Big ethylene project will increase domestic oil import pressure

Although international oil prices continue to be high, the pace of China’s crude oil imports has continued. According to data released by China Customs, China imported 61.55 million tons of crude oil from January to May, an increase of 18.0% year-on-year. Among them, crude oil imported 12.39 million tons in the month of May.

It is worth noting that the rapid expansion of the domestic petrochemical industry in recent years will increase the pressure on crude oil imports to a certain extent.

It is understood that the government recently approved Sinopec and PetroChina’s new six ethylene plants, which will double China’s ethylene production capacity. After the completion of the new plant, it is expected that China's annual ethylene production will reach 15 million tons in 2010. Of the six plants, three are built by Sinopec, which is located in Tianjin, Quanzhou, Fujian, and Zhenhai, Zhejiang. The annual output of the three plants will total 2.8 million tons. Quanzhou Ethylene Plant will be constructed by a joint venture between Sinopec and ExxonMobil and Saudi Aramco. The Tianjin Ethylene Plant with an annual output of 1 million tons has started construction and is expected to be completed in September 2009. The expansion of a nearby refinery has also started. Sinopec will invest a total of RMB 26 billion in this project. PetroChina will build three other factories located in Chengdu, Sichuan, Dushanzi, Xinjiang, and Fushun, Liaoning. The total annual output of the three factories is 2.6 million tons. Sinopec also plans to build two new oil cracking plants in Shanghai and Wuhan and is still waiting for government approval. It is expected that the annual production of cracking plants in Shanghai and Wuhan will reach 1 million tons and 800,000 tons respectively.

As an important petrochemical product, ethylene is the raw material of many downstream products. China's rapid economic growth and construction boom have created a great demand for ethylene. The relevant data shows that as of the end of 2005, China has 19 sets of ethylene plants, with a total production capacity of 7.07 million tons/year. In 2005, the output of ethylene was 7.555 million tons. China's total ethylene capacity in 2006 will reach 8.2 million tons per year. At present, China has surpassed Japan to become the second largest ethylene producer in the world after the United States. According to a report released by the SRI consulting firm in Houston in March 2006, China will become a major competitive player in the world petrochemical industry. China’s recently-built modern ethylene and petrochemical complexes are extremely competitive for Saudi Arabian producers that export raw materials to China. The return on cash investment is close to that of ethane-based producers in the United States, but higher than that of naphtha-based producers in Germany and Japan. Once several sets of world-scale integrated petrochemical complexes to be built in China are put into operation, some of China's major ethylene-based petrochemical producers will become important competitors in the global petrochemical industry.

However, the extensive construction of ethylene plants also increased the demand for chemical oils. Just as China is facing the constraints of oil shortages, domestic development of the petrochemical industry is also facing resource constraints. In recent years, domestic crude oil output has been around 170 million tons, which is far below the growth rate of oil demand. With the development of the ethylene industry in the future, the shortage of oil for chemical use will become increasingly prominent. If the domestic ethylene equivalent rate reaches about 60%, the ethylene production capacity in 2010 will be 15 million tons per year and in 2020 it will reach 23 million tons per year. At present, the ratio of crude oil processing and ethylene production in China is about 40:1. Ethylene requires chemical oil for self-sufficiency, but by 2020 China's crude oil processing volume and ethylene production ratio may fall to 20:1. Chemical oil self-sufficiency The difficulty will be greatly increased.

It is estimated that in 2010 and 2020 China's ethylene raw materials will be gapped by 5 million tons and 14 million tons respectively. In 2010, China's crude oil gap will be at least 140-150 million tons, and the foreign dependence will exceed 50%. Under this circumstance, the contradiction between the refinery industry to improve the quality of refined oil products and the production of chemical oils has intensified, and the contradiction between shortages of chemical oils (especially naphtha) has gradually emerged. It is estimated that the annual gap in domestic chemical oil will reach 8 million tons.

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