China Coal-to-Olefins Ambitions

CTOprojectsWooriJuly2012.jpgBy John Richardson

SOME 10-15m tonne/year of coal-to-olefins (CTO) capacity in China is being considered, has already received approval or is in the planning stage, according to a report by Woori.

“Major coal companies, petrochemical companies and foreign petrochemical players are all known to be planning CTO plant construction in China’s north western regions,” says the South Korea-headquartered bank.

“Assuming that it takes 3-5 years to build these plants and run test operations, most of these new facilities are expected to start shipping out product (from) around 2014.”

China’s CTO industry is cost competitive with imports provided oil prices are above $80/bbl, according to the China Petroleum & Chemical Industry Association.

In the past it was argued that high logistics costs posed a threat to CTO economics. As the industry is located in northwest China, close to the country’s big coal reserves, it is a long way from the major olefin derivative consumption markets in southern and eastern China.

But industry consultants now argue that improving rail links mean that logistics are no longer a major drawback.

And the coal companies behind some these projects see much greater value in making polymers downstream of CTO production than just selling coal. Coal often trades at around $100/tonne, whereas polyethylene (PE) and polypropylene (PP) prices are usually in excess of $1,000/tonne.

At the moment, there are quality issues relating to PE and PP made via the CTO process.

However, once technical problems are resolved via the development of highly efficient catalysts and improved facility stability, PP supply via CTO should have a significant effect on supply and demand from around 2014, believes Woori.

PE supply and demand will also be influenced by the CTO industry from 2014, but only in low-value end-use applications, adds the bank.

CTO expansions are part of China’s plan to raise ethylene equivalent self-sufficiency to 64 percent by 2015 from 48 percent in 2010.

Its target for propylene self-sufficiency is 77 percent by 2015 from 63 percent in 2010.

This should give overseas project proponents pause for thought.

So should concerns that China’s economy could face lower GDP growth over the next decade as it makes the painful adjustment from investment-driven to domestic-driven growth.

US PE producers are already finding it harder to export to China. In the first half of this year North American Free Trade Agreement (NAFTA) shipments to China were down by 59 percent over H1 2010, according to Global Trade Information Services.

How will the US sell greater volumes of PE exports, once shale gas-driven expansions come on-stream, in a China market increasingly dominated by local production?

The US industry might well argue that if CTO-derived PE continues to only penetrate low value end-use markets, they have a technology edge.

How big will higher-value China PE markets become, though?

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