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China Market Insider China's Petrochemical Industry Relies on Cheap Ethane from the USA

From Henrik Bork*

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Ethylene from ethane, obtained through steam cracking, is the latest boom sector in China's petrochemical industry. Construction of no less than three new large-scale plants was completed just before the start of the New Year, PROCESS (China) reports. While the vast majority of ethylene in China is still produced in petroleum refineries from naphtha, a number of investors are now turning to cheap ethane, mainly from shale gas deposits in the US.

PROCESS regularly reports on the Chinese chemical and pharmaceutical market with its ‘China Market Insider’ format.(Source: ©sezerozger - stock.adobe.com)
PROCESS regularly reports on the Chinese chemical and pharmaceutical market with its ‘China Market Insider’ format.
(Source: ©sezerozger - stock.adobe.com)

Beijing/China – At Satellite Petrochemical in the coastal province of Zhejiang, a new ethane-to-ethylene plant with an annual capacity of 1.25 million tons of ethylene completed its shell on December 29. It is expected to be commissioned in the first quarter of this year. The company apparently has plans to double this capacity later.

China has the world's highest demand for ethylene, which Satellite Petrochemical uses, for example, to produce acrylic acid, the basis for paints, adhesives and highly absorbent polymers. China often has the highest ethylene prices in the world at the same time because much of the feedstock has to be imported from abroad. The price fluctuates, but in the fourth quarter of 2020 it rose to around 1000 dollar per ton in North Asia, up from around 700 dollar per ton in August last year.

As a listed company in the C3 value chain, Satellite Petrochemical hopes to increase its profits in the long run by using the ‘untapped treasure’ of cheap ethane from the US. The company has therefore planned the equivalent of 4 billion dollars (3.3 billion euros) of investment in the ethane-to-ethylene route.

As is always the case in China, word of such plans spreads quickly and sets a precedent. Just one day later, on December 30, Lanzhou Petrochemical Yulin Chemical Co held its own topping-out ceremony. The ‘Changqing ethane-to-ethylene project’ had completed the construction phase and already started pressure tests, it said. The plant has an annual capacity of 800,000 tons of ethylene and is scheduled to be officially commissioned on June 30 this year.

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Then, another day later, on December 31 last year, the China National Petroleum Corporation's Tarim ethane-to-ethylene project in southern Xinjiang province announced the achievement of a similar milestone. The main plant, boiler and flare are ready, and the plant with an annual capacity of 600,000 tons should start production in the second half of this year, the company announced.

In recent years, a total of 15 projects have been started in China with the aim of using ethane cracking to produce ethylene, reports PROCESS (China). The method is so popular because, in contrast to ethylene extraction from naphtha, it promises shorter reaction paths, higher yields and significantly lower production costs, the trade medium writes.

Due to the booming shale gas industry in the USA, the availability of ethane there has skyrocketed in recent years. From 2013 to 2018, for example, US exports of ethane rose from a negligible number to 5.3 million tons. That was already five times what Norway exported in 2018 - the only other country to export ethane.

But analysts warn of the political risk of such investments, given China's current ethane-to-ethylene boom. The trade war between the US and China has been in a truce of sorts for several months, but has clearly highlighted the dangers of Chinese producers becoming too dependent on imported raw materials, they argue.

There are also arguably bottlenecks in the export infrastructure for ethane from American ports. While Chinese chemical companies have already commissioned special tankers to transport ethane across the Pacific, there could be problems with their speedy loading in the foreseeable future. It is therefore unclear how many more major projects of this kind the communist state and party leadership will approve, say market observers in Beijing.

* Henrik Bork, a longtime China correspondent for the German Süddeutsche Zeitung and Frankfurter Rundschau, is managing director at Asia Waypoint, a Beijing-based consulting agency specializing in the China market. ‘China Market Insider’ is a joint project of Vogel Communications Group, Würzburg and Jigong Vogel Media Advertising in Beijing.

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