China is keeping the fires stoked under its petrochemical expansion campaign.
Sparked by a continuing surge in domestic demand for petrochemical products and regional demand for petrochemical feedstock exports, Beijing has embarked on an ambitious program of expanding a range of upstream and downstream petrochemical capacities this decade.
ManN, are world scale projects. Some are proceeding with foreign technology and equity participation by foreign partners.
The implications could prove significant for China's neighbors in the Asia-Pacific region, where there is apprehension over possible lingering surplus petrochemical capacity during the 1990s. Although China's surging economy will absorb much of that expected future production, Beijing is moving aggressively to sustain growth in petrochemical exports as a key source of hard currency earnings,
And the petrochemical boom in China is affecting the status of China's oil exports as well as giving further impetus to Beijing's oil exploration and development initiatives.
China's refining and petrochemical industries are inextricably intertwined, with refineries and petrochemical plants often sharing common sites because crude oil is the most common petrochemical feedstock in the nation's industry. Growing consumption of crude oil for domestic petrochemical operations is a factor in China's declining crude exports.
China's refining and petrochemical industries in 1992 produced a combined industrial output valued at a record $13 billion, China Features' Xu Yihe reported.
Sheng Huaren, president of state owned China Petrochemical Corp. (Sinopec), estimated national petrochemical production has jumped at a rate of 8%/year the last 8 years, Xu said. Last year, Sinopec remitted to Beijing about $3.3 billion in taxes, or about $270,000 more than its target.
Plans call for still more growth during the 1990s as a hefty slate of projects gets under way.
BACKGROUND
Founded in 1983, Sinopec has 69 subsidiaries employing more than 600,000 persons. Its current registered capital totals 108.4 billion yuan ($20 billion), and total fixed assets are valued at 123.46 billion yuan ($21.3 billion).
In the past 10 years, Sinopec has sold 55 billion tons of refined and petrochemical products with sales totaling $11 billion. Tax remittances to Beijing have totaled to date more than 127 billion yuan ($21.9 billion).
China's petrochemical infrastructure largely consists of:
- Thirty oil processing complexes nationwide.
- Basic petrochemical complexes at Yanshan in Beijing province, Daqing in Heilongjiang, Qilu in Shandong, Jinshan in Shanghai, and Yangtze at Nanjing in Jiangsu province.
- Petrochemical fiber complexes at Liaoyang in Liaoning province, Tianjin, Shanghai, and Chendu in Sichuan province.
- Synthetic ammonia/urea plants at Urumqi in Xinjiang Autonomous Region, Xining in Ningxia Autonomous Region, Anqing in Anhui province, and Guangzhou in Guangdong province.
In recent years, Sinopec has cooperated with foreign companies in a bid to update its technology and facilities. The corporation has so far absorbed more than $6 billion in foreign investment and established cooperation with more than 1,000 companies in 50 countries and regions, Xu reported. U"
EXPORTS
China exports 100 kinds of petrochemical products.
Petrochemical industry exports totaled $1.5 billion last year, including $254 million worth of products directly exported by Sinopec-mostly base oils, petroleum coke, paraffin wax, synthetic rubber, and synthetic resins.
This year, Sheng expects exports, including those by China National Chemicals Import & Export Corp. (Sinochem), to increase by 10%.
Sinopec has offices in the U.S., Japan, Hong Kong, Thailand, Germany, and Ecuador and plans to enter markets in Africa and South America via exports of paraffin wax and petroleum coke.
At a Sinopec conference last year, government officials proposed allowing Sinopec International, which over-sees Sinopec's export and import business and accounts for about one fifth of China's petrochemical exports, to handle a bigger share of the petrochemical export market.
RECENT PERFORMANCE
Sinopec in 1992 increased petrochemical production value by 8.3% from the previous year to 75.6 billion yuan ($13 billion). Sales totaled 97 billion yuan ($16.7 billion), up 20% from 1991's level.
The company's ethylene production jumped 10.2% from 1991's level to 1.72 million tons due to full operation of the Shanghai and Fushan complexes' expansions of 300,000 tons/year and 115,000 tons/year, respectively.
Investment in grassroots petrochemical projects in 1992 totaled $1.3 billion, with a further $480 million spent on revamps and modernization projects, notably key projects at Fushun, Fujian, and Urumqi. That compares with $1.7 billion in capital outlays in 1991.
1993 OUTLOOK
Sinopec expects to produce 1.84 million tons of ethylene in 1993.
Under a conservative scenario, that level is expected to rise to 2.3 million tons in 1995 and 3 million tons in 2000.
Sinopec expects to remit levies to Beijing totaling 175 million yuan ($29.3 million) in 1993. Sales are expected to climb about 20% from 1992's level to more than 120 billion yuan ($20.6 billion).
Plans call for capital spending of more than 11 billion yuan ($2 billion) in 1993, with 7.82 billion yuan ($1.34 billion) going for grassroots construction and 4 billion yuan ($689 million) going for revamps and maintenance work.
Sinopec also will expand its Petrochemical commodities trading capability in 1993. It established three petrochemical exchanges late last year: Pudong Petrochemical Exchange Center, opened in October in Shanghai; Northeast Petrochemical Exchange Center, opened Dec. 8 in Shenyang, Liaoning province; and Tiajin petrochemical Center, opened Dec. 18.
Sales at the Pudong center by yearend 1992 totaled 800 million yuan ($138 million).
Plans call for setting up three more exchange centers in 1993 at Guangzhou, Lanzhou in Gansu province, and Wuhan in Hubei province.
ETHYLENE CAPACITY BOOST
The linchpin of China's petrochemical boom is ethylene.
With full commercial start-up of a 300,000 metric ton/year ethylene project at Shanghai last June, China is now the world's eighth largest ethylene producer with productive capacity of 2.1 million tons/year, officials claimed.
The Shanghai project, started in 1987, was the last to be completed among four 300,000 ton/year ethylene projects China implemented with imported technology and equipment. The other three were installed at Daqing, Qilu, and Jinling.
China last August signed a draft contract with a group of 10 foreign companies to implement a fifth such 300,000 ton/year ethylene project at Maoming.
Maoming is one of 15 grassroots ethylene plants or major expansions China plans to complete by 2000.
Along with a number of minor expansions from debottlenecking and other steps, China's ethylene productive capacity could jump by at least another 3 million tons/year, Xu reported. By 2000, China's domestic demand for ethylene is expected to reach 4-5 million tons/year.
However, some Beijing officials figure China would be lucky if 60% of the planned projects materialize, based on the country's hard currency squeeze.
MAOMING PROJECTS
Beijing last year signed a draft contract with a group of 10 foreign companies to start what China calls its most ambitious petrochemical project in the current decade (OGJ, July 27, 1992, p. 44).
The ethylene project, to be built by Sinopec Maoming Petrochemical Corp. (SMPC) in South China's Guangdong province, involves a $1.9 billion investment. Of that amount, $735 million is to be foreign capital.
The draft was signed by Sinopec, Guangdong province, and 10 companies from Japan, Italy, and the U.S. led by JGC Corp. Companies in the group include Marubeni Corp., Mitsubishi Corp., Mitsui Shipbuilding & Engineering Co., Snamprogetti SpA, and Stone & Webster Engineering Corp.
The group will provide export credits valued at $200 million from the U.S. and Japan to install three trains to produce 300,000 tons/year of polymer grade ethylene, 100,000 tons/year of low density polyethylene, 140,000 tons/year of linear low density polyethylene (Lldpe), and 165,000 tons/ year of propylene. Feedstock will be naphtha and heavier liquids.
Japan's JGC will oversee lump sum project responsibilities, including detailed engineering, procurement of foreign equipment, and construction supervision. Stone & Webster, Houston, will provide technology licensing and process design, detailed engineering of critical areas, training, and commissioning technical services.
Snamprogetti late last year signed a $70 million contract to provide technology for the Maoming Lldpe unit. Sinopec also let a $38 million contract to Snamprogetti to build a 100,000 ton/ year styrene monomer plant at Maoming (OGJ, Nov. 23, 1992, p. 38).
Maoming complex construction was to start last October, and production is expected to begin late in 1995. Delivery of first products is scheduled for early 1996 from the complex, which will serve China's booming coastal economic development zones as well as Hong Kong, Macau, and other export markets.
Meanwhile, Maoming also is mapping out a 300,000 ton/year synthetic ammonia project downstream of the ethylene project. The $275 million project is expected to get under way in early 1994.
OTHER ETHYLENE PROJECTS
Sinopec also is implementing a 115,000 ton/year ethylene project at Guangzhou, the capital of Guangdong province in South China.
For the $715 million project, Sinopec will import ethylene units valued at $150 million from Italy's Tecnimont SpA and $120 million worth of polyethylene and polypropylene facilities from Tokyo Engineering Corp.
When complete in 1995, the complex will be able to produce 115,000 tons/year of ethylene, 100,000 tons/ year of polyethylene, 70,000 tons/year of polypropylene, 80,000 tons/year of styrene, and 50,000 tons of polystyrene.
Construction began in last June on a 140,000 ton/year ethylene plant at Duzishan Petrochemical Complex in Northwest China's Xinjiang Autonomous Region. The $660 million project will use eight production trains-four each imported from Japan and the U. S.
The plant is to start up by yearend 1994.
The complex also will produce 180,000 tons/year of polypropylene and 25,000 tons/year of gasoline additives.
In 1991, Beijing's Yanshan Petrochemical Corp. installed several new units, boosting ethylene capacity to 300,000 tons/year.
In mid-1992, China National Petroleum Corp. (CNPC) and Beijing's municipal government started work on a 115,000 ton/year ethylene project at Beijing. The $537 million project will have four units, all imported from Italy, Japan, and the U.S.
When production starts in September 1994, the project will have capacities of 115,000 tons/year of ethylene, 40,000 tons/year of ethyl vinyl acetate resins, 40,000 tons/year of ethylene glycol, and 70,000 tons/year of gasoline additives.
ETHYLENE CONCERNS
The 15 ethylene projects still to be completed call for total spending of $14.1 billion, a sum far beyond China's present financial ability. During the current (eighth) 5 year plan, China will be able to invest only $2.8 billion in those projects.
Chinese officials say the surging market encourages foreign suppliers to hike the price of equipment China plans to import for ethylene projects. A 115,000 ton capacity ethylene plant, for example, previously absorbed imports totaling about $100 million. The price tag has jumped to $138-169 million.
These ethylene projects, when on stream will consume an added 300,000 b/d of oil, of which about 260,000 b/d will be imported,
With that prospect and the current low price of oil sold in China-about $5/bbl-local officials are anxious to get the ethylene projects under way soon.
Meanwhile, new refineries, petrochemical fiber plants, and some other petrochemical projects planned before the turn of the century will absorb another 320,000 b/d of oil, of which imports will account for 260,000 b/d.
Overall, to accommodate domestic demand for refined and petrochemical products, China must boost its oil production by 100,000 b/d and hike crude imports by 520,000 b/d by 2000.
However, both prospects will prove difficult for China, Xu reported, quoting Wang Naiju, director of CNPC's oil development department, as saying last year a production increase of even 20,000 b/d will be impossible after 1995.
At the same time, China will sorely need foreign exchange for its industrialization program and likely won't increase foreign exchange to import oil to meet domestic demand.
Industry planners say operating margins of the ethylene projects with capacities less than 300,000 tons/year will be very modest because of the different economies of scale. Investments for a 300,000 ton/year ethylene project is 1.4 times that for a 100,000/ year ton project, but its production cost is only 80% higher and its tax revenues 3.3 times that of the smaller project.
Some officials contend China should expand capacity of the existing ethylene complexes instead of building grassroots plants as a more economic option to boost China's ethylene production.
For example, new units are being installed at the Yanshan Petrochemical Corp. plant in Beijing to increase its ethylene productive capacity to 300,000 tons/year.
OTHER PETROCHEMICALS
Among other petrochemicals, China has capacity to produce 1.27 million tons/year of polyester.
That figure is expected to jump to 1.63 million tons in 1995 and 2.11 million tons in 2000.
To date, local officials have applied to implement 21 polyester projects with a total capacity of 1.7 million tons-860,000 tons more than the target level.
The polyester projects, scattered around the country, include a completed 60,000 ton/year unit at Foshan in Guangdong province, a 60,000 ton/ year plant to be built with foreign capital at Guangzhou, and a duster of four 60,000 ton plants in the Pearl River Mouth delta area.
Sinopec late last year signed a letter of intent with Mitsui Engineering & Shipbuilding Co. and Marubeni Corp. to build a 100,000 ton/year polyester fiber plant in Guangdong province. Japan's Export-Import Bank will cofinance the 8 billion yen project, to be complete in 1996.
China also plans to build four petrochemical fiber plants in Tianjin, Liaoning, and Henan provinces with a combined capacity of 600,000 tons. Completion of the projects will boost capacity of synthetic fiber monomers by 340,000 tons/year and product fibers by 200,000 tons/year.
Beijing has placed a priority on petrochemical fiber production because of soaring demand for synthetic fabrics in the nation of 1.1 billion people.
In 1992, China imported 400,000 tons of petrochemical fibers and 400,000 tons of feedstocks for petrochemical fiber production.
China's goals for chemical fiber production are 2 million tons/year by 1995 and 2.6 million tons/year by 2006. The country depends on Sinopec for 98% of its synthetic fiber monomers.
Sinopec last week let a $38 million contract to Marubeni and Badger Co. Inc. for a complex at Guangzhou to produce 80,000 tons/year of ethylbenzene and styrene monomer. U.S. Export-Import Bank last year approved a $26.1 million loan to support sales of $30 million in goods and services for the project (OGJ, Oct. 12, 1992, p. 33). It is to be complete by July 1995.
Sinopec late last year let a 5 billion yen contract to Mitsui & Co. and Mitsui Engineering & Shipbuilding Co. to build a 40,000 ton/year polypropylene plant at the Daqing complex. It is to be complete by early 1996. Mitsui Petrochemical Industries Ltd. will provide technology and Japan's Export-Import Bank loans for the project.
FOREIGN INVESTMENT PROBLEMS
Some foreign investment plans in China's booming petrochemical sector have stumbled recently.
Taiwan's Formosa Plastics Group (FPG) late last year scrapped plans for a $6-7 billion petrochemical complex in Fujian province in order to concentrate on building a $3.6 billion ethylene cracker in Taiwan's Mailiao industrial zone (OGJ, Dec. 7, 1992, p. 35).
Among other considerations, FPG disagreed with Beijing over whether ethylene produced at the complex would be sold domestically-FPG's preference. Beijing insisted on a ceiling of 30% domestic sales, with the balance exported.
Another concern was Taiwanese government opposition to the project. Taipei feared it would transfer too much capital and technology to China. However, Taiwan's government earlier this month eased restrictions on petrochemical investments in China.
Taiwan's Ministry of Economic Affairs proposed new regulations, which must be approved by the cabinet level Mainland Affairs Council, allowing Taiwanese chemical manufacturers to invest in Communist China projects case by case.
Taiwanese investment in mainland China, almost all in low tech consumer goods such as textiles, shoes, and toys, has soared to about $10 billion since tensions between Beijing and Taipei began to ease during the late 1980s.
But Taipei until now has banned investment in high tech and capital intensive industrial projects because of technology/capital transfer concerns, possibly hurting Taiwan's manufacturing base.
Commenting on the new regulations, Taiwan's Vice Economics Minister Yang Shih-chien said it is in Taiwan's best interest to allow companies in heavy industry and high tech sectors to invest in China as long as they keep most of their operations in Taiwan.
Meantime, FPG also is considering plans for other projects along the Yangtze River. FPG has forwarded its new plans to Zhu Rongji, China's economic vice-premier, for consideration. Sources quoted Zhu as saying before China agrees to FPG's preference for 100% domestic sales, FPG should agree to allow China to take an equity interest in some of the new projects.
FPG's new plans include seven projects: polyvinyl chloride (PVC) tube, plastic windows and doors, polypropylene paperboard and tile, PVC flooring, and polyethylene film.
OTHER FOREIGN INVESTMENTS
In other foreign investment moves in China's petrochemical sector, a group of six Japanese trading houses late last year agreed to a joint venture with Chinese agencies to build and operate a $4 billion petrochemical complex at Yingkou, Liaoning province (OGJ, Nov. 2, 1992, Newsletter). Officials say it will be the biggest Sino-Japanese joint venture project to date.
The project is to include a 450,000 ton/year ethylene plant and downstream units to produce 32,000 b/d of refined products, as well as polyethylene, polypropylene, polystyrene, and other products when it starts up in 1994. Plans call for importing most of the crude feedstock from the Persian Gulf region.
Products are to be sold in China.
The plant is scheduled for completion by 2000. The partners will set up a joint venture capitalized at $800 million, with the Japanese group taking a 51% interest.
Japanese partners are Itochu Corp., Marubeni, Mitsubishi, Mitsui & Co., Nissho Iwai Corp., and Sumitomo Corp. Chinese partners are Liaoning provincial government, China's Ministry of Chemical Industry, CNPC, and Sinopec.
The venture was spawned by a visit by Japanese Emperor Akihito visit to China in late October 1992.
In addition, Finland's state owned Neste Oy is considering investing $150 million in a polyethylene plant in China. Neste also plans to invest a combined $10-15 million in two smaller specialty chemical plants in Beijing and Shanghai.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
