Faced with fierce competition and severe tests in domestic and international markets, it is inevitable and urgent to promote green and low-carbon development, enhance the supply capacity of the industrial chain, optimize and adjust the industrial structure and layout

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The report of the 20th National Congress of the Communist Party of China pointed out the need to accelerate the construction of a new development pattern and focus on promoting high-quality development. In pursuing economic growth, we must continue to focus on the real economy. We will advance new industrialization and move faster to boost China's strength in manufacturing, product quality, aerospace, transportation, cyberspace, and digital development.

As the core of the petrochemical industry, China's ethylene industry has undergone more than half a century of development and has made tremendous progress, possessing strong scale and strength. In 2022, China added 5.65 million tons of ethylene production capacity for the whole year, with a total production capacity of 47.33 million tons, continuing to maintain its position as the world's largest ethylene producer. With the rapid growth of ethylene production capacity, the scale, base, and park development of the ethylene industry is accelerating. From 2000 to 2022, the average scale of steam cracking plants in China increased from 220000 tons/year to 833000 tons/year, and the number of million ton ethylene plants increased to 20 sets. The industrial layout has been continuously optimized, forming a petrochemical industry base in the Northeast and Northwest regions centered on domestic crude oil resources; The coastal petrochemical industry clusters around Bohai Bay, Yangtze River Delta and the Pearl River Delta, which are mainly imported crude oil and close to the market center, have steadily increased their scale effect and agglomeration effect. On the one hand, China's ethylene industry has a strong foundation for achieving high-quality development, but on the other hand, it also faces many challenges.

The external environment is complex and severe

From the perspective of the international environment, the adjustment of order and pattern on a global scale has become a major trend, with a significant increase in instability and uncertainty. The COVID-19, geopolitical conflicts, etc. have had a wide and far-reaching impact on the world economy, financial markets, international trade, bulk commodity demand, etc. The new round of technological revolution and industrial transformation brings new growth momentum and opportunities, and countries hope to seize the opportunity of the fourth industrial revolution to occupy the highland of advanced manufacturing development.

From the perspective of the domestic environment, China's economy has transitioned from a development model relying on the international circulation to a direction dominated by the domestic circulation. China is committed to promoting supply side structural reform and implementing the strategy of expanding domestic demand. The dependence on foreign trade has decreased from its peak of 64.2% in 2006 to 35.4% in 2022. The international circulation momentum of the market and resources being "at both ends" has significantly weakened, and the domestic circulation vitality is becoming increasingly strong. The new development concept of promoting green transformation in economic development and achieving greater development in green transformation is driving various industries in China to undergo comprehensive and profound changes.

Development must balance carbon reduction

In 2022, China's ethylene equivalent consumption exceeded 60 million tons, accounting for approximately 40% of global ethylene consumption, making it the world's largest consumer of ethylene. Although the growth rate of ethylene equivalent demand in China has decreased with the increase of the base and the slowdown of economic growth, the market potential is still great. In 2021, the per capita ethylene equivalent consumption in China was 42 kilograms per person, which is still lagging behind the consumption levels of major developed countries and regions such as the United States, Western Europe, and Japan. It is expected that by 2030, China's annual ethylene production capacity will reach 80 million tons, and low-carbon development of the ethylene industry is an inevitable choice.

In July 2021, China's carbon market officially started trading, and the power generation industry became the first industry to be included. It is expected that the petrochemical industry will also be included in the national carbon market by the end of the 14th Five Year Plan. On June 22, 2022, the European Parliament voted to pass the world's first Carbon Border Adjustment Mechanism (CBAM) bill. Carbon tariffs cover multiple fields such as electricity, cement, steel, refining, fertilizers, organic chemicals, plastics, hydrogen, and ammonia. CBAM will be implemented from January 1, 2023, with a transitional period until the end of 2026, and gradually ending free quotas until 2032, which will have a certain impact on China's petrochemical product exports. Research shows that a carbon tax of $30 per ton can lead to a decrease of 12.4% in petrochemical product exports.

In October 2021, the National Development and Reform Commission and other departments issued the "Action Plan for Strict Energy Efficiency Constraints in Key Petrochemical and Chemical Industries to Promote Energy Conservation and Carbon Reduction" (2021-2025), which requires that by 2025, the proportion of production capacity for petroleum based ethylene that reaches the benchmark level (590 kg standard oil/ton) should exceed 30%, carbon emission intensity should significantly decrease, and green and low-carbon development capabilities should be significantly enhanced. At present, there is still a gap between the average energy consumption level of domestic petroleum based ethylene and the benchmark level target (640 kg standard oil/ton). Therefore, the Action Plan requires increasing the disposal of idle and zombie production capacity, promoting the accelerated exit of ethylene plants with an annual output of 300000 tons or less, and strictly prohibiting the construction of new naphtha cracking plants with an annual output of 800000 tons or less; Promote technologies such as one-step synthesis of olefins from syngas and direct cracking of crude oil to produce ethylene, design and manufacturing technologies for large-scale ethylene cracking furnaces, compressors, high-efficiency heat exchangers, special catalyst and additive preparation technologies, and autonomous intelligent control systems; Encourage the use of technologies such as heat pumps, heat pinch points, and heat combination, strengthen the recovery of process waste heat and residual pressure, and achieve energy cascading utilization; Explore and promote the transition from steam driven to electric driven.

International competitiveness still needs to be improved

Although the supply capacity of downstream ethylene products in China has increased, the industrial layout is not entirely reasonable and still needs continuous adjustment and optimization. In the 21st century, the layout of new petrochemical projects in China has improved, especially since the 13th Five Year Plan, the concentration of industries has increased, but there is still a significant gap compared to the world's advanced level. In 2022, there were a total of 48 ethylene steam cracking units scattered in 36 locations across 30 cities in China. The high costs of production and operation, public engineering, logistics transmission, safety and environmental protection, and management services made it difficult to concentrate the utilization of cracking by-products, which affected the overall competitive strength.

The structural issues of downstream products are prominent. On the one hand, homogeneous products have high production costs, weak competitiveness, and lower operating rates. The resource endowment of the Middle East determines that it is the region with the lowest production cost of downstream ethylene products in the world. China imports a large amount of ethylene downstream derivatives such as ethylene glycol and polyethylene from the Middle East every year. Taking ethylene glycol as an example, the import volume in 2021 was 4.751 million tons, accounting for 59.4% of the total import volume of ethylene glycol in China. Therefore, in recent years, the operating rate of domestic ethylene glycol production enterprises has been hovering at a low level, less than 60%. Against the backdrop of high oil prices, the impact of low-cost downstream ethylene products from North America and the Middle East on China's chemical market has become more prominent, and has also intensified the operational pressure on China's ethylene and downstream product production enterprises. On the other hand, high-end products have a high degree of external dependence and weak independent guarantee capabilities. Due to insufficient research and development capabilities and the lack of technology transfer by technology owners, the self-sufficiency rate of high-end polyolefins in China was 58% in 2021. The total import volume of products such as hexene copolymer polyethylene, octene copolymer polyethylene, ethylene vinyl acetate copolymer (EVA), metallocene polyethylene, and ultra-high molecular weight polyethylene accounted for about half of China's polyethylene imports.

The shortage of key core technologies and the need to enhance original innovation capabilities. Although China has basically achieved independent ethylene technology and equipment, it lacks some key core technologies and downstream supporting technologies. Taking polyethylene as an example, the technology dependence on foreign countries exceeds 90%, and the industry is still in a catching up period relying on imported technology and large-scale investment and construction, with weak original innovation capabilities. On the one hand, the R&D investment of enterprises is insufficient. The R&D investment of international large petrochemical companies accounts for about 3% of sales revenue, while Chinese petrochemical enterprises only account for about 1%; On the other hand, the existing mechanisms cannot effectively mobilize the enthusiasm of enterprise researchers to carry out application-oriented basic research, and enterprise research and development is basically limited to following and digesting absorption. Overall, the innovation system within and outside the enterprise has not yet been fully formed, and the foundation for independent innovation is weak.

The ability to refine management is insufficient, and the integration of various links still needs to be improved. Although many ethylene enterprises in our country have established systematic management systems, the coordination and operation capabilities between various links and systems are still insufficient, and there is still a gap in refined management in procurement, production, sales, and research and development compared to world leading enterprises. European and American bulk chemical companies are generally able to achieve a return on investment (ROIC) of over 10%, while Chinese companies are generally below 9%. Many bulk chemical companies have even lower ROICs, and there is still great potential for improving production efficiency. In addition, the surge in ethylene production capacity in recent years has led to a shortage of professional personnel.

Scientific and orderly promotion of green and low-carbon development in the ethylene industry

Steam cracking is the main ethylene production route in China, accounting for about 86% of the total ethylene production capacity. The production process mainly includes three parts: cracking furnace steam cracking, cracking gas compression, and distillation separation. The main sources of carbon emissions include direct emissions from fuel combustion in cracking furnaces (about 60%), indirect emissions from heat and electricity consumption (about 30%), and torch emissions. Therefore, improving the thermal efficiency of the cracking furnace, adopting energy-saving equipment and high-efficiency separation technology, intelligent empowerment, energy system optimization and energy control, and the transformation from steam driven to electric driven are the main measures to strengthen process energy conservation and improve energy efficiency in steam cracking devices. Especially the electrification technology of steam cracking equipment has become the focus of major energy and chemical companies. Dow collaborates with Shell, BASF, Saudi Basic Industries, and Linde, as well as large oil and petrochemical companies in China, to conduct research on electric heating cracking furnaces, including the design of long-life and high-power electric furnaces, new and efficient electric heating material technology, and advanced control systems.

At the same time, China is accelerating the industrial promotion of direct cracking of crude oil to produce olefins technology; Strengthen forward-looking, strategic, and fundamental research and technological breakthroughs, reserve new ethylene production processes, and provide technological innovation guidance. Pay attention to the high value-added utilization of natural gas, increase research and development investment in methane to ethylene and synthesis gas to olefins, strive for breakthroughs in core technologies such as catalysts and solve engineering and technical problems, and achieve industrial application as soon as possible. Accelerate the research and development pace of waste plastic pyrolysis oil purification technology and carbon dioxide to ethylene technology, and achieve low-cost resource utilization of waste. Layout the third-generation biomass to ethylene technology and ethane oxidation dehydrogenation to ethylene (ODH) technology, with the former focusing on improving ethanol conversion rate and selectivity, while the latter focuses on breakthroughs in efficient catalysts.

Steadily enhancing the supply capacity and competitiveness of the ethylene industry chain

Continuously improving technological innovation capabilities and striving to become a major research center and innovation highland in the world petrochemical industry. It is particularly important to improve innovation mechanisms, explore channels for scientific and technological investment, promote deep integration of industry, academia, research and application, form a collaborative innovation system, and provide and reserve scientific and technological resources that meet the current and future development needs of the country. On the one hand, it is necessary to attach importance to application-oriented basic research, establish a platform for understanding petroleum and other raw materials at the molecular level, form a systematic theory of the structural characteristics and core chemical reaction laws of hydrocarbons in the raw materials, develop targeted and efficient catalysts and separation and reaction processes, and achieve targeted and efficient conversion of hydrocarbon molecules; Breaking through the manufacturing technology of important equipment and components such as special structure reactors and high-power electric heating furnaces, as well as core technologies such as perception technology and control technology, enhancing the driving force of innovation and development, and enhancing the stability and competitiveness of the industrial chain. On the other hand, focusing on strategic emerging industries and segmented markets, we will accelerate the high-end, differentiated, and green development of the three major downstream synthetic materials through catalysts, process innovation, or post modification, forming a full range of product solutions. Implementing customized production centered on users means reducing production costs, improving production efficiency, and ensuring product quality while meeting diverse customer needs, in order to achieve high user satisfaction. Increasing technological innovation and import substitution efforts is also a key focus of deepening supply side structural reform.

Optimizing industrial structure and layout to promote high-level agglomeration development

Active petrochemical plants need to accelerate structural adjustment and upgrading. On the one hand, with the goal of maximizing value creation for society, utilizing digital and intelligent technologies, further improving resource utilization, refining raw material processing paths, efficiently separating and utilizing by-products, reducing energy and material consumption, improving device operation levels, expanding and extending the chemical industry chain, accelerating the reform process of improving quality and efficiency, and enhancing the ability to flexibly match market demand. On the other hand, based on the principles of overall planning and systematic conservation, and taking into account various factors, a reasonable indicator system is established to scientifically evaluate and promote the exit of inefficient and backward production capacity and the relocation of production enterprises.

New petrochemical projects must have strict admission requirements and a coordinated layout. Establish a high-quality development standard system at the national level, conduct a comprehensive and systematic assessment from the aspects of intrinsic safety and low-carbon environmental reliability, logistics transmission convenience, product structure and technology progressiveness, as well as innovation ability, economic benefits, international competitiveness, etc., and strictly enforce access conditions. When laying out, it is necessary to comprehensively consider conditions such as resources, market, environmental capacity, and logistics, and maximize the cluster development advantages of upstream and downstream collaboration, integration of public auxiliary engineering, integration of safety and environmental protection emergency response, and integration of management services and finance. We should promote the deep integration of "two modernizations", improve operational efficiency, enhance professional management and risk resistance capabilities, and form a world leading petrochemical industry base.

In addition, internationally recognized petrochemical powers not only have huge scale, relatively complete industrial chain, and strong technological innovation capabilities, but also have absolute advantages in management level. Efforts should be continuously made to refine management in planning, pricing, production, research and development, sales, and other aspects, in order to achieve continuous reduction in costs, energy consumption, and material consumption, and to continuously optimize and improve product structure and quality. (Text provided by Wang Hongqiu, Director of the Strategy and Information Research Office of the Petrochemical Research Institute of China National Petroleum Corporation)