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Starting from the start-up of SP Chemicals' gas cracker (ethane
and propane feedstock) in August 2019, another six newly designed
flexible-feedstock steam crackers have been added in mainland
China, with more to come online in the next few years. Meanwhile,
more than 2 million metric tons per year of propane dehydrogenation
(PDH) capacity has also been added since 2019, with another
approximately 8.5 million metric tons expected to come online by
2024, driven by thriving markets for propylene and its downstream
derivatives.
New steam crackers in China are now designed to be more
adaptable to gas feedstocks (e.g., propane and butane) than older
units, mainly driven by the rising global LPG availability (from
the United States in particular) and the improved profitability of
light feed crackers in recent years.
Before the start-up of SP Chemicals' plant, most of the steam
crackers in mainland China were owned by national oil companies
(e.g., Sinopec, China National Petroleum Corporation [CNPC], and
China National Offshore Oil Corporation [CNOOC]), designed mainly
based on liquid feedstock with limited flexibility. According to
IHS Markit research, LPG-based ethylene production only represented
about 9% of the total ethylene production in the region over
2015-20. Driven by the fast-growing LPG supply and improved
economics, the proportion of LPG-based ethylene production in the
region is forecast to reach 14-16% over the next three to four
years.
In the meantime, owing to the attractive profitability of the
PDH route, more and more new projects have been added in mainland
China since 2019, which will bring considerable incremental
on-purpose propane consumption for propylene in the coming
years.
In 2021, about 77% of the new olefins plants-driven LPG demand
growth in mainland China will be derived from the downstream plants
added in 2020, while 23% of the demand growth potential will be
linked to planned olefins capacity additions in 2021. In parallel,
about 85% of the new olefins plants-driven LPG demand growth in
2021 will rely on the import supplies from the overseas market (see
Figures 1 and 2).
Figure 1
Figure 2
In mainland China in 2021, 85% of the new LPG demand from
olefins plants (newly designed crackers and new PDH units) can be
translated to about a 4.8 million metric tons import need, exerting
great pressure on the global trade market and key suppliers such as
the United States and Middle East region. This result will raise
interesting questions amid uncertainties associated with these
markets' upstream recovery, driven by the COVID-19 pandemic, oil
prices, investor returns, and supply management policy.
Further complicating the outlook is the expectation that
non-chemical demand for LPG will also recover in 2021 from declines
in 2020 caused by the pandemic. Unlike the chemical sector, about
70% of the LPG fuel market in mainland China is supplied by local
refineries. Incremental LPG demand for fuel in coming years should
be relatively easily met by recovering LPG production from
refineries, supplemented by import cargoes. Though non-chemical
demand will be only a minor contributor to total import demand, it
will not be the case that local supply can increase by enough to
prevent the expected need for continued expansion of LPG imports to
supply the new chemical plants.
Gain greater insight into global and regional ethane and NGL
markets with IHS Markit Midstream Oil and NGLs research. Learn more here.
Posted 23 February 2021 by Sen Yang, Director, Asia
Pacific/Middle East NGL Service, IHS Markit; Minmin Hu, Principal Analyst, Asia Olefins, IHS
Markit; and Yanyu He, Ph.D, Executive
Director, Natural Gas Liquids (NGL) Research and Consulting, IHS
Markit
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