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Several crude oil-to-chemical (COTC) projects being planned or
started in Asia and Saudi Arabia threaten to reshape the global
petrochemical industry in the coming years. COTCs configure a
refinery to produce maximum chemicals instead of traditional
transportation fuels. Since refinery processing capacity is
approximately 10 times higher than the current world-scale
petrochemical plants, COTC in effect raises petrochemical
production to an unprecedented refinery scale.
COTCs also produce at least twice as much chemical volume per
barrel of oil as a state-of-art, well-integrated,
refinery-petrochemical complex. Under the current industry
structure, a refinery provides naphtha to a petrochemical plant,
where steam cracking operations produce chemicals. The current
global average is to produce about 8% to 10% naphtha from each
barrel of oil. At a very well-integrated plant such as Petro
Rabigh, a joint venture between Saudi Aramco and Sumitomo, the
refinery produces about 17% naphtha for petrochemical production.
Yet every announced COTC produces at least 40% of chemicals per
barrel of oil, a quantum leap from any state-of-art integrated
complex.
Four Asian COTCs - including three in China and one in Brunei -
are configured to produce maximum volumes of para-xylene (PX). In
China, Hengli Petrochemical is constructing a refinery-PX complex
that can process 20 million tons per year (equal to 400,000 barrels
per day) of medium and heavy crudes. From these raw materials, the
complex can produce 4.3 million tons of PX plus benzene and other
chemicals. The conversion is estimated at 42% of all chemicals per
barrel of oil. Construction is progressing well, and Hengli
obtained a crude oil import quota from the Chinese government. The
first oil shipment from Saudi Arabia is expected in July 2018, with
a trial run planned for October 2018, and production of PX
beginning in the second half of 2019.
Figure 1 depicts the configuration of Hengli's refinery-PX
complex.
Zhejiang Petroleum and Chemical, a $26 billion joint venture
among Rongsheng, Tongkun Group, and Juhua Group, plans to convert
40 million tons of crude to about 8 million tons of PX per year in
two phases. Each phase will offer approximately the same capacity.
The first phase, which will produce 4 million tons of PX plus other
chemicals, is expected to come online later in 2019. The conversion
is estimated at 40% of all chemicals per barrel of oil. Shenghong
Petrochemical plans to build a refinery-PX complex starting with 16
million tons of crude oil to produce 2. 8 million tons of PX and
other chemicals annually. The project obtained environmental
approval but construction has not started yet. In Brunei, Chinese
company Hengyi Group is constructing a nearly $20 billion
refinery-PX plant that will convert 8 million tons of crude oil and
condensates, producing 2. 8 million tons of PX and other products
per year. Operations should begin in 2020, and the manufactured PX
volumes are expected to export back to China.
COTC projects in Asia are driven by the major producers of
polyethylene terephthalate (PET) and purified terephthalic acid
(PTA) in China -- including Hengli, Rongsheng, Rongkun, Juhua, and
Henyi. These companies are expected to back-integrate their PET and
PTA projects to PX for their captive use. In China, 2017 PX demand
was 23 million tons, but its capacity was only 12 million tons. The
11 million ton per year supply gap is filled by imports, mainly
from Korea, Japan, and Taiwan. When the first wave of these COTCs
begin operating, they will add 11.8 million tons of new PX
capacity, which will largely close China's supply gap by 2020 and
limit market access for current exporters.
COTC Projects in Saudi Arabia
In Saudi Arabia, Aramco and SABIC formed a joint venture to
develop a COTC complex in Yanbu, which should be complete by 2025.
The complex plans to convert 20 million tons per year of light
crude to produce 9 million tons of petrochemicals, which equals a
45% conversion to chemicals per barrel of oil. Aramco/SABIC also
entered into front-end engineering and design (FEED) and technology
selection contracts.
Furthermore, Aramco has signed a joint technology development
agreement with Chevron Lummus Global (CLG) and CB&I (now
McDermott) to integrate CB&I's ethylene cracker technology,
CLG's hydroprocessing technologies, and Saudi Aramco's Thermal
Crude to Chemicals (TC2C™) technologies with a target of
converting 70-80% per barrel of oil to chemicals. If a COTC complex
is built based on this future technology starting from 20 million
tons of crude oil, it would produce 14-16 million tons of chemicals
per year, taking a large share of the annual growth in chemical
demand.
To put it in another perspective, a COTC project based on
Aramco's optimized technology would produce more chemicals than all
eight first-wave ethane-based steam crackers in the United States,
which have a combined production capacity of 11 million tons of
ethylene per year.
Aramco's COTC projects are driven by the company's goal to
better monetize its oil assets. In the next decade or two, global
demand for chemicals -- driven by the population growth - is
projected to increase more than 4%. That rate is higher than global
GDP growth rate of about 3% per year. Demand for transportation
fuels, on the other hand, is expected to grow only slightly more
than 1% per year during the same period. This growth will be
hampered by better fuel efficiency and the substitution of
non-fossil fuel vehicles. While oil prices remain at relatively low
levels, Aramco has a strong incentive to start COTC projects that
will help the company push deeper into chemicals, which provide
higher value and demand growth than transportation fuels.
Competitive Factors in the New Market
Having advantaged feedstock has been the most important
competitive factor in the past one to two decades, but in the new
era feedstock alone won't be enough to compete. COTC redefines
global scale at the refinery level. The sheer scale will be an
additional competitive factor, and COTC producers will realize
advantage over current "world-scale" petrochemical producers.
Due to high investment costs, capital efficiency will also
become a critical competitive factor. Hengli and Aramco/SABIC both
start from 20 million tons of crude oil, a similar scale; however,
the announced investment cost is $11.6 billion for Hengli versus
$20 billion for the Aramco/SABIC joint venture. Due to the large
amount of chemicals produced, having accessible markets will become
a major consideration. In these aspects, COTCs in Saudi Arabia will
benefit from advantaged feedstock in terms of price and choices of
crude including using condensates, while China seems to have the
advantages of better capital efficiency and access to growing
domestic markets.
Technology is yet another competitive factor. Because COTCs are
more complex to operate, choosing the best process configuration
and technologies will ensure operability and productivity. This
will favor the technology licensors that can provide the best
integrated technologies to convert heavier crude assays and produce
maximum chemicals with the fewest utilities and the least hydrogen
consumption.
The future of COTCs will be mainly determined by their
production economics relative to naphtha steam cracking. While
Aramco's COTC process configuration is still unknown, IHS Markit
Process Economics Program developed a conceptual design based on
Aramco's COTC patents and compared its production economics to
naphtha steam cracking under high oil and low oil price scenarios.
The analysis showed that in the high oil scenario ($118/bbl) as in
2013, Aramco's COTC (based on PEP's conceptual design) would offer
61% lower cash cost and about 24% higher ROI (return on investment)
before taxes. In the low oil ($50/bbl) scenario as in 2015,
Aramco's COTC would have 33.7% lower cash cost and 1.7% higher ROI
before taxes. Production economics of Hengli's refinery-PX complex
are being investigated, and the estimates will be available in Q4
2018.
Final Considerations
Two other major trends that will help define the new era are big
oils pushing deeper into chemicals by investing in large,
state-of-art, well-integrated refinery-petrochemical complexes and
the proliferation of ethane as feedstock outside of North America
and the Middle East.
Aramco is not only investing in COTC projects; it also recently
announced a joint venture with a consortium of three Indian oil
companies. The goal: building a giant refinery-petrochemical
complex to process 60 million tons of crude oils, which will
produce 9 million tons of chemicals per year. The announced
investment is $46 billion. Aramco is not alone in this push. Abu
Dhabi National Oil Company (ADNOC) just announced plans to invest
$45 billion to build a major complex in Abu Dhabi, hoping to become
a leading petrochemical player. Meanwhile, China National Offshore
Oil Corporation (CNOOC), China Petroleum & Chemical
Corporation, (Sinopec), and PetroChina continue to expand their
petrochemical production in China. Big oils are becoming big
chemicals.
Exports from the US will help ethane proliferate in Europe,
India, and China. With the freight and termination feed added, the
delivered ethane price will be roughly doubled when it arrives in
China, compared to the price in the US. US producers will enjoy a
continued advantage when compared at cash cost basis. But due to
its capital efficiency advantage, China might be quite competitive
in terms of return on investment. Exporting ethane may also drive
up its price in the US. What's more, Russians are coming. Russian
gas processing and petrochemicals company Sibur is planning the
Amur gas chemical complex (GCC) project in the Far East, which will
produce 1.5 million tons per year of PE from ethane, to be supplied
by Gazprom. US companies working on the second wave of ethane
crackers need to minimize construction costs while maintaining low
ethane prices to sustain its competitive advantage.
Figure 2 shows the global refinery-petrochemical snapshot in
the new era.
Interest in understanding COTC complexes is rising quickly as
new facilities come online. COTCs are live now in China and will
soon be followed by facilities in Saudi Arabia. Due to the huge
scale and volume of chemicals each COTC can produce, COTC ushers in
a new era characterized by unprecedented production scale and a few
dominant players. The impacts of this change are imminent and will
be profound, including a major shift in the landscape of global
competition. Having advantaged feedstock alone will not be enough
in the new era. Competitive advantage will expand to a newly
elevated scale that values accessible markets, capital efficiency,
and technology optimization for converting maximum volumes of crude
into chemicals.
Posted 06 August 2018 by Dewey Johnson, Vice President, IHS Markit Global Base Chemicals Insight and
R. J. Chang, Vice President and Executive Director, Process Economics Program, Oil, Mid-Downstream and Chemical, IHS Markit