Global energy giants ramp up China presence

The rapid growth in China's petrochemicals output, part of the nation's drive for self-sufficiency and to climb up the global value chain, is reshaping global oil demand and drawing greater interest from multinational companies seeking a foothold in the world's largest consumer market, said industry experts and company executives.

In recent years, China has ramped up investments in advanced petrochemical facilities, including construction of refinery-petrochemical complexes capable of converting crude oil directly into high-value chemicals used in plastics, textiles and electronics. This expansion aligns with Beijing's strategy to reduce dependence on imports for critical materials and bolster its industrial supply chains, they said.

This shift has captured the attention of multinational petrochemical and refining corporations such as US chemicals firm Dow, Germany's BASF and Saudi Arabian Oil Co (Saudi Aramco), which are ramping up investment in China.

Saudi Aramco, for instance, recently announced plans for the construction of a $10 billion mega oil-refining and petrochemical project in East China's Fujian province, as it eyes downstream expansion in the world's second-largest economy.

"Aramco sees opportunities for further investments in integrated downstream projects in China, spanning oil supply, refining, chemicals and lubricants, and we plan to continue expanding our presence in China to support the country's energy security and development trajectory," said Yasser M Mufti, executive vice-president of products and customers at Saudi Aramco.

Clariant, a Swiss specialty chemicals company, has also made significant investments in the past few years in expanding its footprint in China, including its regional headquarters and innovation center in Shanghai and new production plants in Daya Bay of Guangdong province's Huizhou and Jiaxing, Zhejiang province, for more than $300 million.

"Clariant has been dedicated to supporting China's high-quality development with our sustainable solutions and we are confident that these investments will enable us to achieve our growth target as well as the sustainable development of the chemical industry," said Jens Cuntze, president of Clariant Catalyst & Asia Pacific.

Sabic, a global leader in diversified chemicals, signed a potential investment agreement with the Fujian government in August to build an engineering thermoplastics compounding plant to further strengthen its roots in the Chinese market, while Dow signed more than 20 memorandums of understanding or strategic cooperation agreements with domestic customers or partners from various industries during the seventh China International Import Expo last month.

China has become Dow's second-largest market in the world, said Kevin Kolevar, the company's vice-president.

Over the past few years, Dow has come up with a world-class research and development facility in Shanghai and a manufacturing facility in Zhangjiagang, Jiangsu province, which is one of its largest manufacturing plants in Asia, he added.

An analyst said the focus of multinational petrochemical and refining corporations in the Asia-Pacific region, especially China, a powerhouse representing 40 percent of global chemical product sales, is rooted in expectations of resilient chemical demand growth in the region.

China's petrochemical feedstock demand, driven by continuous growth of downstream derivatives such as plastics, is expected to almost triple by 2050 from 2021 levels, with demand from the rest of the Asia Pacific to more than double during the same time, said BloombergNEF.

"This would make the Asia Pacific a new hub of global petrochemical production," said Hong Luxi, head of downstream oil and chemicals at BloombergNEF.

"From 2024 to 2030, we expect 60 percent of global ethylene capacity addition will be located in the Asia Pacific, with China alone contributing to almost 60 percent of global propylene capacity addition during the same period," Hong said.

Since 2015, China has accounted for the majority of ethylene and propylene supply additions globally, with its olefin capacity increasing at a compound annual growth rate of about 12 percent for ethylene and 10 percent for propylene, compared to capacity growth of 6 percent and 2 percent in the United States, and about 2 percent to 3 percent in the Middle East, according to data released by S&P Global.

In 2023, China accounted for 60 percent of the increase in petrochemical capacity worldwide. Responsible for two-thirds of the newly added ethylene capacity, the country is also set to triple its domestic paraxylene capacity, a critical raw material for polyester production.

China's push is expected to add significantly to global oil consumption, as the petrochemical sector accounts for a growing share of crude oil use. According to the International Energy Agency, petrochemicals will represent over a third of oil demand growth through 2030, largely driven by Asia.

Wang Lining, director of the oil market department under the economics and technology research institute of China National Petroleum Corp, said China's pursuit of self-reliance in chemicals also signals a transition up the value chain, moving from basic refining operations to advanced chemical production.

This not only supports the country's ambitious goals for industrial upgrading, but also aligns with its broader economic strategy of fostering innovation and higher-value manufacturing, he said.

Multinational chemical giants are well positioned to seize this opportunity and drive chemical innovation that will propel these industries toward a more sustainable future, Wang said.

BASF-YPC said the company would continue to enhance its footprint in China, which "has become a major player in the global petrochemical market and will continue to drive significant growth".

"While the industry is going through challenges with unbalanced market and supply demand over the short term, we believe the long-term focus should shift toward the development of high-end and sustainable value chains of petrochemical products," said Bram Jansen, president of BASFYPC Co Ltd, a joint venture between BASF and China Petroleum & Chemical Corp.

"China is defined as one of the 'advance countries' in BASF's new corporate strategy and we will continue to enhance our footprint in China," he said.

This year, BASF-YPC announced a joint investment in an olefin platform, which will incorporate cutting-edge carbon reduction technology and utilize 100 percent renewable energy, resulting in a significantly reduced carbon footprint for olefins and enabling sustainable growth of its downstream value chains.

The project will further contribute to sustainable growth and self-sufficiency of high-end value chains in China, he said.

The Gulf States have also emerged as major players in China's oil sector, engaging in numerous JVs with Chinese enterprises. The refineries and petrochemical plants will not only secure a market share for Gulf crude exports through utilizing crude feedstock imported from the Gulf, but also facilitate China's advances in petrochemical facilities expansion in recent years.

Aramco, for example, sees the use of goods such as plastics outlasting the growth in consumption for gasoline and diesel amid the energy transition, with much of the expansion in chemicals likely coming from Asia.

With China's petrochemical capacity expected to continue growing in the next five years, Wang predicts further shifts in global oil flows and increasing competition in Asia's high-demand chemical markets.

Some of China's leading oil refiners are building plants specializing in petrochemicals, rather than gasoline and diesel. This serves as a strategy for State-owned and private enterprises to navigate the transition toward green energy by diversifying away from traditional transport fuels into alternative energy sectors, he said.

Chinese enterprises are already spearheading the transition from producing basic petrochemicals to manufacturing higher-value products, including ultra-high-molecular-weight polyethylene for lithiumion battery separators and carbon fiber for wind turbine blades.

With a strong demand-growth recovery in China anticipated, it is believed the country will expect a modest improvement in market conditions of the petrochemical sectors, with demand growth at or slightly above 2023 levels.

Due to the rapid rise of electric vehicles, liquefied natural gas-powered heavy trucks — and the adoption of new energy sources like hydrogen — a peak in Chinese petroleum demand is predicted by 2029, said financial services provider UBS Securities.

Relevant companies should expedite their green transformation, embracing new energy sources as China's gasoline and diesel demand — two essential products in petroleum refining — has already hit their peaks, according to UBS Securities.

zhengxin@chinadaily.com.cn