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Regional Report
Two non-NOCs own majority stakes in terminals: Shenergy Group and JOVO Group, which became the first private Chi- nese company to hold a majority stake in a regasification termi- nal. Several state-owned municipalities, distributors and devel- opers own minority stakes in existing LNG terminals.
To replace coal with natural gas for power generation, ad- ditional pipeline and LNG import terminal infrastructure will need to be constructed. LNG imports are forecast to rise from 18 MMtpy in 2013 to over 60 MMtpy by 2020. Projects have been planned to raise the capacity to almost 80 MMtpy by 2018, but this could change with the development of the country’s shale gas reserves, which the US EIA estimates to be the largest in the world at 1.115 Tcf.
The government promises to encourage shale play develop- ment by prioritizing land approvals, allowing tax-free imports of equipment and offering subsidies to explorers. The country is pumping more than 2 MMcmd of shale gas, with a 2015 pro- duction target of 6.5 Bcmy.
China is also investing heavily in LNG projects in major gas- producing regions, such as North America (NA) and Russia.
Shale potential. China’s shale gas industry developers and regulators face many challenges. Most of the country’s proven
shale gas resources are in the Sichuan and Tarim basins in the southern and western regions, and in the northern and north- eastern basins (FIG. 6). Shale gas production grew by more than
five times between 2013 and 2014 to reach 46 Bcfy.
Again, while many small companies have entered the shale gas industry, NOCs own the vast majority of the resources and are partnering with various IOCs to develop them. Sinopec is boosting the production levels of its Fuling gas field and has re- ported that it could reach output of 353 Bcf by 2017. However, shale production is falling short of the original 2015 goal of 230 Bcf and the hope of replicating the NA shale boom.
As seen in Europe, many Chinese shale plays are character- ized by low organic content, meaning that producers will need to drill more wells to equal US production volumes. The limit- ed availability of water resources, the geological risks and lower- than-expected production rates have complicated the exploita- tion of unconventional gas reserves. It will be easier for China to focus on tight gas production to meet the government target for total gas output of 420 Bcm by 2020.
Coalbed methane and coal-to-gas. The coalbed meth-
ane (CBM) and coal-to-gas (CTG) industries in China are in the early stages of development. Challenges to development include lack of technical expertise, water shortages, regulatory hurdles, transportation constraints and competition with other fuels and conventional natural gas.
Despite CBM resources that are estimated at 1,300 Tcf, the cumulative proven geological reserves in 2014 were just 19.7 Tcf, representing only 1.5% (TABLE 2). The CBM transporta-
tion network is gradually being constructed. At present, CBM transportation pipelines have exceeded 1,632 km, 90% of which are in Shanxi province. Small liquefaction plants and trucks are also used to transport CBM to demand centers. However, this is insufficient to support high levels of CBM production and trans- portation. In 2013, only 596 MMcfd of CBM was used out of a total output of 1.3 Bcfd.9
Since the majority of China’s CBM production comes from the traditional coal mine extractions instead of surface opera- tions, the utilization rate is much lower than those of other major CBM producers in the world (US, Canada and Australia). Steady growth of CBM production and consumption will be slow, so its impact on China’s LNG imports will not be felt until 2025 or later.
After 2012, China rapidly approved CTG projects so that it could use its vast resources of coal to satisfy growing natural gas demand along the eastern and southern coastal areas. Looser government regulations and more favorable economics opened the door for the development of several CTG projects, but prog- ress has been slow.
Two operational CTG plants, Datang Group’s plant in the northern province of Inner Mongolia and Kingho Energy Group’s plant in northwestern Xinjiang province, produced only 75 Bcf in 2014, far short of the 530-Bcf target. The plants are run- ning at low utilization rates due to technical problems and design issues. Three other projects are under construction, including Sinopec’s Zhundong project in Xinjiang province. China’s largest CTG project is scheduled to come online in 2017 and connect with pipelines carrying the natural gas toward eastern China.
CTG projects face high capital costs required to develop the attendant infrastructure, scarce water resources and high levels
TABLE 2. China’s major CBM basins and their capacities
Name of basin Region Resources, Tcf % of total resources
Ordos North 348.2 26.8 Qinshui North 139.5 10.7 Junggar Northwest 135.3 10.4 Dian-Qian-Gui South 122.5 9.4 Erlian North 91.1 7 Tu-Ha Northwest 74.9 5.8 Tarim Northwest 68.2 5.2 Tianshan Northwest 57.6 4.4 Hailar North 56.5 4.3
Source: Facts Global Energy.
Assessed basin Other basin Tarim Qaidam Sichuan Jianghan Subei Songliao South Chian/ Yangtze platform Ordos China Turpan Junggar Urumqi Lhasa Xian Beijing Wuhan Chengdu Chongqing Shaighai Hong Kong Guiyang
FIG. 6. Shale gas and oil reserves. Sources: Advanced Resources International Inc. and US EIA.
Hydrocarbon Processing | JULY 201565
Regional Report
of emissions. The government does not want the industry to overbuild with many small facilities, so regulations require that CTG plants operate at a capacity of at least 70 Bcfy.
Downstream transportation. Although China has nearly 35,498 mi of main natural gas pipelines as of late 2013, the net- work is fragmented. NOCs, which operate the trunk pipelines, are investing in the downstream transmission system (FIG. 7)
to supply demand centers and integrate local gas distribution networks. Imports of natural gas via pipeline have increased as production from Central Asia and Myanmar has grown and gas infrastructure has improved in the region.
China has set a goal to achieve a pipeline network of 74,564 mi by 2020. CNPC is the key operator of the main gas pipelines, including the west-east pipelines, and holds nearly 80% of Chi- na’s gas transmission capacity.1 CNPC developed the ShanJing
pipelines, three parallel pipelines linking the major Ordos basin in the north with Beijing and surrounding areas.
The company’s Zhongwei-to-Guiyang gas pipeline, com- pleted in 2013, delivers gas from the West-East pipeline network to markets in southwestern China. Sinopec operates long-haul pipelines from the Sichuan province to Shanghai and the north- central region to Shandong along the northeastern coast, while CNOOC pipelines run mainly along the coastal areas of China.
A momentous deal. After years of negotiations with Russia over import prices and supply routes, China has agreed to pur-
chase 1.3 Tcfy of gas from Gazprom’s East Siberian fields. The price tag is $400 B over a 30-year period.
The proposed Power of Siberia pipeline, which is expected to come online in 2018, will connect Russia’s eastern Siberian gas fields and Sakhalin Island to northeastern China. In November 2014, Gazprom and CNPC also signed a memorandum of un- derstanding (MOU) for China to import 1.1 Bcfy from Russia’s western Siberian gas fields.
Growing petrochemical demand. China plans to nearly dou- ble its domestic ethylene capacity by 2025, reaching 33 MMtpy in 2020 and nearly 50 MMtpy by 2025. However, the country is ex- ploring alternative supply options, such as coal-to-olefin (CTO) projects and imports, to satisfy domestic petrochemical demand.
The US EIA reported that it is also seeing methanol-to- propylene (MTP) and propane dehydrogenation (PDH) plant construction to meet strong demand for propylene and propyl-
FIG. 7. CNPC is adding new pipelines for the country’s downstream transportation sector.
66JULY 2015 | HydrocarbonProcessing.com
Regional Report
ene derivatives. Propylene consumption is expected to grow by around 3.1 metric MMtpy to 25.1 metric MMtpy in 2015. China has become the largest importer of propylene products, and around 20 new PDH plants are expected to come online by 2018, representing over 10 MMtpy of additional propylene (TABLE 3).
Propane demand from PDH units is estimated to reach 2.4 metric MMtpy, more than double the 1.1 metric MMtpy in 2014. China operates four PDH units with a combined propyl- ene capacity of 2.1 metric MMtpy: two 600-metric Mtpy units and two 450-metric Mtpy units, according to ICIS data. At an av- erage run rate of 70%, the four plants will require approximately 1.8 metric MMtpy of propane.
Two new PDH plants will boost capacity by a combined 1.35 metric MMtpy. Yangzijiang Petrochemical will start up its 600-metric Mtpy PDH unit at Zhangjiagang in Zhejiang prov- ince in the first half of 2015, while Wanhua Chemical commis- sioned its 750-metric MMtpy unit at Yantai in Shandong prov- ince in March (FIG. 8). These units are expected to run at 70% of
capacity this year based on projected propylene demand. The country is also experiencing a surge in new methanol-to- olefins (MTO) plants along China’s East Coast to offset increas- ing domestic methanol demand.
Just as shale-derived ethane is changing the game in NA, low- cost coal from the inner regions of China is driving new invest- ment in chemicals using CTO and coal-to-methanol (CTM) technologies. In 2013, China produced an estimated 18 MMtpy of ethylene, according to IHS, while the total equivalent ethylene demand exceeded 30 metric MMtpy. To avoid over-dependency on imports, 25 MMtpy of new ethylene capacity is planned.
By 2016 and 2017, 31.9 MMtpy of new ethylene, propylene and butadiene capacity could be built in China, potentially ex- ceeding demand growth and leading to a decline in capacity uti- lization rates in the years ahead.
Increased interest in the LPG sector. Since PDH plants primarily use imported liquefied petroleum gas (LPG) as feed- stock, demand in China has increased in recent years (FIG. 9).
Sinopec’s Qingdao ethylene plant was slated to become the country’s first ethylene plant to utilize natural gas and light hydrocarbon feedstocks, like LPG and ethane. The 1-metric- MMtpy plant was to be completed in 2017, but its future is now uncertain. Half of the feedstock will come from imported natu- ral gas and ethane, and the remaining feed will be LPG produced from a nearby refinery in Qingdao.
China’s future olefin plants might allow for higher feedstock flexibility for lighter hydrocarbons. Unipec has inked two pro- pane supply agreements over a five-year period with Enterprise Products (0.5 metric MMtpy) and Phillips 66 (1 metric MMt- py). CNOOC is exploring the use of LPG for its upcoming 1-metric-MMtpy ethylene cracker in southern China’s Guang- dong province.
The increase in LPG imports may be due to what the Chi- nese call ‘deep processing.’ Deep processing plants could make more alkylate for the gasoline blending pool, or for the produc- tion of methyl tertiary butyl ether (MTBE). Notably, apparent gasoline demand in China grew as much as 13% year-on-year between April and May.10
Gasoline wholesalers in China have a tax incentive to alkylate butane to produce a gasoline blendstock or MTBE. Deep pro- cessing plants are finding alternative uses for their butane, pri- marily in the manufacture of isobutylene, maleic anhydride and alkylates. So far, China has not needed to import butane for deep processing purposes, which only uses 93 metric Mtpy of butane.
Isobutane use, mainly for alkylation processes (as a precur- sor to MTBE), accounted for about two thirds of the total bu- tane used for deep processing, according to FGE. This year, de- mand for butane as feed for deep processing plants is growing.10
Last year, China produced 23 metric MMtpy of LPG, of which:
• 13.4 metric MMtpy were propane • 3.3 metric MMtpy were normal butane • 6.3 metric MMtpy were isobutane.
China has traditionally allocated two thirds of this LPG for household use. This year, growing butane demand for deep pro- cessing has already impacted the LPG household allotment; it is estimated that only one third of the butane produced went to household use.
Reasons that might necessitate butane imports into China include:
• Maleic anhydride production needs 95%-purity normal
FIG. 8. The Yantai chemical complex.
-20 20 60 100 140 180 0 200 400 600 800 1,000
Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Imports, Mbpd Crude (RHS)
Others LPG Naphtha Gasoline Jet fuel
Diesel Fuel oil Asphalt Crude (RHS)
FIG. 9. China’s imports of crude oil and petroleum products. Source: OPEC.
TABLE 3. China’s PDH plants
Company Capacity, metric Mtpy 2014 propane consumption, metric Mtpy 2015 (est.) propane consumption, metric Mtpy Bohai Chemical 600 547.4 576 Ningbo Haiyue 600 240 505 Zhejiang Satellite 450 242.5 378 Sanyuan Petchem 450 59 346 Yangzijiang Petchem 600 – 270 Wanhua Chemical 750 – 337.5
Hydrocarbon Processing | JULY 201567
Regional Report
butane, but China does not produce a large enough volume of the quality required.
• Most new plants are located in eastern China and Shandong province, where LPG production already does not meet residential demand.
• Many of these plants are independent players that do not have access to bulk butane volumes from state-owned refineries.10
Setting higher standards for new petrochemical projects.
To boost efficiencies and ease public and international opposi- tion to projects that are perceived as harmful to local inhabitants and the environment, the NDRC has published a petrochemical industry plan with higher standards.
The Chinese government has been faced with increasing pro- tests against the construction of petrochemical facilities in heavi- ly populated areas. Accordingly, the NDRC’s stringent standards for new petrochemical facilities encompass several facets:
• Newly built crude distillation units (CDUs) must have a production capacity of no less than 15 metric MMtpy, or 300 Mbpd.
• Ethylene units should have a minimum capacity of 1 metric MMtpy.
• Fuels produced by the new refining units should meet the equivalent of Euro 5 emissions standards.
• Petrochemical complexes should be built on abandoned land, islands or peninsulas, and should have a crude
processing capacity of no less than 40 metric MMtpy (800 Mbpd) and span at least 40 km.2
• The facilities will have 6 MMcm of crude and oil product storage capacity.
• New paraxylene (PX) units should reach an annual capacity of at least 600 metric Mtpy, while new methylene diphenyl diisocyanate (MDI) units should have a capacity of least 400 metric Mtpy. PX and MDI projects must also meet pollutant emissions standards.11
Fuel demands. The growth in oil product demand has slowed since a short growth spurt in 2010. Slowed economic growth, decreased production from the coal and mining sectors that use rail and trucks to transport products, greater efficiency in heavy vehicles and the increased use of gas-powered vehicles are all contributing factors to the slowdown in fuel demand growth.
Gasoline. With an estimated 23% share in 2014, gasoline is still growing as China’s middle class expands and car sales rise. Since Chinese drivers are less sensitive to changes in pump prices, prices are not likely to have a near-term impact on China gasoline sales. The drop in international crude prices does not necessarily translate to pump prices; the NDRC raised retail gasoline prices for the first time after 13 consecutive fuel price reductions since July 2014, according to FGE.
Increased traffic congestion and its resultant lower mileage driven, car purchase restrictions and the government’s push for
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