Crude oil, coal and natural gas can all be used to produce ethylene and propylene. In China, most ethylene and propylene are produced from crude oil because of a lack of natural gas resources, while the coal-to-olefins (CTO) technology poses threat to the environment and uneconomical, as per ICIS. The current energy consumption structure has faced great challenges in recent years; capacity expansion in the Middle East, the shale gas revolution in the US and the rising domestic coal chemical industry have dealt a heavy domestic naphtha-based producers.
Currently, olefins can be produced through three routes: the first one is from naphtha, the second one is from coal-based methanol, and the third one is the propane dehydrogenation (PDH) process. The CTO and PDH processes have developed rapidly in recent years; a large number of projects are expected to come on stream in the coming years, which are likely to have a place in the olefins market. Eventually, the traditional naphtha cracking process and the new CTO and PDH processes will dominate the domestic propylene industry.
The petroleum-based process is mature and the comprehensive utilisation rate is high. Nevertheless, the high global crude oil prices in recent years, which increased from US$35/bbl in January 2009 to US$110/bbl in June 2014, have limited the further development of the process. Meanwhile, a large number of CTO and PDH projects have sprung up because of significant cost advantage. However, global crude oil prices have plunged by more than 40% since June 2014 to US$66.15/bbl. The oil market will continue to fluctuate significantly and prices will keep falling before the market reaches a new balance in 2015, according to Goldman Sachs’ estimates. Sharp decreases in oil prices dragged down costs of petrochemical products. Instead of shaking the traditional petrochemical industry, these alternative products have been weighed on by the former, a knock-on effect for which market participants were unprepared. Against this backdrop, the coal chemical industry’s impact on the domestic olefins market and its sustainability have received much attention from market participants.
As per ICIS, as the largest ethylene producer in Asia, China has seen increasing ethylene capacity in recent years. Its ethylene capacity reached 20.95 mln tpa in 2014, up by 2.77 mln tpa or 15.2% compared with 2013. Most domestic ethylene cargoes are produced through light oil (mainly naphtha) cracking, CTO/MTO/MTP and catalytic pyrolysis processes. The naphtha cracking process is the most traditional one, accounting for as much as 88.1% of the total ethylene output. However, the proportion of ethylene produced through CTO/MTO/MTP processes is increasing, largely due to government support of coal chemical industry developments in recent years. It was expected to reach 10% of the total output in 2014, according to ICIS China.
The domestic propylene market expanded rapidly in 2014, with an increase in both domestic supply and import volumes. Domestic propylene capacity was at 24.364 mln tpa in 2014, up by 4.35 mln tpa or 21.7% compared with 2013. Most propylene units are located in north China, east China and northwest China, with capacity in the three regions covering around 66% of the country’s total. Propylene can be produced through various processes, mainly including naphtha cracking, catalytic cracking, PDH and CTO. A large number of domestic propylene cargoes come from naphtha crackers, covering around 35% of the total national output. Another important domestic supply source is refinery gas cracking, accounting for around 33% of the total propylene capacity. Market shares of propylene based on PDH and CTO processes have increased significantly thanks to the rapid expansion of capacity.