INSIGHT: China looks to major sites for cracker upgrades

29 February 2012 18:14  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Given its vast size and stage of economic development it is hardly surprising that the average capacity of China’s naphtha crackers is just 540,000 tonnes/year.

The drive now, however, is to lift that average by 30% to closer to 700,000 tonnes/year.

The government is encouraging the expansion of major integrated upstream petrochemical complexes and wants to actively discourage the building of standalone crackers.

Enveloped within China’s latest five-year plan, the petrochemical targets tie in with the upgrading of development in the intensely active coastal regions while shifting the focus for China’s growth miracle to the country’s interior. Business operations and processes will become more sophisticated on the coast. Consumption patterns could change markedly in the interior.

China’s government continues to shape the development of certain industries, including chemicals, in a process that deeply affects multinationals and domestic enterprises.

China’s coastal provinces are expected to more closely resemble developed economies, while inland cities will become increasingly popular locations for production.

Consultants talk of greater economic sophistication and brand awareness on the coast and a potentially massive emerging middle class in inland areas.

The challenges to this next stage of economic development for China are immense, of course, and companies active in the country, or actively trading with it, have to take time to understand just what might be going on.

A World Bank research report released on Monday put the near- and longer-term challenges into perspective.

China’s rate of economic growth will decline gradually to 2030, it said, “as China reaches the limits of growth brought about by current technologies in its current economic structure”.

According to the World Bank, its report “advocates Chinese policymakers should shift from a focus entirely on the quantity of growth to include the quality of growth as well”.

An acknowledgement of the need for a greater focus on quality domestic growth is apparent in China’s 12th Five Year Plan.

In upstream petrochemicals that means a focus on larger-scale and consequently more cost- and environmentally efficient production facilities. It also underscores a need for a broader feedstock slate for future crackers and deeper integration with the refinery.

China aims to raise its ethylene production capacity to 24m tonnes in 2015 from 15.2m tonnes in 2010, according to the plan.

“Bigger-scale and integrated operation are trends that are crucial in cost control,” a source from state-controlled Sinopec told ICIS this week. “An integrated complex ensures stable naphtha feedstock supply [to downstream crackers] and therefore helps reduce risks in feedstock access and purchase cost.”

Apart from the focus on cracker scale, the 12th Five Year Plan envisages the strict control of the construction of naphtha crackers not integrated with a refinery.

Methanol-to-olefins (MTO) plants should have a minimum capacity of 500,000 tonnes/year – the projects that are expected by ICIS to reach completion by 2015 have capacities well below that.

A shift to condensates and lighter cracker feedstocks is preferred but the switch to a broader feedstock slate is expected to be achieved only at new plants.

China eyes its ethylene production costs in relation to the rest of the world – particularly to the Middle East and now to the US – and believes that changes can be made.

The 12th Five Year Plan calls for the ratio of non-naphtha cracker feedstocks in the mix to increase to 20% in 2015, from 5% in 2010.

The enhancement of three major production complexes in the important coastal regions is planned, ICIS reported earlier this week. The target is for annual ethylene capacities at these locations to rise to 2m tonnes/year.

Reports at the start of last year suggested that a second phase of the major China National Offshore Oil Corporation (CNOOC) refinery at Huizhou in Guangdong province was on the cards, which would include a doubling of cracker capacity.

CNOOC and Shell each have a 50% stake in the CNOOC and Shell Petrochemicals Company (CSPC) that runs a 950,000 tonne/year cracker at Daya Bay in Huizhou. But it is by no means clear to what extent Shell will be allowed to participate in the expansion.

Indeed, a decision on who participates in the project will very much set the tone for the next phase of expansion of China’s large cracker complexes. It will also point to what multinational companies might bring to project plans, particularly in China’s vibrant coastal provinces.

CNOOC, for instance, is said to have both the financial and technical capability to complete a major expansion such as this on its own. The Huizhou refinery was the first major downstream project solely invested in by CNOOC.

A joint feasibility study has been completed for the PetroChina/Qatar Petroleum/Shell cracker project at Taizhou in Zhejiang province and central government approval is awaited, Shell says. Taizhou is on the Pacific coast, 300km (186 miles) from Shanghai.

PetroChina holds a 51% stake in the project joint venture while Qatar Petroleum and Shell hold 24.5% each.

According to the ICIS report, the second base may be an expansion at Zhenhai Refining & Chemical Company’s (ZRCC) 1m tonne/year cracker at the Yangtze River Delta.

The third project may include expanding the SABIC/Sinopec 1m tonne/year joint venture cracker at Tianjin.

Read John Richardson and Malini Hariharan's Asian Chemical Connections blog
Bookmark Paul Hodges' Chemicals and the Economy blog

By: Nigel Davis
+44 20 8652 3214

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