March 8, 2024 [Oil & Gas Journal]- China set an all-time high in crude oil processing with an average of 14.8 million b/d in 2023. This surge was propelled by the nation’s expanding economy and refinery capacity following the country’s COVID-19 pandemic.
China has increased refinery capacity more than any other country in recent years, partially to meet the country’s transportation fuel needs but also to produce feedstocks for its petrochemical industry, according to the US Energy Information Administration (EIA).
“Petrochemicals are the essential building blocks to produce plastics, resins, and fibers widely used in consumer goods, packaging, and textiles. In recent years, capacity additions in China have been integrated with petrochemical facilities, increasing production of petrochemical feedstocks such as naphtha and liquefied petroleum gases (LPG), which include propane and butane,” EIA said.
Naphtha is a light hydrocarbon that is further processed to blend into motor gasoline in essentially all US refineries. Much of the petrochemical feedstock for US petrochemical producers comes from ethane and LPG, which can be separated and sold from natural gas processing plants.
Unlike in the US, many petrochemical producers in Europe and Asia use mostly naphtha (rather than ethane) and LPG as petrochemical feedstocks. Naphtha, LPG, and ethane are used to produce industrial chemicals such as ethylene, propylene, and paraxylene, which are ultimately converted into intermediate or end-use products.
The establishment of integrated refining and petrochemical complexes furnishes these plants with the flexibility to pivot production towards either transportation fuels or petrochemical feedstocks, contingent on market dynamics.
“China’s growing petrochemical sector has made the country one of the world’s largest petrochemical producers. As a result, China’s petrochemical manufacturers need the increased naphtha and LPG produced from China’s refineries, even as China continues to import the two feedstocks,” EIA said.
According to trade press, Chinese companies plan to add more capacity, including the 400,000-b/d Yulong refining and petrochemical complex, which was supposed to open in 2024 but is now delayed to 2025.
The pricing dynamics of crude oil, motor gasoline, petrochemical products, and petrochemical feedstocks influence naphtha and LPG prices. Since 2022, petrochemical margins in Asia have remained low or negative, as per Bloomberg LP, attributed to China’s rapid expansion in petrochemical manufacturing amid periods of decelerated GDP growth, curtailing demand.
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