CHINA'S CAMPAIGN FOR PETROCHEM SELF SUFFICIENCY WELL UNDER WAY

CHINA'S PETROCHEMICAL EXPANSION BOOM IS IN FULL SWING.

With what some measure as the world's fastest growing economy, China's consumer products demand is growing at a voracious pace, spurring skyrocketing demand for basic and intermediate petrochemicals. So Beijing has embarked on a massive expansion of the nation's petrochemical industry to accommodate that growth.

For the next 3 years at least, China will have to rely on imports for about half of its petrochemical supplies. China's rate of self sufficiency by 1995 is expected to be 50 60% for ethylene, 60 70% for plastics, 70 80% for synthetic fibers, and 50 60% for synthetic rubber. For some products, such as styrene, the self sufficiency rate is expected to be only 20 30%. And demand is growing so rapidly that some earlier gains toward self sufficiency are being erased. The self sufficiency rate for synthetic resins has fallen recently, to 48.8% in 1993 from 66.2% in 1990, with synthetic resins consumption almost doubling and imports jumping to 3.4 million tons in 1992 from 1.42 million tons in 1990.

Where China is especially lacking is in the area of specially engineering plastics, depending almost exclusively on imports.

For many key petrochemicals, China envisions accomplishing no less than self sufficiency by the turn of the century (Table 1). But to get to that point, Beijing must import foreign technology and capital needed for a wholesale upgrading and expansion of its petrochemical sector. In getting there, it must overcome conflicts involving projects pursued independently by certain local or provincial governments as well as by various state owned companies and agencies. And it must contend with an international petrochemical market still struggling to recover from a downturn that might not be able to absorb the loss of a major market as China moves toward self sufficiency.

BACKGROUND

From its sparse beginning a little less than 40 years ago, China's petrochemical sector has evolved into what Beijing views as one of the pillar industries of the national economy.

China's petrochemical industry got its start in the late 1950s with the establishment of Gaoqiao Petrochemical Co. in Shanghai and Lanzhou Chemical Industry Co. in Gansu province, producing refined and chemical products from crude oil. In the late 1970s, the development of Yanshan Petrochemical Co. marked the entry of Chinese petrochemicals into modern technology and the start of the sector's first growth boom. It was followed in the 1980s with installations at Daqing, Qilu, Yangzi, and Shanghai.

China National Petrochemical Corp. (Sinopec) was founded in 1983 as a multitrade, transregional economic entity to ensure comprehensive utilization of the nation's oil resources by integrating processing of crude oil into refined products, basic and intermediate petrochemicals, and synthetic fibers.

The past 10 years have marked Sinopec's most rapid growth. As of yearend 1992, Sinopec operated 2.87 million b/d of primary processing capacity about 90% of the nation's total, and more than 1.24 million b/d of secondary processing capacity. Sinopec at the time also had total ethylene productive capacity, of 1.95 million metric tons/year, or 93% of the nation's total (Table 2).

Sinopec owns 83 subsidiaries and affiliates, including 38 production enterprises with more than 1,000 units producing more than 100 million tons/year of more than 1,500 products. It employs more than 700,000 employees of which 180,000 are engineers and technicians. That's an increase in manpower of 44% from 1983's level. In 1992, Sinopec had total sales revenues of 105.2 billion yuan and total assets of 122 billion yuan, up 286% and 287%, respectively from 1983. Sales revenues jumped more than 40% to 145.5 billion yuan in 1993, while total assets inched up to 123.3 billion yuan.

Sinopec posted profits of 8.5 billion yuan in 1993, up about 27% from the year before.

Sinopec in 1992 processed 2.16 million b/d of crude and turned out 1.125 million b/d of gasoline, kerosine, diesel, and lubes; 1.78 million tons of ethylene, 1.91 million tons of plastics, 1 million tons of synthetic fiber mononiers, 530,000 tons of polymers, 450,000 tons of synthetic fibers, 280,000 tons of synthetic rubber, 3.34 million tons of ammonia, 5.23 million tons of urea, and more than 3 million tons of other organic chemicals.

That represents increases from 1983 in crude runs of 44% as well as increases in output of the four major refined products 62%, ethylene 218%, plastics 298%, synthetic fibers 165%, synthetic rubber 133%, and urea 67%.

Ethylene production climbed 3% to 1.8 million tons in 1993.

During its first 10 years, Sinopec accounted for 5.5 million tons of refined product and petrochemical exports worth $11 billion, set up more than 50 joint ventures with foreign partners, and licensed 101 technologies for export, including some high performance catalyst products and manufacturing processes, butadiene block copolymer manufacturing technology and petrochemical software. At the same time, Sinopec has imported more than $6 billion in foreign technology and equipment for revamps or grassroots construction.

By yearend 1993, Sinopec joint ventures totaled 62 with a combined capitalization of $200 million, of which 47 were in operation at presstime.

PETROCHEMICAL OUTPUT LAGS

China's petrochemical sector output growth generally has lagged relative to the country's economic growth and in comparison with other key' petrochemical producers, Sinopec International Vice Pres. Dhang Pei-yao told a conference on China's petroleum sector in Houston in March.

China's gross national product grew 8.9%/year during 1980 91. At the same time, annual production of ethylene grew by 12.3%, plastics 10.4%, synthetic fibers 13.8%, synthetic rubber 9.95%, and detergents 12%. That works out as production:GNP ratios of 1.11 1.39:1. By way of comparison, U.S. production of ethylene outstripped that country's economic growth 3.3:1 during the 1950s, and Japan's ethylene output outpaced its economic growth ninefold during the 1960s.

Dhang noted that for a country with about 20%, of the world's population, China accounts for only 3.7% of the total world crude runs, 3% of world output of ethylene, 2.9% of plastics, 8.6% of synthetic fibers, and 3.6% of synthetic rubber. During 1985 92, China imported 16.29 million tons of plastics, 3.84 million tons of synthetic fibers, 620,000 tons of synthetic rubber, and 9.34 million tons of other organic chemicals for a combined outlay, of $37.4 billion in equivalent foreign exchange.

PETROCHEMICAL EXPANSION PLANS

Sinopec will undertake an ambitious program to upgrade and expand China's petrochemical sector in two phases, said Sinopec Pres. Sheng Htiaren.

In the first phase, by 2000, plans call for boosting crude runs to 4.3 million b/d and output of ethylene to 5 million tons/year, plastics 7 8 million tons/year, fibers 3.5 3.7 million tons/Year, and rubber 700,000 1 million tons/year (Table 4).

In the second phase, by 2010, Sinopec targets crude runs of 6.4 7.4 million b/d and output of 8 10 million tons/year of ethylene.

Dhang said the company's focus will be on most projects having large economies of scale with crude capacities of at least 100,000 b/d and ethylene crackers of at least 300,000 450,000 tons/year.

In addition, all existing 300,000 ton/year ethylene crackers will be expanded to 450,000 500,000 tons/year and upgraded to incorporate the latest technology. And further emphasis will be placed on deeper processing of crude and petrochemical feedstocks as well as closer integration of upstream, midstream, and downstream products.

ETHYLENE CAPACITY

Centerpiece of Sinopec's petrochemical expansion plans is its campaign to expand capacity of ethylene, the principal petrochemical building block.

China's overall ethylene capacity totaled about 2.338 million tons/year as of yearend 1993, ranking, the country eighth in the world. Ethylene production in 1993 totaled 1.8 million tons.

China now has five 300,000 ton/year ethylene plants. All but the first one, built in 1983 at Yanshan and featuring current capacity of 300,000 tons/year, involved foreign technology. The other four were built at:

Daqing, completed in 1986 at a cost of $900 million and incorporating technology from Japan, Germany, U.K., and U.S.
Qilu, completed in 1987 at a cost of $1.2 billion and incorporating technology from Japan, Germany, and U. K.
Yangtze, completed in 1990 at a cost of $1.7 billion and incorporating technology from Germany and Japan.
Shanghai, completed in 1992 at a cost of $1.51 billion, including $575 million in foreign loans, and incorporating technology from Japan and U.S. The biggest ethylene complex in China currently is that at Shanghai, which incorporates Shanghai Joint Stock Corp., Shanghai Alkali Chloride Co. Ltd., and Gaoqiao Petrochemical Co. The three subcomplexes are linked with a 55 km pipeline and comprise China's biggest overall petrochemical producer.

During the decade to come, Sinopec plans to expand its five 300,000 ton/year ethylene crackers to 400,000-500,000 tons/year. The expansion at Yanshan is well under way and expected to be completed this year.

Other ethylene units in China generally produce 115,000 tons/year or less of ethylene. The main feedstock for Chinese ethylene units is light atmospheric gas oil (AGO).

ETHYLENE EXPANSION PLANS

Beijing has approved construction of seven ethylene crackers of the 19 ultimately planned by the turn of the century (Table 4). Most of those approved have relatively small capacities, averaging about 140,000 tons/year. While that runs counter to central planning, with a focus on economies of scale, the projects offer local benefits.

THOSE APPROVED ARE AT:

Maoming, fed by naphtha and light AGO, with capacity of 300,000 tons/year and to be operated by Sinopec. Currently under construction, Maoming, in Guangdong province, is South China's first ethylene cracker. Total project cost for Maoming is projected at $1.84 billion. Targeted for completion in 1998, the Maoming complex will be designed to produce a combined total of 800,000 tons/year of all petrochemicals. The complex will consist of 10 plants, eight of which are to be supplied by foreign contractors/licensers (Table 3).
Jilin, fed by naphtha and light AGO, to start up in 1997 with capacity of 300,000 tons/year and be operated by the Chinese Ministry of Chemical Industry (MCI). Jilin Petrochemical Works currently produces 115,000 tons/year of ethylene.
Henan, fed by natural gas liquids and naphtha, to start up in 1996 with capacity of 140,000 tons/year and be operated by China National Petroleum Corp. (CNPC)
Tianjin, fed by naphtha, to start up in 1995 with capacity of 140,000 tons/year and be operated by Sinopec.
Xinjiang, fed by NGL and naphtha, to start up in 1995 with capacity of 140,000 tons/year and be operated by CNPC.
Beijing, fed by naphtha, to start up in 1995 with capacity of 140,000 tons/year and be operated by MCI.
Guangzhou, fed by naphtha and light AGO, to start up in 1996 and be operated by Sinopec. Also currently under construction in Guangdong province, the $812 million, 114,000 ton/year ethylene plant for Guangzhou Petrochemical Corp. is scheduled to be on stream by 1996.

Another three 300,000 ton/year ethylene plants are under consideration to be built in China this decade: at Huizhou in Guangdong province, Beihai in Guangxi autonomous region, and Liaoyang in Liaoning province.

As China's economy continues to heat up, Beijing is considering scrapping its original expansion program and may limit new projects to the large scale crackers to ensure profitability. Small plants would be expanded, merged, or shut down. If that happens, official sources say, the original foreign licensers will have priority, to join the expansion program.

OTHER PETROCHEMICALS OUTPUT

China is pressing expansion of production of other petrochemicals in line with the ethylene boom.

Production of other key petrochemicals in 1993 breaks out as urea 2.3 million tons, plastics 2 million tons, synthetic fiber monomers 1.1 million tons, synthetic fiber polymers 574,000 tons, and polypropylene 668,000 tons. Synthetic rubber production in 1993 totaled 300,000 tons, mostly from the Qilu, Yanshan, and Lanzhou complexes (Table 5).

Demand for synthetic resins skyrocketed during the late 1980s, spurring, the most rapid growth in polyethylene and polypropylene capacity (Table 6). Polyethylene production increased to 1.3 million ton in 1993 from 353,000 tons/year in the past 10 years. During the same period, polypropylene output jumped to 725,000 tons/year from 160,000 tons/year.

Styrene production lags demand in China. During the past 2 years, demand for styrene in China grew by 25.6%, while output rose by only 4.6%.

The only styrene units are at Yanshan, Fushan, Gaoqiao, Jinlin, Baling, Lanzhou, and Qilu.

OTHER PRODUCTS EXPANSION PLANS

By 2000, China will have added capacity of 540,00 tons/year of polyethylene, 180,000 tons/year of styrene monomer, 150,000 tons/year of ethylene glycol, 200,000 tons/year of polyethylene terephthalate, 1.2 million tons/year of ammonia, and 2.08 million tons/year of urea.

Three 200,000 ton/year polyester plants are planned for completion by 2000 at Tianjin, Liaoning, and Urumqi capital of Xinjiang Uygur autonomous region. That will help boost China's polyester production to more than 1.63 million tons/year by 1995 and 2.6 million tons/year by 2000. Three 200,000 ton/year synthetic fiber plants also are slated for those same three complexes, with the one Liaoning still waiting final approval by the State Council.

German company BASF AG has signed a contract with Sinopec Yangzi Petrochemical Corp. to produce polystyrene. The $179 million joint venture is to produce 130,000 tons/year of ethylbenzene, 120,000 tons/year of styrene, and 100,000 tons/year of polystyrene. Also, Dalian Petrochemical Corp. is considering building a 90,000 ton/year styrene monomer plant in a bid to diversify, into polystyrene operations.

Other proposed near term petrochemical projects include:

A 20,000 ton/year acrylic acid/esters plant at Zhangye, Gansu province. The $70 million project would use propylene from the Yumen refinery and probably, entail a foreign joint venture or foreign loans.
Units to produce 40,000 tons/year of maleic anhydride and 20,000 tons/year of 1,4 butanediol at Hami, Xinjiang Uygur autonomous region. It would utilize light hydrocarbons from the Turpan Hami basin and likely will entail foreign cooperation. Cost is pegged at $82 million.
A complex that would produce 100,000 tons/year of methanol, 150,000 tons/year of acetic acid, and 40,000 tons/year of acetic anhydride at Xi'an or Xianyang, Shaanxi province. It would use natural gas from recent giant discoveries in the Shaan-Gan-Ning basin and involve a foreign joint venture or foreign loans. Estimated cost os $210 millions.

MANAGEMENT PHILOSOPHY SHIFT

Sinopec will adhere to more modern management practices seen in industry leaders in other countries by reforming plant process design models, adopting advanced monitoring and control systems, and maximizing plant efficiencies while increasing the time between maintenance turnarounds to 2 3 years from the current 1 year. Dhang said the state company will implement a phased management strategy that calls for:

Setting a balance between central planning and decentralization that involves presenting a united front in domestic and foreign markets while implementing "reasonable decentralization" to enhance the competitiveness of China's petrochemical industry in the international market.
Fostering globalization through import of foreign cooperation, capital, technology transfer, and crude supplies while pursuing investments overseas and expanding the range and volume of products, technology, exported labor, and project contracting in other countries.
Promoting "shareholding" by raising capital at home and abroad through cooperation with local authorities and foreigners in petrochemical joint ventures, developing various kinds of shareholding companies along the lines of listed and unlisted limited liability and joint stock companies, and setting up specialized groups or affiliated companies to market petrochemicals. Currently, all Sinopec subsidiaries are preparing to shift to a shareholding system in order for Sinopec to convert to a state owned stockholding corporation.
Diversifying by extending derivatives further downstream as well as upstream by securing new crude supplies through exploration. Vigorous growth is seen for a new multi trade, multi industrial, large scale diversified structure that incorporates a synergy of disciplines including industrial processes, trade, financing, engineering, technology, information, and consulting as well as secondary and tertiary industries. Dhang said Sinopec will give priority to expanding midstream and downstream industries with a focus on high quality lube oils, wax and bitumen products, a wide range of synthetic resins compounds, differentiated synthetic fibers, a range of rubber and latex products, specialty chemicals notably additives and surfactants and comprehensive utilization of all byproducts.

Priority also will be given to foreign investment in China's petrochemical sector through cooperative arrangements, joint ventures, or exclusive investment. A number of Sinopec coastal enterprises, including those at Dalian, Gaoqiao, Zhenhai, Fujian, and Maoming, are discussing with foreign companies prospects for increasing productive capacity, improving product quality, and strengthening competitiveness through advanced technology in revamps, expansions, or rebuilding to expand markets in China and Southeast Asia.