INSIGHT: China coal-to-olefins (CTO) investment to slow even amid tight Asia ethylene market

Joseph Chang | 26 May 2016


NEW YORK (ICIS)--With China coal-to-olefins (CTO) operations challenged by lower cost oil and improved naphtha-based competitiveness, the massive flow of investment into these plants is set to slow, even in a structurally tight Asia ethylene market.

Asia ethylene prices have risen strongly this year. In March, they hit more than an 8-month high with CFR Northeast Asia prices above $1,200/tonne. They have since come down to around $1,110 as of late May.

And with relatively low crude oil prices (though recovering from their January lows), the prime beneficiaries have been naphtha-based producers.

Northeast Asia naphtha-based ethylene margins exceeded $700/tonne in March, are at $655/tonne as of late May, and are likely to be strong throughout 2016, said Yeow Pei Lin, ICIS deputy managing editor for Asia and Middle East.

Yeow gave a presentation at the 2016 Asia Petrochemical Industry Conference (APIC) in Singapore which took place from 19-20 May.

Ethylene in Asia is structurally tight with cracker consolidations in Japan and production issues in Singapore and Indonesia, along with planned cracker maintenances, Yeow noted.

Total output losses in Asia are estimated to amount to 2.32m tonnes in 2016, higher than 2.2m tonnes in 2015, even as the impact from cracker turnarounds will be around 34% less year on year, she projected.

This includes production losses of 518,000 tonnes from Shell’s cracker outage in Bukom Island, Singapore, 345,000 tonnes from the closure of Asahi Kasei’s cracker in Mizushima, Japan, and 1,461,000 tonnes from cracker turnarounds.

For China CTO/MTO (coal-to-olefins/methanol-to-olefins), there are six projects expected to start up or ramp up (two having already started) in 2016. These are relatively small in terms of ethylene capacity, with the total amounting to 1.62m tonnes/year, said Yeow.

New china CTO and MTO plants

This amount will be dwarfed by the 7.4m tonnes/year of ethylene capacity expected to start up between end 2015 and 2016 in the rest of Asia and the Middle East, including major projects in India, she pointed out.

In 2017/early 2018, three naphtha cracker expansions in China, South Korea and Malaysia are expected to add about 1.42m tonnes/year in ethylene capacity.

With naphtha-based production becoming more competitive, and the wave of US shale gas-based cracker and derivatives capacity set to start up in 2017-2018, the once steady stream of China CTO/MTO project announcements has slowed to a trickle.

Much of the new US ethylene derivatives capacity, primarily in the form of polyethylene (PE), are targeted for export to Asia.

The battle for Asia PE market share is set to intensify, with the US joining the fray and the Middle East remaining dominant, said Yeow.

Sitting high on the ethylene cost curve, there is little economic incentive to continue building these high capital cost projects.

It’s worth noting that social incentives still exist for building these plants to foster downstream plastic processing as well as upstream coal mining employment in China’s poorer interior regions.

Coal-based chemical production is not going away, but will be a smaller part of China’s overall petrochemical picture than imagined a few years ago in the era of $100/bbl oil.

From an environmental standpoint, coal-to-chemicals plants are “massive CO2 machines” that are not sustainable, a Shell Chemicals senior executive said at APIC.

“Coal-to-chemicals plants produce 6-10 tonnes of CO2 per tonne of chemicals. These are massive CO2 machines that make chemicals as a sidestream,” said Olivier Thorel, vice president of global intermediates and ventures at Shell Chemicals.

“When we are dealing with climate change, this has to be taken into account,” he added.

Kurt Aerts, vice president of global specialty elastomers and butyl business at ExxonMobil Chemical, called coal-to-chemicals a “very capital intensive route”.

“It has its place where there is a feedstock advantage but has a significant environmental impact,” said Aerts at APIC.

“It all comes back to sustainability drivers in the industry. Eventually there will be a cost of carbon and penalties. Looking into the future, it’s at least something to consider for those embarking on the sustainability journey,” he added.

China CTO/MTO will play a role, with more than 7m tonnes/year of ethylene capacity expected to come from these routes by 2020, said Ewe Ee Foong, vice president, Asia at ICIS Analytics & Consulting, who also spoke at APIC.

At the end of 2015, ethylene capacity from CTO/MTO in China totaled around 2.5m tonnes/year, according to the ICIS Supply & Demand database.

Much more propylene capacity – over 14m tonnes/year – is expected from the propane dehydrogenation (PDH) route as well as CTO/MTO production by 2020, he added.

CTO/MTO plants typically produce a combination of ethylene and propylene.

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ICIS experts presented their analysis of the Asian petrochemicals sector at the recently concluded Asia Petrochemical Industry Conference (APIC) 2016 in Singapore.

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  • Asia olefins and aromatics markets – a turning of the tide?
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Asia olefins & aromatics markets – a turning of the tide?

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