Importing Ethane to Produce Ethylene in China Is Infeasible for Now
Year:2014 ISSUE:11
COLUMN:ORGANICS
Click:191    DateTime:Jun.20,2014
Importing Ethane to Produce Ethylene in China Is Infeasible for Now

By Yu Wei, China National Chemical Information Center

Ethylene is one of chemicals with the biggest output in the world. It is the core of the petrochemical industry. Ethylene derivatives account for over 70% of petrochemical products. Ethylene holds an important position in China’s national economy. Its production scale and level has become one of major indicators for the development level of the petrochemical industry in any country.
The total capacity for ethylene in China was 17.87 million t/a in 2013, an increase of 7.5% over the previous year. The output was 16.225 million tons, an increase of 7.1%. The net import volume was 1.704 million tons, an increase of 19.7%. The apparent consumption was 17.929 million tons, an increase of 8.1%.
The consumption of ethylene in China is mainly in making its derivatives. More than 60% of ethylene is used in the production of polyethylene. In consumption statistics, the equivalent consumption is usually used to evaluate the actual demand for ethylene. The equivalent consumption of ethylene in China was around 35.106 million tons in 2013, the self-consumption rate of the ethylene equivalent consumption was around 46.2%, so there is still a considerable gap.
Owing to the present rapid development of three downstream sectors in China – construction materials, household electric appliances and automobiles – the demand for ethylene derivatives such as polyethylene, polystyrene and synthetic rubbers will maintain rapid growth in 2014 and the increase of ethylene demand will be promoted. It is expected that the equivalent demand for ethylene in China will be 37.25 million tons in 2014, an increase of 6.0% over 2013. There will still be quite a big gap in next few years and the ethylene sector will still have a considerable development potential.
China has already become the second biggest ethylene producing country in the world, after the United States. What should be noted, however, is that due to the high oil price in the international market in recent years, competitiveness of ethylene units using naphtha as raw material has been drastically reduced. Operators of naphtha-based ethylene units in China have been forced by competitive pressure to restrict production in the past two years. By contrast, ethylene made from low-priced ethane has a prominent cost advantage.

Advantages of ethylene production through ethane cracking

The production of ethylene through ethane cracking has the advantages of low cost, high yield, small market-entry investment and little pollution. According to CEH reports, the yield of ethylene using the ethane process can reach 80.5%, much higher than the yield of 35% in the traditional naphtha process used in China. With the large-scale extraction of natural gas in the United States, Canada and the Middle East, especially the shale gas revolution staged in the United States in recent years, the supply of ethane has increased drastically and the keeps coming down. Production of ethylene through ethane cracking has become a very competitive process. The proportion of ethane among ethylene raw materials around the world increased from less than 10% a few years ago to 34.8% in 2012. Figures 1 and2, respectively, show the proportion of ethylene raw materials in the world and in China.
Table 1 shows the economics of the naphtha process and the ethane process for the ethylene production based on the offering prices of naphtha from PetroChina, the offering prices of ethane in the United States and the offering prices of ethylene in Asia in May 2013. It can be seen that producing ethylene from ethane is very profitable.

Few ethane-based ethylene units
in China

Units for the production of ethylene through ethane cracking are mainly concentrated in the United States (24.054 million t/a), Canada (5.048 million t/a), the Middle East (27.515 million t/a) and West Europe (11.693 million t/a). Typical producers include ExxonMobil Chemical (3.00 million t/a), INEOS Americas (1.86 million t/a) and Sweeny Texas (1.86 million t/a).
According to reports carried by Worldwide Refining Business Digest Weekly of the United States, ten new ethane-based ethylene projects with a total capacity of around 12.50 million t/a are set to be launched in the United States. Most of these projects will start production during 2016-2018. Of these ten projects, the three world-class units recently announced include a 1.20 million t/a unit to be constructed by Formosa Plastics Chemical in Louisiana, a unit with an investment of US$3.0 billion to be constructed by Axiall of the United States in Louisiana and a unit to be constructed by Odebrecht of Brazil in West Virginia.
It is reported that the new ethylene capacity will bring huge changes to the petrochemical sector in the United States. Ethylene producers gained enormous profits in 2013. They purchased low-priced ethane from shale gas and sold ethylene at a price of naphtha-based ethylene. The gross profit reached US$661-1 120/t.
Few companies produce ethylene through ethane cracking in China. Such producers are mainly concentrated in Yanshan Petrochemical Co., Ltd. and Qingdao Refining & Chemical Co., Ltd. An ethane-based ethylene unit with a capacity of over 1.00 million t/a planned to be constructed in Lanzhou has already passed the experts’ evaluation organized by the Ministry of Industry and Information Technology.

Table 1   Comparison of the two ethylene production processes

Process route    Raw material price (RMB/t)    Product yield (%)    Cost (US$/t)    Profit rate (%)
Naphtha – ethylene       6 500    32       1 100     9
Ethane - ethylene       2 560    80.5     800    50


Insufficient supply of ethane in the world

Major ethane producing countries/regions in the world include the United States, Canada and the Middle East. Table 2 shows the output and the consumption of ethane in major countries/regions of the world in 2012.
It can be seen from Table 2 that the supply of ethane in the world was insufficient in 2012. Major ethane producing countries/regions basically use the ethane output themselves with a limited amount for outside supply. Only the Middle East sells 1.12 million tons of ethane a year to peripheral countries through pipelines.
Cryogenic treatment is needed to obtain ethane from the natural gas. As the ethane has great volatility and high steam pressure, it cannot be loaded onto traditional tankers for shipping, so for ocean-going transport, special ships have to be designed. The cost of ethane trade is therefore very high. Ethane is mainly shipped through pipeline or by land today. No ethane is yet transported by sea. More than 95% of ethane in the United States is shipped through pipeline. According to US development programs, pipelines will be laid in the future to sell ethane to Canada and Mexico.
Huge high-pressure containers have to be manufactured for the storage of ethane. High investments will therefore be needed. The United States mainly uses natural underground salt caves for the storage of ethane, greatly reducing the cost.


Table 2  Output and consumption of ethane in major countries/regions in 2012 (kt)

Country/region            Output         Consumption
USA                        21 029            21 029
Canada                     4 466             4 466
Middle East                21 500            20 383
Central/South America     1 350             1 653
China                        18                25
West Europe                 1 130             1 980


Forecast of ethane supply/demand around the world

The Middle East is the region with the lowest-priced ethane resources in the world. Due to the increase of its own demand and a slowdown of output growth, the outside supply of ethane from the Middle East will decline for the foreseeable future. It is expected that the average annual growth of the ethane demand in the Middle East will be 4.1% in the next 5 years, the consumption will reach 24.915 million tons in 2017 and the export volume will shrink drastically (to less than 700 kt).
Ethane in Canada is totally produced through the processing of natural gas. Due to the reduction of the natural gas output and the increase of the domestic demand, Canada will turn from an ethane exporter to a net ethane importer. The major import source will be the United States. It is expected that the average annual growth of the ethane demand in Canada will be 5.8% in the next 5 years; demand will reach 5.91 million tons in 2017, and 1.51 million tons of ethane will have to be imported each year.
In the United States the average annual growth of ethane output from shale gas will be 24.7% during 2012-2017 and the output of ethane from shale gas will reach 9.706 million tons in 2017. It is expected that the average annual growth of the ethane output in the United States will be over 8% in the next 5 years; the total output will reach 30.899 million tons in 2017; and the consumption will be 27.60 million tons with an average annual growth of 5.6%. Around 3.299 million tons of ethane can be used for export at that time.
According to its development programs, the United States will start to export ethane to Europe by naval vessels in 2015. Based on reports carried in by Chemical Week of the United States, INEOS of Europe said on January 23, 2013 that it already signed a 15-year shipping agreement with Evergas Copenhagen. Around 4.0 kt of ethane (70 000 barrels) a day, totaling 1.50 million tons a year, will be shipped to Europe. New ships manufactured and operated by Evergas will be put into service in 2015. The United States also plans to lay new pipelines to Canada and the Gulf of Mexico in 2014.
Due to the increasing demand for ethane in Europe and Central/South America and the high ocean shipping cost, there is almost be no possibility for the United States to export ethane across the Pacific to Asia before 2017.
Three-quarters of China’s 2012 ethylene output was produced through naphtha cracking. The output of ethane-based ethylene accounted for only 0.1% of the total. Due to China’s comparative lack of oil/gas resources, the supply of ethane is in serious shortage. The consumption of ethane in China was less than 25 kt in 2012. Raw materials for the production of ethylene in China will mainly be naphtha and coal chemicals in the future.

Feasibility of raw material supply for large ethane-based ethylene projects in China

Owing to the large-scale extraction of shale gas in the United States, its output of ethane will increase drastically. Around 3.299 million tons of ethane can be used for export in 2017. As we said, starting from 2015, 1.50 million tons of ethane will be supplied to Europe a year. There will also be a gap of 1.50 million tons in Canada and increasing demand in Central/South America. The United States will have no surplus output to ship to additional regions before 2017.
According to calculations, the export volume of ethane in the world will be around 4.00 million tons in 2017. The amount imported by China will be around 40 kt, accounting for 1% of the total. Figures 3 and 4 show a forecast of the import and export, respectively, of ethane around the world in 2017.

Conclusions

(1) The production of ethylene through ethane cracking has multiple advantages of low cost, high yield, small investment and little pollution. It is an important measure to enhance competitiveness of ethylene production and also a direction for vigorous development in regions with rich oil/gas resources such as the United States, Europe, the Middle East and South America.
(2) As ethane has great volatility and high steam pressure, it cannot be loaded onto traditional tankers for shipping. Special ships have to be used. The lead time for infrastructure is therefore long and the cost is high.
(3) Due to the increase of their own demand and the slowdown of their output growth, the outside supply amount of ethane in the Middle East and Canada will make a constant reduction. Canada will turn from an ethane exporter to a net ethane importer in the next three years.
(4) Owing to the rapid development of shale gas, the United States will become the world’s biggest ethane producer and exporter. Due to proximity and transport costs, the major destinations for the export of ethane in the next five years will be Canada, Mexico and Western Europe. There is slim hope for ethane to be sold to Asia.
(5) Due to China’s comparative lack of oil/gas resources, the supply of ethane here falls seriously short of demand, and it would be almost impossible to import great quantities of ethane in the near future.
Judging from the present status of the ethane supply in the world and the future development trends, due to the insufficient supply of ethane raw material it is not feasible for China to depend on the large-scale import of ethane to produce ethylene before 2017.