US Shale Gas Destined for China?

How is it that US shale gas may end up in China as ethylene and propylene? Several Chinese companies have announced plans to build methanol plants in the US with all or most of the product methanol being transported to China as feedstock for Chinese MTO (methanol to olefins) and MTP (methanol to propylene) projects. Over the next several years, existing and planned MTO and MTP projects will require over 20 million metric tons per year of methanol. Some of this will be met internally based on Chinese coal to methanol plants, but a substantial quantity of the methanol required will be sourced from the Chinese US methanol plants.

At least five methanol projects with a total capacity of close to 15 million metric tons per year are being planned by several Chinese companies.Northwest Innovation Works is wholly owned by Clean Energy Technology Company, itself a joint venture of the China Academy of Sciences and BP.They have announced plans for three mega-methanol plants (1.6 million tons/year) in the Pacific Northwest; two in the state of Washington at Port of Kalama and Port of Tacoma, and one in Oregon at Port of Westward. The product methanol will be shipped to the city of Dalian on China’s east coast where it will be used as feedstock for an MTO petrochemical complex for ultimate conversion into polyolefins. The city of Dalian is also an investor in the project.

IHRDC, china, shale oil, United States, US, Oil Production, oil and gas, projects, MTO, MTP, US shaleFund Connell USA Energy and Chemical Investment Corp has announced plans for two 3.6 million metric tons per year methanol plants at Shoal Point in Texas City, Texas. The $4.5 billion complex being planned would also include construction of a new deep water port facility for export of the product methanol to China. SinoLife Insurance Company is one of the investors along with the Chinese Connell Group.

A third Chinese company, Yuhuang Chemical, a subsidiary of Shandong Yuhuang Chemical Co. is planning to build a methanol complex in St James Parish, Louisiana, with an ultimate total capacity of 3.3 million metric tons per year. Approximately 70 to 80 percent of the methanol will be exported to China, most of which will be used for conversion into ethylene and propylene via MTO and MTP technologies.

Now one might ask, why is China looking to methanol as its feedstock source for olefins, when steam cracking of hydrocarbons, (especially ethane and naphtha) is the traditional method for producing ethylene and propylene? Ethane is sourced from natural gas and naphtha is a component of crude oil. China does not have a lot of natural gas and is a major importer of crude oil. So feedstock availability may be a factor.

What about relative feedstock costs for producing ethylene and propylene via naphtha steam cracking technology versus MTO technology? Two tons of naphtha are required to produce one ton of ethylene plus propylene via conventional steam cracking. When crude oil prices were at $100 per barrel, naphtha prices were generally in the range of $900 – $1,000 per metric ton, resulting in a feedstock cost of $1,800 – $2,000 per ton of ethylene and propylene via naphtha cracking.

MTO technology requires 2.6 – 3.3 tons of methanol to produce one ton of ethylene plus propylene. Based on the below correlation(from Methanex Investor Presentation, Feb., 2014) of methanol prices versus crude oil prices, at $100 per barrel crude, methanol prices are in the range of $400 – $500 per metric ton.

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This results in a feedstock cost of $1,040 – $1,650 per ton of ethylene and propylene via MTO technology, clearly an advantage over naphtha cracking.

While I recognize that this is a very crude analysis, it certainly supports the large number of MTO and MTP projects being planned in China based on imported methanol for their feedstock. With abundant shale gas resources in the United States and natural gas prices around $4.00/MMBTU as feedstock, it is no wonder that a significant amount of the methanol the Chinese projects require will come from US plants.

With the current decline in crude oil prices, could this impact any of the above Chinese methanol projects? At $60/bbl, feedstock costs for naphtha cracking olefin plants will be reduced to around $1,080 – $1,200 per ton of ethylene and propylene. Methanol prices are also likely to be affected by lower crude prices. Again from the above correlation, at $60 per barrel crude oil, methanol should be around $300/mton, lowering MTO feedstock prices to $780 – $990 per ton of ethylene and propylene. Still a slight feedstock advantage, but not as great with the higher crude oil price.

If crude oil prices remain low for a significant period of time, it will be interesting to see if this will impact the timing or implementation of any of the above Chinese US methanol plants.

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