Amid the intensive layout, China’s refining and chemical industry is brewing a new competition at the moment – Sinopec announced the establishment of four major bases in Maozhan, Zhenhai, Shanghai and Nanjing, PetroChina launched the Guangdong Petrochemical Refining and Chemical Integration Project, and CNOOC accelerated its pace to become bigger Huizhou petrochemical base; foreign-funded enterprises such as BASF and ExxonMobil have accelerated their entry into the Chinese market from a high starting point; private enterprises such as Dalian Hengli, Zhejiang Petrochemical, and Lianyungang Shenghong Petrochemical have launched large-scale refining and chemical integration projects.
In this round of investment in the refining and chemical industry, market entities have become more diversified, opening up a new competitive situation with its large size, high level, and rapid progress. The domestic refining and chemical industry is about to usher in a new market environment, which will be a battle for all-round upgrades in scale, strength, management models, production operations, etc. In the long run, the concentrated influx of private enterprises, foreign capital and other capital will reshape the market structure of the domestic petrochemical industry and rewrite the industry’s operating logic.
On the demand side, the rapid evolution of the market also requires refining and chemical companies to quickly change direction. Entering the “Thirteenth Five-Year Plan”, under the situation of severe excess refining capacity, the growth of gasoline demand has slowed down significantly, and the demand for diesel has basically reached its peak. Cleaner and more efficient high-grade refined oil products have become the “sweet potato” in the market. At the same time, the rapid growth of alternative fuels has further squeezed the refined oil market space.
From the perspective of the chemical industry extending downwards from oil refining, most domestic bulk chemical raw material markets have become saturated or face a crisis of surplus, and the growth rate of demand for petrochemical products will further slow down. In order to increase the added value of products, various refining and chemical companies have shifted from “oil-based and chemical-based auxiliary” to “chemical-based, oil-based auxiliary”, accelerating the shift to the chemical product chain. At the same time, propane dehydrogenation (PDH), ethane to ethylene, and methanol to olefins (MTO) projects have also participated in the competition as the main diversification of olefin raw materials, and their supporting olefin downstream products have occupied part of the market. As petrochemical production capacity in low-cost regions such as the Middle East and North America is gradually released, petrochemical products flow to mainland China, and competition in the chemical industry becomes increasingly cruel.
The power of private enterprises cannot be underestimated
1. Large scale, high technical level and wide product chain coverage
The petrochemical industry base currently being promoted can be called a world-class refining and chemical base. Its scale is unprecedented. The refining capacity of Xijiang Petrochemical is 40 million tons, Hengli Petrochemical is 20 million tons, and Shenghong Refining is 16 million tons. The three major refining projects The scale of capabilities and technical level are world-class. Among them, Zhejiang Petrochemical ranks among the top five in the world with a refining capacity of 40 million tons. The deep processing equipment for refining has a high Nielsen complexity coefficient and adopts a full hydrogenation process. The chemical product chain is world-class, including phenol/acetone and bisphenol A. , polycarbonate, polypropylene (PP), low density polyethylene (LDPE), solution polymerized styrene-butadiene and other downstream devices.
The refining and chemical integrated unit adopts internationally advanced process technologies such as Lummus, GTC, Axens, DuPont, and BASELL, and has the characteristics of “high technological level, low energy consumption, green and clean”.
2. There is an obvious trend of “mainly oil and auxiliary oil”
The three major refining and chemical projects of Hengli Petrochemical, Zhejiang Petrochemical, and Shenghong Refining and Chemical are all designed according to the integrated processing model of oil refining, aromatics, and ethylene, achieving differentiation and scale, and meeting the needs of the industry through focusing on the development of aromatics and ethylene industrial chains. With its own downstream demand for xylene and ethylene glycol, it will appropriately extend the chemical industry chain of aromatics, ethylene and propylene, increase the depth of processing, and achieve complementary advantages in the industry chain of oil products, aromatics, ethylene and propylene.
While increasing the production of chemical products, these projects have significantly reduced the proportion of refined oil products. The diesel-to-gasoline ratio of the first-phase project of Zhejiang Petrochemical was 0.46, while the domestic average diesel-to-gas ratio in 2018 was 1.27. The refined oil yield of the first-phase project of Zhejiang Petrochemical was 41.8%, and the refined oil yield of the second-phase project was less than 30%. In 2018, the domestic average yield was 60.2%. Both the diesel-gasoline ratio and the refined oil yield were far lower than the domestic average, which shows the intensity of its efforts to “remove oil and increase oil”.
3. Product extension adopts reverse vertical integration + horizontal expansion
The three major refining and chemical companies, Hengli Petrochemical, Zhejiang Petrochemical, and Shenghong Refining and Chemical, are all domestic chemical fiber giants. Their main businesses are purified terephthalic acid (PTA) and polyester filament. However, the chemical fiber raw material PX relies on imports and is controlled by others.
The construction of the refining and chemical integration project has opened up the entire refining and chemical fiber industry chain, realizing the upstream and downstream industrial chains of “crude oil-ethylene-aromatics-PTA-polyester-chemical fiber” and “crude oil-ethylene-ethylene glycol-polyester-chemical fiber” Collaborative development extends horizontally to the C2 and C3 industrial chains. This kind of reverse vertical integration from terminal to upstream has obvious competitive advantages for private enterprises.
This is very similar to the development model of large international refining and chemical companies. Transnational groups such as Formosa Plastics, SK, and LG all started from the downstream and gradually extended vertically to the upstream petrochemical industry chain while developing horizontally, and then became internationally renowned large-scale integrated energy and chemical groups. From the successful precedents of these large groups, we can predict the future development path of the three major domestic chemical fiber private enterprises. Although these enterprises have just entered industries other than chemical fiber, their development potential through horizontal expansion is still worth looking forward to.
4. Highlight the advantages of layout in coastal areas
In the past, the layout of refining capacity was mainly to meet local market demand. In addition to resource conditions, the size of the regional market capacity became the main factor in the layout of production capacity.It has entered commercial operation.
10. China Zhoushan Zhejiang Petrochemical Integration Project
Zhejiang Petrochemical Co., Ltd. is building the world’s largest integrated refining-petrochemical project in Zhoushan, Zhejiang. The refining and chemical complex is located on Zhoushan Island, about 280 kilometers south of Shanghai. Zhejiang Petrochemical will invest US$24 billion and build it in two phases. The first phase of the project includes the construction of a 400,000-barrel/year refinery, a 5.2 million-ton/year aromatics complex, a 4-million-ton/year PX unit, a 600,000-ton/year propane dehydrogenation unit and A set of 1.4 million tons/year ethylene plant.
Other units include derivatives such as polyethylene, polypropylene, ethylene oxide, ethylene glycol and ethylene vinyl acetate. The first phase of the project is expected to be completed in 2019. By 2021, the second phase of the project will double the production scale. The 10 projects rated in 2018 span the world, with total capital expenditures exceeding US$800 billion. By the early 2020s, these refineries will have added more than 1.2 million barrels per day of refining capacity, with a total investment of more than $30 billion. The six newly shortlisted petrochemical projects have a total investment of more than 50 billion US dollars. By the early 2020s, millions of tons of additional petrochemical products will be produced every year.
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