Domestic PDH Market Not Promising

By Wang Hongqiu, PetroChina Petrochemical Research Institute

Around the world, the proportion of propylene produced from naphtha steam cracking and catalytic cracking has decreased from 97% in 2001 to about 87%. The new methods include propane dehydrogenation (PDH), olefin metathesis and methanol-to-olefins. About 6.2% of the world’s propylene is now produced from PDH, making it the third largest source.  
In China, PDH plants that are scheduled to start operation before 2015 have an excellent chance of being profitable, at least at first. However, after 2015, the profitability of PDH plants in China will depend heavily on management’s ability to acquire a long-term stable and cheap supply of propane and to extend the industrial chain downstream toward deep processing of propylene.
For the PDH process, as propane is the only raw material and propylene is the only product, the cost of propane accounts for about 60% of the total costs. Therefore, the profitability of making PDH depends on the price difference of propane and propylene. It will certainly be difficult for PDH players without a stable cheap propane supply to compete with propylene producers using other production methods. In the next two years, many PDH plants will be put into production in China. However, considering the fact that the consumption of propane in these plants will rely on imports, not all of these plants will have bright profit prospects.  

Global PDH capacity will double in two years

Currently, the commercial PDH process uses catalytic dehydrogenation technology to produce propylene from propane. A newer technology is oxidative dehydrogenation, which has not been industrialized yet. The catalytic PDH process was developed from the dehydrogenation technology of making isobutylene from iso-butane. The first commercial PDH unit was put into operation in 1990. However, due to the large cost of building the production unit and the relatively low price of propylene, the development of the PDH sector globally has been slow since then. With the climb of both the demand and price for propylene in the 21st century, the construction of PDH plants has been accelerated and the scale of PDH units has gradually increased. Technical progress in the catalytic PDH process in recent years lies in the enlargement of production scale, optimization of processes and the development of new catalysts. Catalytic processes that have already achieved industrialization were respectively developed by UOP, ABB Lummus, Krupp Uhde, etc.   
In 2013, 20 PDH units were in operation around the world, with a combined capacity of 6.705 million t/a, accounting for 6.2% of all propylene capacity. These units are located in countries including Saudi Arabia, Thailand and Malaysia. All these PDH units use high-purity (>97%) low-sulfur-content propane from petroleum gas. In the Middle East, as the prices of light hydrocarbons including propane are based on a fixed natural gas price (US$0.75-1.50 per million British thermal units), the cost of propylene production in this region is the lowest in the world.
In North American, along with the shale gas revolution, PDH plants using propane from shale gas condensates as raw material have attracted more and more attention. The first PDH plant in North America, with a capacity of 544 kt/a, was put into operation in the second half of 2010. Currently there are still six projects in planning, being designed or under construction. If all these plants start operation, the total PDH capacity in North American will exceed 2.7 million t/a, leading to a capacity surplus in the region.
Several PDH plants have been built or will be constructed in other regions of the world. The Abu Dhabi Oil Refining Company (Takreer) constructed a 500 kt/a PDH unit in Saudi Arabic using the Oleflex process of UOP. Kazakhstan announced that the country will invest US$6 billion to construct a series of petrochemical plants, including a 500 kt/a PDH plant which is scheduled to start operation by the end of 2015 in Atyrau city. Oriental Petrochemicals Company (OPC) is planning to construct a 250 kt/a PDH unit in Egypt by the end of 2015, expanding its polypropylene capacity to 220 kt/a.
In China, there has also been a rush to construct PDH plants in recent years, and the total capacity here will exceed 5 million t/a by 2015. If all these plants are completed as scheduled, the global PDH capacity will exceed 15 million t/a by 2015.

Domestic plants restricted by the raw material supply

Currently, the 600 kt/a PDH unit in Tianjin Bohai Chemical Industry Group Co., Ltd. is the only PDH unit being in operation in China. However, there has been a boom of PDH plant construction in the country. It is estimated that the total capacity of PDH plants that have been already approved is about 5.66 million t/a (see Table 1 for details). In the future, newly proposed PDH projects must be examined and approved by the central government, and a new project must be inside industrial park and have a matched shipping dock in order to get approval, likely cooling down the construction boom.
Because China lacks petroleum gas resources and liquefied gas from oil refining cannot be used in the current PDH process due to high sulfur content, the raw material, high-purity liquefied propane from petroleum gas, must be imported.
In the global market, liquefied propane buyers must satisfy a series of criteria in creditability, storage facilities, shipping docks, as well as payment terms and payment schedule. The sellers of liquefied propane are several large multinational traders which purchase directly from oil producers in the Middle East or other regions. Normally, liquefied propane is shipped overseas by a large refrigerated ship with a load of at least 40 kt. Therefore, liquefied propane importers must have a specialized shipping dock to unload goods and matched freezing tanks to store and transport goods. In China, the approval of a river wharf for loading/unloading dangerous chemicals is very strict, and the scarcity of dock resources will become a significant barrier to importing liquefied propane.
Propane price has a strong influence on the profitability of PDH plants. According to data from China Customs, in 2013, the volume of liquefied propane imported to China was 2.454 million tons, up 30.3% year; the average import price was US$893.9/t, up 0.69% year-on-year. Figure 1 shows the import data in recent years. Considering the fact that the average price difference (including tariff) between imported propylene and imported liquefied propane from 2007 to 2013 was US$500/t, PDH players in China have relatively good profit margin. In the next few years, as many newly constructed PHD plants start operation, both the price difference between propylene and propane and profit margin of PDH players are expected to narrow. These plants will still be quite profitable before 2015. However, their profitability after 2015 depends on their ability to ensure a propane supply and to extend their industrial chain downstream.
In the past two decades, large petrochemical companies and research institutes have been active in R&D to develop new propylene production technologies and find alternative raw materials, and some such technologies have already achieved industrial application. However, as the conditions of the refining industry and petroleum reserves differ from country to country, in order to choose a profitable propylene production route, enterprises should consider many factors including raw material supply, origin of the process technology, production scale, investment, production costs, etc. In particular, as PDH plants depend on imported petroleum gas for high-purity propane, Chinese PDH players should give more attention to the long-term stable and cheap supply of propane raw material, constructing enough propane storage facilities and extending their industrial chain to downstream sectors.             

Table 1   PDH plants under construction or being planned in China (kt/a)

Company    Location    Capacity    Time to start production    Technical process    Status
China Flexible Packaging Holding Ltd.    Fujian    660    2014    UOP-Oleflex    Under construction
Zhejiang Sanjin Petrochemical Co., Ltd.    Shaoxing of Zhejiang    450    2014    UOP-Oleflex    Phase I under construction
        450    TBD        Phase II being planned
Zhejiang Satellite Petrochemical Co., Ltd.    Jiaxing of Zhejiang    450    2014    UOP-Oleflex    Phase I under construction
        750    TBD        Phase II being planned
Ningbo Haiyue New Materials Co., Ltd.    Ningbo of Zhejiang    600    2014    Lummus-Catofin    Under construction
Guangdong Pengzun Energy Development Co., Ltd.    Zhanjiang of Guangdong    300    2016    UOP-Oleflex    Under construction
Zhangjiagang Yangzijiang Petrochemical Co., Ltd.    Zhangjiagang of Jiangsu    600    2015    UOP-Oleflex    Under construction
Jiangsu Changjiang Natural Gas Chemical Co., Ltd.    Nantong of Jiangsu    650    2014    UOP-Oleflex    Under construction
Wanhua Chemical Group Co., Ltd.    Yantai of Shandong    750    2014    UOP-Oleflex    Under construction
Total    5 660