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China's PDH plants remain reliant on LPG imports despite rise in domestic output

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China's PDH plants remain reliant on LPG imports despite rise in domestic output

Highlights

Domestic LPG output rises on increased crude throughput, better yields

But coastal petrochemical plants stick with higher-quality LPG imports

Residential, commercial LPG consumption growth forecast to remain low

Singapore — China's dependence on LPG imports fell to around 30% of total consumption in 2020 from 32% in both 2019 and 2018, but its increasing domestic LPG production is being largely absorbed by households, refineries and inland petrochemical plants, while propane dehydrogenation units and coastal petrochemical plants continue to rely on imports, especially from the US.

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The peak was in 2017 when imports met around 33% of China's LPG demand, according to S&P Global Platts calculations based on General Administration of Customs and the National Bureau of Statistics data.

Domestic LPG production rose 8% year on year to 44.48 million mt in 2020, which accounted for 70% of total apparent demand, GAC data showed.

The country's LPG imports fell 4.7% over the same period to 19.65 million mt, while exports totaled 947,984 mt, resulting in net imports of 18.7 million mt, meeting the balance 30% of total apparent demand.

As China's dependence on LPG imports eased in 2020, reliance on domestic refinery production grew to 70.4% from 68.4% in 2018, data from the Guangdong Oil and Gas Association showed.

However, the higher domestic production was mostly absorbed by retail wholesalers and retail-sector importers such as New Ocean, Jovo, Sinobenny, Siam Gas and Chaozhou, China Gas and Jiangyin Golden Bridge Chemical Co. Ltd.

As import prices are persistently higher than domestic refinery prices, it makes sense for importers to reduce imports and switch to domestic sources, as happened in February and March, industry sources said.

This was despite the country's growing appetite for LPG being stimulated by an expanding PDH sector, even as many PDH plants continue to rely on imports. China's 19 PDH plants and crackers process about 12.74 million mt/year of LPG.

Petrochemical demand drives growth

Petrochemical demand is the main driver of China's total LPG growth, with growth in residential, industrial and commercial consumption expected to remain relatively low in coming years.

"Although some LPG demand from residential users is being replaced by natural gas, it's also replacing some use of coal and firewood in rural areas," a source in Shangdong said.

Around 21 million mt of LPG from domestic refineries was sold in China in 2020, of which around 13 million mt was consumed by the residential sector and 8 million mt by the "deep processing market", which processes butane into alkylates and MTBE, industry sources said.

"I don't think domestic LPG [supply] will increase continuously, since more crackers will be online this year and some of them will use refinery LPG, so domestic LPG volume will be reduced," one source said.

Higher LPG production was attributed mainly to increased crude throughput and better yields from crude in 2020. China processed 674.41 million mt of crude in 2020, up 3% year on year.

The yield of LPG was about 7% in 2020, versus 6% in both 2019 and 2018, resulting in LPG output rising 8% on year and surpassing crude throughput growth, Platts calculations showed.

A higher cracking value encourages more domestic refineries to boost LPG production and to extract propane, butane and raffinates for further cracking or selling to other petrochemical plants.

Only residual gases containing a mix of impurities are sold to the residential market for burning. Propane is a good cracking feedstock for producing ethylene, which has been increasingly used by refineries.

Quality consideration

Domestically produced propane, which could contain impurities ranging from 80% to 95%, is mainly used by petrochemical plants located in inland regions, for whom it is neither easy nor economical to buy imported propane. Such plants will further purify the domestically produced propane before using it as feedstock.

Petrochemical plants in coastal areas mainly use imported propane as feedstock due to its higher purity, with US LPG the preferred choice because of its cheaper price obtained under term contracts, or whenever the spot arbitrage is open compared with Middle Eastern grades, trade sources said.

Still, some Chinese petrochemical plants favor domestically produced butane, which contains more isobutane than imported grades.

As a result, the production growth of domestic LPG could have some impact on butane imports, market sources said.

Most US propane is HD5 level -- 90% pure, 5% propylene, 5% other -- which is the highest quality available; HD10 is the next most common with 10% propylene.

Even with higher domestic production, China imported 850,027 mt of US LPG in February, versus no imports in the year-ago period, while shipments rose 22.3% month on month and marked record-high shipments from the US on a monthly basis, GAC data showed.

US Energy Information Administration data showed that US LPG exports rose 28% in the week ended March 19.

Lower US LPG prices, particularly for propane, compared with most Middle Eastern cargoes, were believed to have contributed to higher US LPG imports in February.

Among China's PDH plants, only Wanhua Chemical, Oriental Energy and China Gas have FOB term contracts with Middle Eastern producers, while other PDH plants have term contracts with delivery ex-ship suppliers -- or trading houses, under DES contracts -- which have no restrictions on cargo origins and depend on traders' economics.

Some trade sources said the near-term impact would be seen more Chinese imports from Iran, which may be expected to further steepen their discounts to Middle East FOB prices, if such shipments were to remain competitive in the event that US sanctions were eventually lifted. But other sources said China's LPG imports from Iran are expected to grow under a broad 25-year trade and security cooperation agreement signed March 27.

China domestically-produced LPG specifications:

Item

Unit

Quality

Result

Analytical method

Density (at 15 deg. C)

Kg/mᶺ3

report

553

GB/T 12576-1977

Vapour Presure (at 37.8 deg. C)

kPa

not greater than 1380

847

GB/T 12576-1977

Methane & Air

%

0.02

SH/T 0230-1992

Ethane & Ethylene & Carbon dioxide

%

0.86

SH/T 0230-1992

Propane

%

13.02

SH/T 0230-1992

Propylene

%

29.93

SH/T 0230-1992

Isobutane

%

25.68

SH/T 0230-1992

Butane

%

7.57

SH/T 0230-1992

Butylene & Isobutylene

%

11.56

SH/T 0230-1992

Anti-butadiene

%

6.52

SH/T 0230-1992

Cis-Butene

%

4.48

SH/T 0230-1992

C3 hydrocarbon components

%

42.95

SH/T 0230-1992

C4 and above components

%

56.18

SH/T 0230-1992

C3+C4 hydrocarbon components

%

not less than 95

98.76

SH/T 0230-1992

Greater or equal to C5

%

not greater than 3

0.37

SH/T 0230-1992

Residues

ml/100ml

not greater than 0.05

0.05

SY/T 7509-2015

Oil stain

pass

pass

SY/T 7509-2015

Copper corrosion

not greater than grade 1

1a

SH/T 0232-1992 (2004)

Total sulfur

mg/mᶺ3

not greater than 343

19.96

SH/T 0222-1992 (2004)

Hydrogen sulfide

no

no

SH/T 0125-1992 (2006)

Free water

no

no

Visual inspection

China PDH plants' propane specifications

Item

Unit

Value

Propane

wt%

greater or equal to 96

Ethane

wt%

less than or equal to 0.2

Butane

wt%

less than or equal to 3.8

Water

ppm wt

less than or equal to 10

Total sulfur

ppm wt

less than or equal to 30

Metal

ppm wt

less than or equal to 20

Hydrargyrum

ppb wt

less than or equal to 10

Notes:

1. Refinery LPG usually does not split propane and butane, most have some olefin content.

2. Some impurities exist even if propane is split.

3. For a single refinery, LPG production is usually not high, and splitting propane does not meet its volume requirement. Only refineries as big as Zhejiang Petrochemical and Hengli can use their own LPG, as their volume is big enough and they have special units to process and meet specifications.