By Cui Zhiqiang, Sinopec Refinery Product Sales Company

China began to implement National Phase V vehicle fuel standards nationwide by the end of 2017 and National VI standards, effective from January 1, 2019. Alkylate oil (industrial isooctane) has gained popularity in oil blending and oil refining sectors, because of its prominent properties of high octane number, ultra-low sulphur content, olefin-free, aromatic-free and oxygen-free. The optimal ratio of alkylate oil will increase in line with the accelerating pace of oil products upgrading. More capacity expansion plans are expected in China in 2019, with backward capacities poised to be phased out.  

Difficulties in China’s upgrading of oil products quality

   Compared to the National V standards, China’s National VI vehicle fuel standards for gasoline and gasoil can better reduce pollutant emissions, improve the quality of the atmospheric environment, and fully meet the current level of automotive oil standards in the European Union. The comparisons between China’s National Phase V and Phase VI standards for gasoline are shown in Table 1.  

   Table 1  Comparisons between China’s National V and National VI vehicle gasoline standards

   The progression of China’s oil products upgrading is outpacing that of developed countries in Europe and America. But the development of China’s oil refining industry started late and had a relatively weak foundation, and this has resulted in structural contradictions between oil refining facilities and oil demand. Therefore, the difficulties facing the upgrading of oil products quality are relatively large.   

Optimal ratio of alkylate oil increasing

   Alkylate oil (industrial isooctane) is an important gasoline component with an octane number between 94.5 and 96. It is a premium raw material for blending high-grade gasoline. The use of isooctane to replace methyl tert-butyl ether (MTBE)-blended gasoline has excellent anti-explosion and power performance and generates less exhaust.  

   Under the National VI gasoline standards, the increase of octane number when upgrading gasoline quality from 93# to 98# relies on raising the ratio of isooctane and reformed gasoline due to the oxygen content limitation. According to the optimization principle of oil blending components, the optimal addition ratio of isooctane will increase from 6% (National V) to 10-14% (National VI) with the quality upgrade of oil products speeding up.  

   Catalytic gasoline accounts for the vast majority of domestic gasoline, and the proportion is twice that of developed countries in Europe and America. China's refining industry is currently in the development phase. It posts the fastest growth rate of oil products demand around the world. In addition, the upgrading of oil products quality and higher environmental protection requirements, as well as the increase in the processing volume of imported sour crude are boosting the consumption of isooctane. Domestic gasoline production is expected to increase from 120 million tons in 2015 to 150 million tons in 2020, and isooctane demand will increase from 5.73 million tons in 2015 to 12 million tons in 2020 accordingly.

   The capacity expansion rate of domestic isooctane plants stood at above 10% during 2014-2016 and there are many expansion plans in 2019, which is likely to bring China’s total isooctane capacity to exceed 20 million t/a. In 2019, the implementation of China’s National VI gasoline standards is expected to push up domestic alkylate oil demand to over 10 million tons. However, after 2020, the growth room for alkylate oil demand will narrow, which will slow down its output and demand. Some backward capacities will gradually be phased out from 2020 onwards. Details are listed in Table 2-4.  

   Table 2  Supply-demand balance forecast of Chinese alkylate oil products in 2019-2023

   Table 3   Isooctane plants affiliated to Sinopec

   Table 4  Self-built alkylation units affiliated to PetroChina 

Standalone alkylation plants struggle to survive

   Isooctane plants face many challenges such as investment, construction time and cost amortization. Moreover, due to its relatively simple application, it is greatly affected by international crude oil prices and obviously restricted by ether-C4 output and prices. As self-built isooctane units are started up in a centralised period, China's isooctane capacity increased by 3.4 million t/a in 2018, triggering a decline in the circulation volume of ether-C4 by 2 million tons. Raw material costs showed an abnormal growth, and standalone alkylation producers are unable to adapt to the complicated and variable isooctane market situation and struggle to survive.

   The operating rate of deep-processing plants decreased in 2018, to an average of below 50% in Shandong. The number of producers that have suspended production for over half a year reached 10. Deep-processing alkylation plants mired in poor sales and difficulties in securing raw materials suffered squeezed profits compared with previous years. Their annual margin averaged RMB100/t.   

   The availability of ether-C4 will decrease further following Sinopec and PetroChina’s start-up of their own isooctance plants. Deep-processing producers may seek coal-based C4 and imported products to cover their demand gap. They may also team up with oil refining enterprises, which have not yet built up alkylation units so as to reduce their operational costs and achieve a win-win cooperation in the longer term.