By Si Mengying, JLC

In the past 10 years, China's propylene industry has experienced three periods of capacity expansion. It has developed from coal chemical industry to large refining and chemical industry, and is gradually transitioning to the direction of light-weight.

According to China's Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality, the processing capacity of domestic crude oil should be controlled within 1 billion tons, which will limit the supply of propylene in the oil refining and ethylene production, which will also limit the peak supply of propylene by oil refining in the future. Therefore, the layout in the propane dehydrogenation (PDH) industry has attracted more and more attention.

The profitability of the main process of propylene weakened in 2022

In China's propylene industry, the representative production processes include oil production (steam cracking, catalytic cracking), methanol production, coal production, and propane production. Starting from 2021, the economic benefits of the PDH industry have taken a sharp turn and become worse rapidly, with continuous large losses and a significant drop in capacity utilization. With the rising price of raw material of propylene, the profits of propylene processes have suffered losses to varying degrees, which is closely related to the cost structure distribution of each process of propylene (see Figure 1). In the cost structure of steam cracking, methanol to olefins and propane dehydrogenation, the cost of raw materials accounts for more than the half, so the price trend of raw materials has a great impact on the profitability of the process. In 2022, the price of international crude oil surged, and maintained a trend of high and wide fluctuations. Driven by this, the prices of most energy and chemical products were at a relatively high level, and the raw materials of propylene, such as propane and methanol, were also operating at a high level, so the cost pressure of each process of propylene increased significantly.

Figure 1 Profit trend of propylene production by different processes in 2022

In 2023, the trend of raw material products will be different, and the profit of propylene by different processes will be differentiated

Starting from February 2023, the profits of the oil-to-propylene and the coal-to-propylene have recovered to varying degrees, which are also closely related to the falling price of raw material.

In terms of crude oil, as the international oil price fluctuates and falls, the oil-to-propylene process has shrugged off losses and entered a stage of positive profitability. In terms of the coal-to-propylene process, due to the plummet of coal price in February, the loss of coal-based olefins has gradually reduced.

PDH was favored in the past because of its high economic efficiency, cleanliness, efficiency, and compliance with policy orientation. However, at present, the star process in the past no longer exists, and the economics of a single set of equipment are still difficult to change. In 2021, the profit of propylene production of PDH unit had a significant shrinkage, with an average annual profit of only RMB561 per ton. In 2022, the average annual profit of PDH dropped to RMB-411 per ton, and the profit in most of the year was at a loss, of which the loss exceeded RMB1 300 per ton in November. Entering 2023, PDH continued at a loss. At the end of January, as the propane price soared above US$900 per ton, the loss of PDH units exceeded RMB2 000 per ton (see Figure 2). The sharp rising price of imported propane was mainly boosted by the demand for raw materials of PDH units in China.

Figure 2 The profit trend of PDH units in China from 2020 to 2023

Sustained losses of PDH lead to sharp decrease in its capacity utilization

Since 2023, the price of raw material of propane has surged due to PDH units, which in turn expanded the loss of PDH projects and led to the significant drop of the utilization rate.

After 2020, the capacity utilization rate of China’s PDH units gradually declined. From January to March 2023, the capacity utilization rate of PDH units in China has dropped by 26 percentage points compared with 2020 (see Table 1). At the beginning of March 2023, the capacity utilization rate of China’s PDH units fell below 55%, and the highest capacity utilization rate from January to March was only 73.49%. As of the close on March 31, China's PDH capacity utilization rate was 62.60%. Table 2 shows the operation of China’s PDH units in March.

Intensified competition, and unsatisfying future

In the next 10 years, there are many PDH projects with a total capacity of more than 35 million t/a in China under construction, planned to construct or under planning, so the competition in the PDH industry will become more intense. On the one hand, both the quantity and quality of domestic propane are difficult to meet the demand, the raw material of propane still depends on imports, and the domestic demand has increased significantly, all of which have stimulated the price of raw material propane to rise sharply. On the other hand, the intensified energy crisis in recent years has also driven oil and gas products such as crude oil in high price. With the intensified competition in the domestic propylene market, it is difficult for the price of propylene to maintain a firm operation, making the situation of the PDH industry more and more difficult.

But on the whole, the geographical distribution and the layout of industrial chain have a profound impact on the economic performance of PDH units. In terms of geographical location, most PDH units are built near seaports, so raw materials are mainly transported by pipeline, which has obvious cost advantages; while some units need to be transported to factory by truck, the cost of raw materials will be increased significantly. In terms of industrial chain layout, Wanhua Chemical Group Co., Ltd., and Tianjin Bohua Chemical Industry Group Co., Ltd. made layout in downstream chemicals such as butanol and octanol which have good profitability, so the upstream PDH units have a relatively high operation stability. However, some product layout in polypropylene and acrylonitrile have significantly weakened profitability, so the companies have a phased shutdown to seek to hedge their risks. Some factories even exported a large proportion of propylene, and had a long-term economic shutdown.

At present, some large-scale refining and chemical projects or newly commissioned large-scale units have obvious advantages in raw material unit consumption, units loss, and industrial chain integration. The advantages from the reuse of raw materials or by-products can effectively make up for part of the losses during the propylene production process. In the future, with the improvement of PDH process, it is expected that there will be certain improvements in raw material selectivity, conversion rate and processing cost, which may enhance the market competitiveness of PDH units in the future.