In yesterday’s SIMON SAYS, I looked for the reason why we’re still seeing announcements of PDH expansions and new olefin crackers in the U.S., especially given the reality of China’s plans to stand by themselves in the petrochemical world, increasing their domestic production of petrochemicals while cutting back on imports of olefins, such as ethylene and propylene, and also the polymers, the resins and fibers. There’s certainly a case for situating plants close to cheap feedstocks, and close to the water for exports, but the future growth that players were expecting to find in the Chinese market, is going to be difficult to locate elsewhere in the world, and once the plants are built in China, that will probably be it. China’s ambitions to secure a greater share of the world’s economic market is strong, and as we know with the tariff war, it appears the U.S. knows this as well.
The area that probably gets the most coverage in the LPG world is the development of propane dehydrogenation (PDH) plants in China, where we are entering the second development phase, and this will spur most of China’s overall incremental requirements for LPG, propane to be precise. Satellite Petrochemicals started up their new 450 M Mt/year PDH plant in February this year in east China, these have been followed by Shenzen Juzhengyuan’s 600 M Mt/year plant in southern China and Oriental Energy’s 660 M Mt/year PDH plant in the eastern part of the country. Hengli Petrochemicals have started their single train plant that will process 500 M Mt/year of propane, as well as iso butane to make propylene and isobutylene. Fujian Meade Petrochemical’s 660 M Mt/year plant, located in the south east of the country, brings the total to five new PDH plants that will be looking to import propane this year. Zhejiang’s 600 M Mt/year plant is unlikely to be ready to import propane until the beginning of next year but should be operational with local supplied propane by the end of the year. Most of the PDH plants will be integrated with local downstream propylene derivative capacity.
The massive investment led steam cracker revolution, that will mean over 20 million Mt/ year of ethylene capacity in China, has started with SP Chemicals’ gas feedstock plant in Jiangsu province but it will be followed by many more including; (1) Wanhau in Shandong, (2) Maozhen in Guangdong, (3) Zhejiang in Zhoushan, (4) Shenghong in Jiangsu, (5) Sinochem in Quanzhou, (6) Gulei in Fujian, (7) Hengli in Liaoning, (8) China North Industries & Saudi Aramco in Liaoning also, (9) SP Olefins Taixing in Jiangsu, (10) Zhenhai in Zhejiang, (11) Yangtze Petrochemicals (BASF-YPC) in Nanjing, (12) ExxonMobil in Guangdong, (13) Fujian in Dalian, (14) Baolai in Lianing, (15) North Huajin in Laoning to name but a few. And the list continues, with nearly all these plants due to be operational before the end of 2024, with over half before the end of 2021. This will make up nearly 60% of ethylene capacity editions in the 2019 -2025 period in the Asia Pacific region alone. China is clearly riding the wave of cracker projects!
In Europe, Borealis are building a world-scale PDH plant in Kallo, Belgium, producing 750 M Mt/year of propylene by mid-2020. Ineos are building a 1.25 million Mt/year ethane cracker and a 750 M Mt/year PDH plant, nearby to Borealis in the port of Antwerp, which should be operational by 2024. ADNOC are in the process of adding a 500 M Mt/year PDH plant to the integrated Ruwais refining and petrochemical hub in the UAE, with access to cheap feedstock locally and derivative activities, mainly specialist polymers, through its joint venture with Borealis.
As this huge petrochemical investment programme rolls out, there is a conflict. The growth is geared to the rise in per capita income in the developing world. With this rise comes a greater consumption of the very same consumer goods, that have a high percentage content of the petrochemical products, this investment programme was aimed at in the first place. But as people get richer, they also become increasingly conscious of their environmental responsibilities. Another issue in the developing world is the lack of organised rubbish collection for 30 percent of the population, forcing plastic products to be dumped, finding their way into rivers, and ultimately seas and oceans of the world. Although not the totality of the petrochemical sector, to the public it is, and it is certainly damaging the polymers industry. It’s caused pressure on all producers to participate in recycling projects, that by definition reduce the demand for virgin residue. It’s the vicious downward cycle that seriously worries the sector, as public opinion can change government policies very quickly.
The other concern for the energy industry, generally, is the future role of refineries throughout the world, not only as a result of greater emission controls, such as via IMO regulations, but also the greater impact of electric cars on the future of the combustion engine. This, therefore, makes the recent technology developed by ExxonMobil, and Saudi Aramco, to allow the petrochemical producers to essentially skip the refining process, by converting crude oil directly to light olefins. ExxonMobil have already developed the process in Singapore, and Saudi Aramco has its own process being developed in Yanbu. Whereas most refineries convert only 5 – 20% of the crude oil input into petrochemicals, directly or indirectly, the Yanbu facility will be able to convert around 45% into petrochemicals, including olefins, aromatics, glycols and polymers. Several facilities under construction in China, including by Zhejiang Petrochemicals, will transform 40% of the crude oil input into PX and other petrochemicals.
At the start of the decade, investment was ethane driven olefin crackers in the US, together with downstream plants, to process the low-cost shale gas ethane into primarily ethylene and its derivative products. But now the investment decisions may well be following the market movement rather than just cheap feedstock supplies. Forecasts suggest that by 2030 the demand for gasoline and other fuels will be on a decline, while there will still be opportunities in the petrochemical sector. There are still many hurdles to be cleared, but the desire appears to be there, and the old walls between refining and chemicals are being torn down, where the clear demarcation between refining and petrochemicals in an integrated complex, may not be so clear in the future.
I’ve highlighted the dramatic change around, from importer to potential exporter, of the Chinese petrochemical industry. But for the US petrochemical exporter, it’s as if the change has already happened. Welcome to the U.S. / China tariff war. U.S. producers worry that as the tariffs deny the chance to supply petrochemicals to China, Chinese buyers are seeking other sources for both resins and chemicals that might be hard for the US suppliers to get back. As with LPG, there are swaps going on from other countries, but it adds cost and uncertainty. Although the question is how long the tariffs can last, at the back of many players mind is whether there will be a Chinese import market to come back to. The Presidential elections of 2020 will probably answer a lot of these questions. In the meantime, everyone should be keeping their China cards closely to their chests, that’s if they can play them!