IHS WPC 2014: China's investments in unconventional feedstocks will transform country's petchem industry

04:03 AM | March 26, 2014 | Francinia Protti-Alvarez in Houston

China's petrochemical industry, after a decade of rapid expansion, has reached two major bottlenecks: market monopolization and crude oil supply constraints. These constraints have compelled China's petrochemical companies to think outside of the conventional growth model by using novel production technologies, said Paul Pang, v.p. and managing director/chemicals, China at IHS, in a presentation on unconventional feedstock investments in China, at the IHS World Petrochemical Conference, currently being held at Houston.

Many coal-to-olefins (CTO), methanol-to-olefins (MTO), coal-to–monoethylene glycol (CTMEG), and propane dehydrogenation plants will be built in China. Unprecedented amounts of capital investment will flow into these projects over the next five years, Pang says.

China has limited crude oil and natural gas reserves but has one of the world’s largest coal reserves. China's fast-growing dependence on imported oil and persistent high oil prices have focused the country even more on using its coal reserves as a substitute for imported oil in chemical production. Recent technological breakthroughs in coal-based chemical production have sped up the process, Pang says.

Many coal-to-chemical facilities, especially CTO and CTMEG, have been built or are under construction in China. "Currently, three CTO plants and three merchant methanol-based MTO plants are in operation. Another 19 projects are under construction. By the end of 2018, total olefin capacity from coal and merchant methanol will reach 19 million m.t.," Pang says.

The impact of the growth in unconventionals in China will vary depending on the chemical value chain, Pang says. "CTO projects will be mainly located in the coal-rich west to take advantage of low-cost coal. Most of the CTMEG projects will also be located in the west; however, some projects will be located in central China to take advantage of the closer proximity to consumer markets and the relatively inexpensive coal in the central region," he says.

Even with the challenges facing coal-based chemicals—water shortages in the west, high carbon emissions, waste disposal, and heavy capital costs—the competitiveness of unconventional feedstocks remains significant versus naphtha-based plants located in the east, Pang says.

China's ethylene and propylene industry will benefit the most from unconventional production technologies, but butadiene and benzene production will suffer as growth in naphtha-cracking capacity slows, Pang says. "Historically, China’s butadiene-to-ethylene capacity ratio was 0.2. This ratio will steadily decrease to only 0.15 by 2018. Similarly, the ratio of benzene to ethylene will decline from 0.7 to 0.5," Pang says.

Overall, however, unconventional petrochemicals projects will “liberate” China's basic chemical industry, Pang says.