making China the second largest producer in the world. The development outlook is favorable, at least until 2020. By the end of 2011 China had 30 large ethylene units with a combined capacity of 15.29 million t/a, of which five units have individual capacity exceeding 1.0 million t/a. Shanghai Secco Petrochemical Co., Ltd's 1.19 million t/a ethylene unit is the largest in China. China’s major ethylene producers in 2011 are listed in Table 1.
   The startup of new MTO (methanol to olefins) units by domestic enterprises, with Shenhua Group as an example in 2010, marked the beginning of raw material diversification.
   In the next few years, ethylene capacity construction will still be going strong in China. As the familiar naphtha-based units continue to contribute, MTO and heavy oil catalytic cracking technologies will also be employed.
   Currently, naphtha-based units are still in the majority among new units. PetroChina Fushun Petrochemical Co., Ltd’s 800 000 t/a and PetroChina Daqing Petrochemical Co., Ltd’s 600 000 t/a ethylene units are expected to go on stream in 2012. Wuhan Petrochemical Co., Ltd’s 800 000 t/a and Sichuan Pengzhou Petrochemical Co., Ltd’s 800 000 t/a ethylene units are expected to be put into operation in 2013. Other projects expected to be put into production before 2015 include: Sinopec Shanghai Petrochemical Co., Ltd’s 800 000 t/a and Sinopec Yangzi Petrochemical Co., Ltd’s 800 000 t/a ethylene expansion projects, and a 1 million t/a ethylene project (waiting for approval) of CNOOC Huizhou. By 2015, China’s capacity is expected to reach 24.06 million t/a.
   After 2015, China will continue to construct large-scale ethylene capacity using naphtha as raw material. Some projects already planned for that period are a 1 million t/a ethylene project of Sinopec and Kuwaiti Petroleum Corporation in Zhanjiang of Guangdong province, Sinopec Qingdao Refining & Chemical Co., Ltd’s 800 000 t/a ethylene project, Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd’s 1 million t/a ethylene project in Caojing of Shanghai, Hainan Refining & Chemical Co., Ltd’s 1.2 million t/a ethylene project, and PetroChina’s 1.2 million t/a ethylene project in Taizhou of Zhejiang province. By 2020 China’s capacity is expected to exceed 37.0 million t/a.

2. Lightweight raw materials are increasingly employed

China’s ethylene industry was initially based on naphtha, and naphtha remains the principal raw material. However, due to an inadequate supply of naphtha, some ethylene enterprises also use light diesel.
   In recent years, due to the high price of crude oil, many domestic enterprises have done a great deal of work in order to use lightweight raw materials. In particular, the proportion of light diesel in the overall mix of ethylene raw materials has been reduced significantly, while the proportion of lightweight raw materials like light hydrocarbons has increased significantly.

3. MTO will be an effective supplement to China’s ethylene industry, and compete with the traditional ethylene-making process

Since 2005, the drastic price rise of crude oil in the international market has made it possible to use CTM (coal to methanol) as well as MTO processes to produce ethylene and propylene. Organizations like Sinopec and the Dalian Institute of Chemical Physics of the Chinese Academy of Sciences have researched MTO technology. In 2010, Shenhua Group used the DMTO (dimethyl ether or methanol to olefin) technology developed by the Dalian institute to build China's ethylene unit using coal as raw material. After two years of operation, the unit’s stability and the technology’s maturity have improved significantly, and good economic benefit has also been achieved. For example, in 2011 Shenhua Group produced 495 000 tons of polyolefin products and reaped more than RMB1 billion of profit. The company’s profit per ton of product reached over RMB 2 000, far higher than that of naphtha-based product.
In the next few years, China’s MTO capabilities will begin to develop rapidly. In addition to Sinopec, CNOOC and large domestic coal producers will vigorously develop the coal chemical industry, especially the coal to olefin sector. It is expected that 6-8 MTO units will be put into operation before 2015, and many more MTO units will be on the drawing boards in 2015.
   
4. Growth of domestic ethylene consumption slowed down significantly in 2012

Since 2010, with the overall domestic economic slowdown, the growth of ethylene equivalent consumption here has slowed down notably. In 2011 China’s equivalent consumption of ethylene reached 31.32 million tons, up 4.9% year-on-year. It is estimated that equivalent consumption grew around 4% in 2012.
China’s use of ethylene did not change much in 2011: around 56% for PE (polyethylene), around 21% for MEG (mono-ethylene glycol), around 9% for styrene monomer and around 8% for PVC (polyvinyl chloride). for the only use of ethylene that is expected to grow is MEG production, for which consumption will still grow at over 8%. The growth of consumption in the manufacture of PE, styrene monomer and PVC will drop to around 5%, 4% and around 1%, respectively.
   The growth of demand for ethylene-based products will slow down significantly, so the growth of domestic ethylene equivalent demand will also slow down drastically, growing around 5% annual during 2010-2015. It is expected to reach 38.0 million tons by 2015. After 2015, given constant recovery of the economy, demand  may grow faster. By 2020, domestic equivalent demand is forecast to be 49.0 million tons, with an average annual growth of over 5% during 2015-2020.

5. Options are shrinking for targeting downstream producers

In recent years, many ethylene projects have been planned in China, but targeting downstream producers has become an increasing problem for each new project. The development of coal chemical and natural chemical sectors has greatly narrowed the options.

(1) Targeting ethylene-based products
The types of ethylene-based products will be reduced constantly. At present, PVC, acetaldehyde and vinyl acetate have gradually faded from the downstream scene domestically, and at the same time, the popularization of dry gas–to-ethylbenzene technology has gradually decreased the use of ethylene in making styrene monomer. Judging from the current market situation, the direct consumption of ethylene is limited to the manufacture of PE – including LDPE (low density polyethylene), HDPE (high density polyethylene) and LLDPE (linear low density polyethylene) – and EO/EG (ethylene oxide/ethylene glycol), EPDM (ethylene propylene diene monomer), EVA (ethylene vinyl acetate) and alpha-olefins. However, due to market and technology constraints, the only downstream products being targeted in China are PE and EO/EG.

(2) Targeting propylene-based products
Propylene-based products mainly include polypropylene, acrylonitrile, propylene oxide, phenol and acetone, butanol and octanol, and acrylic acid and esters. Currently, because of technical breakthroughs, China’s construction of units to make phenol and acetone, butanol and octanol, and acrylic acid and esters has been notably accelerated, and it is expected that by 2015 China’s supply of all these products will be in surplus. China will also build around 10 propane dehydrogenation units and most of these units will be designed and operated with downstream polypropylene production in mind, so the supply gap of polypropylene will also be reduced significantly. A supply deficit exists in the acrylonitrile market, but environmental regulations effectively eliminate acrylonitrile makers as potential propylene consumers. Only polypropylene makers are not being eliminated from the market.

(3) Targeting butadiene-based products
Butadiene is mainly used in making cis-1,4-polybutadiene rubber, styrene-butadiene rubber, SBCs (styrene block copolymers), acrylonitrile-butadiene rubber, ABS  (acrylonitrile-butadiene-styrene) and adiponitrile. As the number of units for making cis-1,4-polybutadiene rubber, styrene-butadiene rubber and SBCs has been growing excessively, it is expected that China’s supply of these products will be in surplus. However, there will still be demand for butadiene among the makers of some high added value products such as SSBR (solution-polymerized styrene-butadiene rubber), neodymium BR (polybutadiene rubber) and hydrogenated NBR (nitrile butadiene rubber). In addition, other butadiene-based products like adiponitrile and 3-propylheptanol will still have opportunity for development. Therefore, the main domestic butadiene-based products will still be cis-1,4-polybutadiene rubber, styrene-butadiene rubber and ABS.

6. Suggestions for development

(1) Reducing raw material costs is the main way to decrease production costs
Cost cutting will become a major theme in the next stage of the ethylene industry’s development, and reducing raw material costs will be the main means. In the global ethylene market, the Middle East and North America are favored by low cost raw material supplies. China’s ethylene makers not only have to compete with producers in those regions, but with domestic MTO enterprises. Therefore, cost cutting will become the key to survival. In recent years, the domestic demand for liquefied petroleum gas has decreased, so increasing the use of liquefied petroleum gas in making ethylene will be one of the main competitive tactics. At the same time, the construction of more cracking units with mixed feed will increase the pressure to improve existing ethylene units.

(2) Increasing by-product yield is another competitive tactic
Another feature of the naphtha-based ethylene units is their valuable by-products. Especially in recent years, the use of light hydrocarbon raw materials has increased substantially, so the output of by-products like propylene, C4, C5 and C6 has grown little, resulting in rising prices for these products. (Butadiene had the most dramatic price rise.) The use of lightweight raw material will still be the development trend for the domestic ethylene industry, so the supply of propylene, C4, C5 and C6 will still continue to be tight.
   Increasing the yield of these by-products is one means to improve the competitiveness of naphtha-based ethylene units. Therefore, China should improve the yield of these monomers through improving technology or using appropriate raw materials.

(3) Improve management thinking about naphtha-based operations and products
In traditional thinking about naphtha cracking units, ethylene is generally regarded as the core product. Now, the by-products will become the essential for naphtha cracking units to compete with other ethylene units. Therefore, operational and product decisions for naphtha-based units should be based on the output and market prices of all the products.

Table 1 China's Major Ethylene Producers in 2011
Producer    Capacity (kt/a)    Patent technology

China Petrochemical Corporation (Sinopec Group)        
Beijing Yanhua Petrochemical Co., Ltd    710    Lummus sequential separation
Qilu Petrochemical Co., Ltd    800    Lummus sequential separation
Yangzi Petrochemical Co., Ltd    700    Lummus sequential separation
Shanghai Petrochemical Co., Ltd    845    S&W patent technology
Maoming Petrochemical Co., Ltd    1 000    Front-end depropanization and front-end hydrogenation process
Tianjin Petrochemical Co., Ltd    200    Lummus sequential separation
Guangzhou Petrochemical Co., Ltd    210    S&W front-end depropanization and front-end hydrogenation process
Zhongyuan Petrochemical Co., Ltd     280    Lummus sequential separation, SMTO
Beijing Eastern Petrochemical Co., Ltd    150    TPL patent technology
Shanghai Secco Petrochemical Co., Ltd     1 190    Lummus sequential separation
BASF-YPC Co., Ltd    740    S&W front-end depropanization and front-end hydrogenation process
Sinopec SABIC Tianjin Petrochemical Co., Ltd    1 000    Lummus sequential separation
Zhenhai Refining & Petrochemical Co., Ltd    1 000    Lummus sequential separation
Fujian Refining & Petrochemical Co., Ltd    800    Lummus sequential separation
Subtotal    9 625    

China National Petroleum Corporation (CNPC)        
Daqing Petrochemical Co., Ltd    600    KBR front-end depropanization and front-end hydrogenation process
Liaoyang Petrochemical Co., Ltd    200    China Chengda’s two towers for demethanization and depropanization
Jilin Petrochemical Co., Ltd    850    Technology from Dalian University of Technology, Linde  front-end demethanization
Dushanzi Petrochemical Co., Ltd    1 220    Lummus sequential separation, Linde front-end demethanization
Fushun Petrochemical Co., Ltd    140    Lummus sequential separation
Lanzhou Petrochemical Co., Ltd    700    1#S&W patent technology, KBR patent technology
Subtotal    3 710    

Others        
Liaoning Huajin Chemical Industry Group    610    Shanghai Wison, S&W front-end depropanization and front-end hydrogenation process
CNOOC and Shell Petrochemical Co., Ltd    950    
Shenhua Group    300    DMTO

Others    100    
Subtotal    1 960    
Total    15 295