By Ding Shubing, Huang Ruqing, Shandong Provincial Key Laboratory for Olefin New Materials

In the post-pandemic period, the economic situation has become increasingly severe, and the petrochemical industry is facing complex and volatile international environment. Additionally, unilateralism and trade protectionism are spreading, and high-tech industries have become an important bargaining chip for Europe and the United States to restrict the development of China's economy. It is urgent to promote the high-quality development of the petrochemical industry and shore up the weakness during the development.

Development of China's petrochemical industry

Refining capacity tends to be in excess. Both the consumption and processing capacity of crude oil in China have been growing continuously year by year. However, the growth rate of oil refining capacity has been faster than that of consumption, leading to an intensified oversupply situation. With the elimination of backward production capacity, in 2022, China's refining capacity reached 920 million t/a, crude oil processing volume was 676 million t/a, and refined oil production was 366 million t/a. However, the utilization rate of the capacity was 73.5%, significantly lower than the world average operating rate of 81% and the rate of developed countries at 86%. See Figure 1 for the detailed information of the trends of China’s refining capacity, processing volume, and operating rates in recent years.

Figure 1 The trends of China’s refining capacity, processing volume, and operating    rate in recent years

There is a large gap in the ethylene equivalent. In 2022, a total of 5 new ethylene units were completed and put into operation in China, with a newly-added production capacity of 5.25 million t/a, and the total production capacity reached 46.75 million t/a, a year-on-year increase of 12.7%. Affected by factors such as the incomplete release of newly built production capacity, the capacity utilization rate dropped by 1.3 percentage points year-on-year to 89.2%; the output was 41.68 million tons, an increase of 11% year-on-year; the equivalent self-sufficiency rate rose to 66.2%, an increase of 16.3 percentage points from 2020.

In 2022, China's five major general synthetic resins had a total apparent consumption of 99.138 million tons, the production capacity hit 101.416 million tons, the output reached 84.45 million tons, the net import was 14.688 million tons, and the foreign dependence was 14.8%. According to statistics from the China Petroleum and Chemical Industry Federation, in 2022, the apparent consumption of China's engineering plastics (excluding PC and polyester bottle flakes) reached 5.8 million tons, the output hit 2 million tons, the net imports were 3.8 million tons, and the foreign dependence was 34.55%. Figure 2 shows the details of China's synthetic resin production capacity, output, and import volume in 2022.

Figure 2 China’s synthetic resin production capacity, output, and import volume        in 2022

In 2022, the production capacities of oil refining, ethylene, PX, synthetic resin, synthetic rubber, and synthetic fibers in China all ranked among the world's highest, which indicated that China was transitioning from a major chemical country to a powerful chemical country. It is expected that by 2030, China's chemical industry will account for 50% of the global market share.

China has achieved significant breakthroughs in key innovative technologies within the petrochemical industry, breaking foreign monopolies. Since the 13th Five-Year Plan period (2016-2020), China has continuously made breakthroughs in world-leading petrochemical industry production technologies such as catalytic cracking of crude oil to produce olefins, million-ton ethylene package technology, and propane dehydrogenation. Additionally, technologies have been continuously improved in heavy oil catalytic cracking, hydrocracking, catalytic cracking, catalytic gasoline adsorption desulfurization, diesel ultra-deep hydrodesulfurization, alkylation, and isomerization.

Industrial production has been made in ultra-high molecular weight polyethylene resin, cross-linkable polyethylene insulation material, polybutene-1, EVA resin for photovoltaics, high-melt finger hot melt adhesive EVA resin, metallocene polypropylene, polyethylene special materials for lithium battery separators, etc.

The research and development of engineering plastics technology have been progressing smoothly, and production has been advancing steadily. Moreover, breakthroughs have also been achieved in technologies such as polycarbonate (interfacial polycondensation method and melt transesterification polycondensation method), methyl methacrylate (isobutylene method) and polymethyl methacrylate, polyphenylene ether (homogeneous solution polycondensation method, low viscosity for 5G), nylon 56, nylon 12, key raw materials for polyamide: adiponitrile (adipic acid method, caprolactam method, butadiene method), caprolactam, pentamethylenediamine, and others.

Disadvantages in the development of China's petrochemical industry

1. Traditional olefin production processes lead to increased risk in China’s crude oil imports

In 2022, China imported 510 million tons of crude oil, resulting in an import dependence of 71.3%. In the next few years, the stable supply of crude oil will face huge threats considering the wide existence of the geopolitical risks.

It is expected that during the 14th Five-Year Plan period (2021-2025), China will newly add 20 million t/a of ethylene production capacity. If all these units adopt traditional ethylene production processes, and it is calculated that for every 10 million tons of crude oil primary processed by this technology, 1 million t/a of ethylene should be constructed. Then, China would need to import an additional 200 million tons of crude oil during this period, further increasing the risk associated with crude oil imports.

2. Production capacities of high-end products are insufficient and their performance needs to be improved urgently.

Although China is a major player in the chemical industry and has continuously made advancements in the production technology of high-end synthetic resins and engineering plastics, there is still a significant gap in technical level and the quality of high-end products compared to foreign countries, resulting in heavy reliance on imports.

According to statistics from the China Petroleum and Chemical Industry Federation (CPCIF), the apparent consumption of China's high-end polyolefins in 2022 was 14 million tons, of which 8 million tons were domestically produced and 6 million tons were imported, with foreign dependence of 42.9%. Specifically, the foreign dependence of ethylene-vinyl alcohol copolymer stood at 100%, POE elastomer at 98%, metallocene polyethylene at 78%, metallocene polypropylene at 96%, octene copolymer PE at 94%, ethylene-vinyl acetate copolymer at 60%, hexene copolymer PE at 56%, and ultra-high molecular weight PE at 35%.

Summary

China should adhere to an innovation-driven approach, focus on addressing industrial development bottlenecks, constantly overcome cutting-edge technologies, concentrate on filling "shortcomings", increase the transformation of scientific and technological achievements, and lay a solid foundation for the high-quality development of the petrochemical industry.

The first step is to promote the in-depth development of high-end and differentiated products and extend the products towards the top of the industrial chain. Therefore, it should accelerate the improvement of independent innovation capabilities, develop new material technologies, seize scientific and technological commanding heights, and strive to form a number of internationally leading original core technologies with independent intellectual property rights.

The second is to construct high-tech demonstration units such as high-end polyolefins and engineering plastics and address the "last mile" problem in the transformation of scientific and technological achievements. It is recommended to support the construction of high-end products such as high-end polyolefins and engineering plastics, as well as high-tech demonstration units, and give full play to their leading role and demonstration effect. These projects should be taken as demonstration projects for industrial structural adjustment, green and low-carbon transformation and upgrading, and high-quality development. Additionally, special cases should be handled with special methods, providing project verification and approval to speed up project progress. Provincial and local policy support should be provided for such projects in terms of coal consumption, energy consumption, environmental protection indicators, etc., and open up the "last mile" of the transformation of scientific and technological achievements.

The third is to accelerate the promotion of crude oil catalytic cracking to olefins (UPC) technology to reduce resource dependence and energy risks. Accelerating the promotion of UPC technology will help reduce China's dependence on foreign crude oil and mitigate energy supply risks.