Ethylene is one of the most important links in the hydrocarbon value chain. It is used in the production of myriad chemicals, fibers, and plastics, most importantly polyethylene. As a large - and growing petrochemical hub - China is a major consumer of ethylene. It is also one of the world's largest producers of ethylene, but is still a net importer of this critical feedstock.

China's fast-rising ethylene demand has unsurprisingly spurred a corresponding boom in domestic ethylene production capacity. Thus far, the vast majority of this capacity has relied on naphtha (a heavier liquid hydrocarbon), gasoil, or coal as a feedstock. This contrasts with the ethylene industries in North America and the Middle East, which overwhelmingly rely on ethane as a feedstock. Utilizing ethane as a feedstock for ethylene production has numerous advantages, both in terms of initial investment cost per unit as well as ethylene yield fraction. The issue in China has been securing adequate supply of ethane.

Unlike North America and the Middle East, China does not have a significant, local supply of ethane. Nor is purity ethane easily traded internationally; doing so requires specialized import and export facilities, as well as purpose-built ethane tankers. Long-term (10+ year) supply contracts are thus a necessity to make any up-front investment worthwhile. Moreover, the United States is currently the world's primary source of exportable purity ethane, which is potentially problematic from a security of supply perspective.

Nevertheless, investment in Chinese ethylene plants supplied by US-sourced ethane has accelerated in recent years. SP Chemicals' facility streamed in late-2019, Zhejiang Satellite Petrochemical's Phase I project should begin operations in early 2021, and several others are planned.

An alternative option for Chinese ethylene producers could be extracting ethane from imported liquified natural gas (LNG). China's LNG industry has developed rapidly in recent years, growing import capacity from nothing in 2005 to about 74 million tons per annum (MMtpa) by the end of 2019. That year, China's LNG imports totaled 60.2 MMt, with volumes being sourced from no fewer than 18 different countries.

Not all LNG streams have the same ethane, however. For example, Nigerian LNG is relatively rich in NGLs, yielding approximately 3.2 gallons of ethane per thousand cubic feet of natural gas. Based on this and other data (e.g. recovery rates), IHS Markit estimates that approximately 55,200 b/d of ethane could be extracted from China's current Nigerian import volume, equivalent to 60% of what is consumed by a large-scale ethane cracker. Overall, China's imported LNG could hypothetically yield as much 586,000 b/d, enough to supply six large-scale crackers.

Recovering and making ethane available as a feedstock from imported LNG is complicated and economically and commercially challenging. To reach the full potential, there needs to be full collaboration and an overarching business model with participation across the entire chain. Time will tell.

Posted 21 September 2020 by Darryl Rogers, Vice President, Midstream Oil & NGL, S&P Global Commodity Insights and

Sen Yang, Director, Asia Pacific/Middle East NGL Service, IHS Markit and

Yanyu He, Executive Director, Natural Gas Liquids (NGL) Research and Consulting, S&P Global Commodity Insights