Market intelligence: MTO enjoys an advantage in China over naphtha

24 August 2012 09:46  [Source: ICB]

When oil prices are high, MTO enjoys an advantage in China over naphtha-based producers

The US has the potential to greatly boost its olefins and derivatives capacity because abundant shale gas-derived ethane has provided an excellent feedstock cost advantage over naphtha-based competitors. Everyone knows that.

 

No rest for coal demand

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But perhaps less well known is that China's coal-to-olefins industry can be very competitive versus naphtha. In this process, coal is first converted into synthesis gas (syngas) in a gasification plant.

The next step is to convert the syngas into methanol and then the methanol into olefins (ethylene and propylene) - or MTO - in separate facilities. Methanol can also be made into only propylene (MTP).

The ethylene and propylene made via the MTO process is converted into polyethylene (PE) and polypropylene (PP) before shipments take place.

But it is, of course, very important to have a competitive cash cost of ethylene to make polyolefins production viable.

When oil prices are high, the MTO industry enjoys a cash cost advantage in China over naphtha-based producers in both ethylene and propylene, says Singapore-based consultancy Methanol Market Services Asia (MMSA).

High oil prices give MTO an advantage because coal becomes a comparatively cheaper feedstock.

However, MTO producers integrated all the way back to coal mines remain in a strong position, even in a low oil-price environment, says MMSA managing director Mark Berggren.

Existing producers include Baotou Shenhua Coal Chemicals, located in Inner Mongolia, which has an ethylene capacity of 300,000 tonnes/year. Parent company the Shenhua Group is the world's largest coal producer.

Also back-integrated to captive coal supply is the 460,000 tonne/year methanol-to-propylene producer Datang Inner Mongolia Duolun Coal Chemical, which is again located in Inner Mongolia.

"One of the advantages from a coal producers' perspective is that you are taking coal, which sells at around $100/tonne and converting it into polyolefins that sell at well over $1,000/tonne," says Berggren.

"China's railways also have limited bandwidth. It therefore makes much more sense, from a national perspective, to transport plastic pellets rather than coal, as the pellets deliver greater economic and energy value per railcar-load than coal."

Berggren believes that a considerable amount of planned new MTO capacity will go ahead because of sound economics, and for strategic and political reasons.

"By 2030, our base case, to which we attach a 65% probability, is that 28m tonnes/year of methanol will be converted into olefins in China. This will yield around 10m tonnes/year of olefins," he says.

Other estimates are that this amount of capacity will be on-stream by 2020, but Berggren argues that there are insufficient engineering and procurement contractors in China for this to happen.

"China was supposed to have 100m tonnes/year of methanol on-stream by now, but only 42m tonnes/year has so far been commissioned because of a lack of engineering resources," he adds.

But he stresses that the government is committed to MTO because it represents a demonstration of national pride, and is part of the drive to raise self-sufficiency in basic raw materials.

Under China's 12th Five Year Plan (2011-105), for example, Beijing wants to raise ethylene self-sufficiency to 64% in 2015 from 48% in 2010. The target for propylene is an increase to 77% from 63%.

"Coal-to-olefins projects are also big in scale which fits in with another government objective - improving the economies of scale of its industries," Berggren says.

"In addition, realizing MTO projects will involve the successful implementation of technologies that have ostensibly been developed domestically."

But he said that environmental issues would remain a background concern for MTO. Question marks have been raised over the sustainability of the industry as a result of high levels of carbon dioxide (CO2) emissions and heavy water consumption. Existing and proposed plants are located in western China, where water is in short supply.

"The coal gasification step is where large amounts of water are consumed," he adds. "But this water can be recycled following treatment. And when you make olefins, which involves converting methanol via dimethyl ether over catalysts, water is left over from the process which again can be treated and re-used.

 
"On the issue of CO2 emissions, which are again high during the gasification step, the coal companies argue that you need to compare life-cycle emissions between coal and oil," Berggren says.

"More energy is required to get oil out of the ground than is the case with coal, especially in the case of deep-sea oil drilling, the companies point out. You can also sequester the CO2, and, if it has the right purity, it has a commercial value for re-injecting into oil wells to advance oil recovery."

Berggren says that not all MTO projects are based on domestically-produced methanol, via coal. Some project proponents are instead planning to import methanol.

This latter category includes Skyford Chemical. The company is due to start-up 600,000 tonnes/year of MTO capacity (200,000 tonnes/year of ethylene and 400,000 tonnes/year of propylene) at Zhenhai, Zhejiang province, in the fourth quarter of this year, according to ICIS.

"The problem with this approach is that the gas resources, for the moment at least, are under separate ownership to that of the MTO players in China," says Berggren. "As a result, there is an issue for MTO players in that the owners of the gas reserves often see a stronger value into other uses for their hydrocarbons, such as liquefied natural gas.

"But I wouldn't be surprised that at some point, the Chinese go overseas and acquire their own natural gas reserves to make methanol in, say, the Middle East to ship the methanol back to China to make olefins."


By: John Richardson
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