MOSCOW (MRC) -- Chinese chemical manufacturer Zhejiang Satellite Petrochemical Co will start building its planned USD4.2 billion petrochemical plant next month, following provincial approval for it to use U.S. ethane as feedstock, a company official said, as per Hydrocarbonprocessing.
Zhejiang Satellite Petrochemical Co Ltd's plant will be the second China-based petrochemical facility aiming to cash in on cheap and abundant U.S. ethane unlocked by the shale revolution in North America, analysts said.
The approval from the Jiangsu provincial government in early August comes amid an escalating trade war between Beijing and Washington, which led to a tariff being imposed on U.S. crude oil for the first time last week.
China imposed an extra 5% tariff on ethane last September, taking total import duties to 7%. Even so, ethane from U.S. shale gas offers much fatter margins for producers of ethylene than conventional plants that process naphtha into ethylene, said Kelly Cui, senior analyst with Wood Mackenzie.
The United States is the world's only source of an abundant surplus of the natural gas liquid, analysts said.
Last week, Singapore's SP Chemicals started a 650,000 tonnes per year (tpy) ethylene plant in Taixing in Jiangsu province that partly processes U.S. ethane supplied under a long-term agreement, according to local media and analysts.
"This is the first entirely gas-based cracker to begin operating in China and also the first to import U.S. ethane as a feedstock," said Woodmac's Cui.
Zhejiang Satellite will start construction in September on a 1.25 million tonnes per year (tpy) ethylene plant in Lianyungang in Jiangsu province, Ding Liping, an investor relations officer, told Reuters by phone.
"This is the company's phase-one investment for a total of 2.5 million tonnes per year ethylene production facilities that will process fully U.S. ethane," said Ding, adding that construction was expected to take about a year.
The company, headquartered in Jiaxing in east China's Zhejiang province, will then begin an expansion program to double output to 2.5 million tpy, she said.
The plant is expected to receive its first ethane from U.S. firm Energy Transfer Partners L.P. in the fourth quarter of 2020 under a supply agreement lasting more than 10 years, with annual supplies of about 3 million tonnes, said Ding.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption was 1,081,100 tonnes in the first half of 2019, up by 8% year on year. Deliveries of all PE grades increased. Meanwhile, the estimated consumption of PP in the Russian market totalled 694,210 tonnes in January-June 2019, up by 14% year on year. The supply of propylene block copolymers (PP-block) and propylene homopolymers (PP-homo) increased.
Zhejiang Satellite, with a market capitalization of 14 billion yuan ($1.97 billion), is China's largest producer of acrylic acid, a chemical used in making paints and wrapping tapes, where demand has grown sharply due to e-commerce.
MRC