Reports: Coal-based PE in China could rival North American shale gas

SHANGHAI — Coal-based polyethylene could give a big boost to China's plastics industry through 2020 and become a relatively low-cost alternative to material from the Middle East and the new low-price challenger, North American shale gas-based plastic.

At least that's according to recent analyst reports and presentations, which said that coal-to-olefins (CTO) technology will grow rapidly in the next five years to account for a significant portion of China's PE production.

In an April 24 presentation at the Chinaplas trade fair, held April 23-26 in Shanghai, global consulting firm IHS Chemical said that most of the CTO-based PE in China is likely to be used domestically.

“Our view suggests that up to 25 percent of the domestic capacity in China will move toward this coal to olefins technology during the [2013-2018] period,” said Nick Vafiadis, senior director, global olefins and plastics at IHS Chemical. “The vast majority of the new capacity will be linked to this lower cost, more competitive [CTO] technology.”

A March 24 report from global pricing and information provider Platts said China will add 14 million metric tons of PE capacity by 2021, much of that based on coal-to-olefins derived ethylene feedstock.

Global PE demand last year, to put that figure in perspective, was about 82 million metric tons.

“We hear a lot of talk about how shale gas is a ‘game changer' in the petrochemical industry,” said Jim Foster, editorial director of petrochemical analysis at Platts, in a statement. “And it certainly is. But coal-to-olefins has the potential to have an even greater impact than shale gas, if China moves forward as planned.”

Platts said there are more than three dozen coal-to-olefins and methanol-to-olefins projects which could come on stream in China by 2020. It said the amount of new ethylene produced from coal in China could match the amount of ethylene production expected to be added from shale gas in North America.

Other analysts have questioned whether some of that announced CTO capacity will ultimately not be built, because most of the CTO plants are located near mines far from China's plastics processing centers, and because of environmental concerns, including the large amount of water CTO technology requires.

IHS suggested the Chinese CTO material may not be quite as cheap as the North American or Middle Eastern PE, but it will still have a strong cost position.

“We now have the development of two low-cost regions, in the Middle East and North America,” said Vafiadis. “It's the first time we've had this situation. In the past it's just been the Middle East.

“In addition to that, we now have China adding very competitive [material] with this coal-to-olefins based technology,” he said.

Last year, CTO technology accounted for less than 0.025 percent of an estimated 133 million metric tons of global ethylene production, IHS said.

But China's demand for PE is projected to continue growing faster than world markets, fueling demand for local production, IHS said.

China's PE consumption will grow 7.1 percent a year through 2018, compared with global average of 4.8 percent, the consultancy said.

Vafiadis suggested that even with the abundant coal in China, the shale-gas based North American PE producers could be more effective exporters than the Chinese.

“North American producers have the ability to ship product profitability to virtually every region around the world,” he said.

The North American shale gas could also help make processors there more competitive against Asian competitors in “export-friendly” plastic products, IHS said.

“North America, with this newly competitive capacity, will begin to compete with China for finished goods sales around the world,” Vafiadis said. “The North American producers of what I'm calling export-friendly types of products that pack well, that pack efficiently, and can be shipped economically, will begin to gain market