By Huang Ruqing, Hu Zhichao, Hu Nan, Shandong Dongming Petrochemical Group
Opportunities of making ethylene by ethane
The US shale gas revolution provided inexpensive ethane for China to produce ethylene.
1. US ethane sector in the grip of glut and urgent need of export
The shale gas boom in the US made the nation’s ethane output skyrocket, but growth of consumption failed to catch up with that of output, resulting in a supply glut. Ethane exports of the US have increased rapidly in recent years.
China and the US signed an economic and trade agreement in January 2020, involving liquefied natural gas, crude oil, petrochemicals and coal. Value of energy products to be imported from the US will grow by US$18.5 billion in 2020 and US$33.9 billion in 2021 from America’s export value to China in 2017.
2. Cost advantages of using ethane to manufacture ethylene
Cost advantages of manufacturing ethylene with ethane became increasingly obvious. Average Brent crude oil price was US$50.06/barrel from 2015 to 2017. During the period, producing one ton of ethylene with ethane cost firms RMB1 879 in the US, and in China: producing with ethane cost RMB3 257, producing with naphtha RMB5 029, producing with methanol RMB7 623. The four numbers rose to RMB3 040, RMB4 596, RMB9 006 and RMB9 108 in October 2018, when crude oil price reached US$82.71.
Challenges of making ethylene by ethane
1. Too many plans to produce ethylene through ethane cracking
Combined capacity of China’s ongoing and planned projects related to making ethylene via ethane cracking reached 22.4 million t/a, requiring more than 27 million tons of ethane per year (see Table 1 for details).
2. Probability that prices of America’s ethane will rise rapidly
Ethane is traded mainly through spot market in the US, where a few long-term contracts are also priced based on spot prices. If projects on making ethylene with ethane start producing on schedule in countries of the world, especially in China, supply and demand of ethane will probably lose balance, and further result in a steep rise in prices. Trade uncertainties will bring risks to long-term, stable supply of raw materials.
Suggestions for future development
1. Diversify raw materials
Enterprises are wise to design ethane steam cracking ethylene equipment capable of utilizing both ethane and propane. In the case that supply of America’s ethane cannot be guaranteed, manufacturers can adopt propane, import volume of which reached 14.94 million tons in 2019 mainly from Middle East countries (e.g. Qatar, the UAE, Kuwait, Saudi Arabia and Oman).
Figure 1 Sources of propane China imported in 2019
2. Stabilize sources and prices of raw materials by means of long-term contracts
The US is constructing new or expanding existing ethane ports, building special export facilities and customizing VLEC (very large ethane carrier). Risks from supply chain will still exist. With ethylene projects using America’s ethane starting production successively, demand for ethane of the US will increase and this may lead to sharp price fluctuation, exerting uncertainties on benefits of related projects. Hence, it is important to sign long-term contracts with American ethane suppliers to stabilize supply and prices.
3. Make rational plans
As for constructing projects to produce ethylene with ethane, the government and industry associations should help firms make rational plans to avoid expanding capacity too fast, competing among homogeneous products, wasting resources and raising ethane prices. In addition, they should give priority to projects, applicants of which have confirmed issues pertaining to sources of ethane, capital, technology, land, environmental protection, etc.