27 February 2012 00:00 [Source: ICB]
Although China's ethylene capacity will register substantial growth during the government's 12th Five-Year Plan - from 2011-2015 - domestic output still cannot meet downstream demand. China's ethylene self-sufficiency rate is only expected to rise from 56% in 2010 to 62% by 2020, according to the China Petroleum and Chemical Industry Association (CPCIA).
Therefore, using coal as a substitute for oil to produce olefins is a strategy to ensure the security of chemicals supply as well as national energy. At present, coal-to-methanol (CTM) production technology is relatively mature in China, and methanol-to-olefins (MTO) technology can finally be put into industrial production.
Coal prices are relatively low in major producing regions in China, while naphtha values have risen rapidly in the past few years. Hence, coal-to-olefins (CTO) production can be cost advantaged over the naphtha-based process. China leads the world in CTO production.
China imported 1.52m tonnes of propylene, 815,400 tonnes of ethylene, 3.87m tonnes of polypropylene (PP) and 7.36m tonnes of polyethylene (PE) in 2010, reflecting a big supply/demand gap in olefins. Domestic ethylene and propylene demand is expected to increase by at least 10% during 2010-2015, as assessed by ICIS consulting.
China has three demonstration CTO projects, with total capacity of 1.56m tonnes. Shenhua Ningxia Coal Industry Group's 500,000 tonne/year methanol-to-propylene (MTP) project was commissioned in October 2010. Shenhua Group (Baotou)'s 600,000 tonne/year MTO project came on stream in August 2010, and Datang International Power Generation's 460,000 tonne/year MTP project started a trial run in June 2011.
These three units have already achieved stable production. In addition, Henan Zhongyuan's 200,000 tonne/year CTO unit was started up in 2011. There are another nine CTO projects expected to come on line before 2013, as listed in the table. These projects have already been approved. In addition, more than 30 proposed projects, with combined capacity of more than 20m tonnes, are expected to be constructed.
Most of these projects have not been approved by the Chinese government as CTO projects with capacities below 500,000 tonnes and CTM projects with capacities less than 1m tonnes are not allowed to be built unless the National Development and Reform Commission (NDRC) releases a new regulation.
Large projects still need approval by the NDRC, even if they meet the entry conditions. It is reported that three producers have suspended MTO/MTP projects because of financing and technological constraints arising from the strict policy.
CTO projects require major investment, consume large amounts of raw materials, energy and water, and also cause heavy pollution. There might be a clash between government support for an emerging industry and efforts for environmental protection.
The projects are located far from major consumer markets, leading to high transportation costs. CTO production has almost no ready-made experience to draw on. Moreover, the economics of the projects still need verification in some regions. Meanwhile, low-cost cargoes from the Middle East continue pressure domestic prices. And the release of massive CTO capacities might cause fierce competition between producers.
In addition, uncertainties still lie in raw materials supply, logistics and the economics of MTO projects on the coast, where methanol feedstock is imported rather than produced locally. Industry players now doubt whether two coastal CTO projects - by Ningbo Heyuan and Zhejiang Xingxing New Energy Technology - will start-up on schedule in 2012.
However, CTO projects are part of China's national energy strategy. If half of the CTO projects and all crackers realize their designed capacities, China could be self-sufficient in ethylene after 2014.
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