IEEJ: October 2005

Prepared for 2005
Northeast Asia
Petroleum Forum

He Zuoyun
Nov. 20~23, 2005
中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

Contents
1. The background of oil-substitutes in China
2. Economics for several oil-substitutes
3. Conclusions and suggestions

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

The background of oil-substitutes in China
China is short of crude oil, it’s import dependence isvery high400
Million tons

1.

293

300

Yield223

200

150150

Import
175

163

123

100

Apparentconsumption

701701995

2000

Import ratio : 40％ in 2004,

50％ in 2010,2004
over 60％ in 2020.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China

Brent Price(FOB) in Asian,$/bbl

The oil price is growing continually,how about it in the future?
70?

60
52

50
40

38

30
20

29.08

29.01

20.41
13.06

1001996

1997

1998

1999

2000

2001

2002

2003

2004

2005
halfFuture

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China
CERA(Cambridge Energy Research Associates) Forecast
Dated Brent Price Scenarios to 2010
83.25

$85
77.25
75.25

Historical

$75

78.25

75.25

Managed Commodity Cycle
Supply Anxiety$65

Price Collapse

58.60
55.80

$55

51.75

$/bbl

45.25

52.30

$45

41.25

43.25

38.30
40.50

$35

37.75
28.96

28.66

29.25
28.25

$25

20.77

25.17

24.75

19.28

23.25

18.23

$15

20.25

17.16
13.09

$5
1995

1997

1999

2001

2003

2005

2007

2009

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China
 EIA’s Forecast.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China
The exploitation years of the remainder resourcesin the world
BP Statistical Review of World Energy 2005

Oil

40 years

Gas

67 years

Coal

167 years

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China
The energy consumption structure in China%ChinaGlobal average

1997

2004

2010 forecast

2004

Coal

74.4

69.0

62.0

27.2

Oil21.3

22.3

24.0

36.8

Gas2.02.5

7.4

23.7

Hydropower

1.9

5.4

3.6

6.2

Nuclear

0.4

0.8

3.2

6.1

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

1. The background of oil-substitutes in China
The technology is becoming more and more mature.
999GTL/CTL:

The mega-coal gasification, F-T synthesis,
The capital cost dropped.
MTO/MTP： A new process for utilizing coal or gas,at the point of commercialization.
Bio-transformation Energy:

corn/sugarcane/sweet sorghum

ethanolethylene

The economics of oil-substitutes is becoming morefeasible in case of high oil price.
中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
1）CTL（Coal To Liquids)
Two processes:Direct and Indirect liquefaction.
Direct liquefaction process is not being commercialized, The firstcommercial-scale plant invested by Shenhua Coal Liquefaction Corp. isbeing constructed in Erdos, Inner Mongolia, with the capacity of
5,000kt/a. The capacity of phase I is 3,200kt/a, capital investment isabout 24,500 million RMB
The indirect liquefaction plants are located in South Africa，the totalcapacity is 7,500kt/a.
Shenhua Group and Ningxia Coal Group are contacting with Sasol andShell for 2 indirect liquefaction plants(each one 3,000kt/a,in Shanxi
Province and Ningxia Province)

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
Shenhua CTL project’s modelStart-up ceremony

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
 The comparison of product cost plus ROCE(Return ofcapital employed) between CTL and Refinery.
Indirect liquefaction

250403530200
15025201510050
2700

2800

2900

3000

3100

Cost of product+10%ROCE,

Coal Price， RMB/t

Brent Price(FOB),$/bbl

Refinery

3200

RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes


Evaluation of CTL
The indirect liquefaction process has several decades’
experience,the mega direct liquefaction process need to beverified by Shenhua project in Erdos.
CTL has good economic in case of high oil price,see thenext table:
Coal price,
RMB/t

Cost+10%ROCERMB/t

Breakeven Brent oil
price $/bbl

70231723.1

1002435

24.5

1202514

25.5

150

2632

26.9

200

2829

29.3

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes2) GTL（Gas To Liquids)
The commercial GTL plants are situated in South Africa andMalaysia，with total capacity of 45,000 barrels /day. The “oryx”
project in Qatar will be started in 2005, with the capacity of
34,000 barrels /day.
Mature technology is owned by Sasol、Shell and Exxon-Mobiletc..
Partial future projects are listed in the following table.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
Producer

Location Capacity,bbl/dYear of start-up

Sasol/QP I

Qatar

34,0002005

Sasol/QP II

Qatar

65,0002010

Sasol/Chevoron

Nigeria

34,0002007

Exxon-Mobil

Qatar

154,000

2011

Shelll/QP I

Qatar

70,0002009

Shell/QP II

Qatar

70,0002011

Conoco-Philips/QP I

Qatar

80,0002010

Conoco-Philips/QP II

Qatar

80,000-中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
 The comparison of cost plus ROCE between GTL andrefinery
GTL
1.85045403530252015101.5
1.2
0.9
0.6

Gas Price，
RMB/cubic meter

Brent Price(FOB),$/bbl

Refinery

0.3
2350

2750

3200

3600

4050

4450

Cost of product+10% ROCE,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
The evaluation of GTL
The GTL process is reliable.
The GTL process is competitive in case of high oil price.
Gas price
RMB/m3

Product cost+10%ROCERMB/t

Breakeven Brent oil price
$/bbl

0.43

2350

20

0.63

2760

25

0.84

3180

30

1.25

4030

40

1.45445045

9 The gas reserve is bottleneck for China to develop GTL.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes3）MTO（Methanol To Olefins)
The MTO process with MTO-100 catalyst is developed by UOP & Hydro.，
Dalian Institute of Chemical Physics is also developing the similar
process, now the pilot-plant is being constructed in Shanxi province
with the capacity of 10kt/a( feed).
The process isn’t being commercialized, it has been transferred to twocorp., one is located in Nigeria，the project will be completed in 2007.
The technology risk is little though it isn’t being commercialized yet.
The 600kta project invested by Shenhua Group Corp. is now under
ratification by the government, which includes 1,800kt/a
methanol,300kt/a PE,300kt/a PP, the total investment is about 11,700
million RMB.It is located in Baotou,Inner Mongolia, start-up in 2009.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
 Olefins cost plus ROCE comparison between MTO

and naphtha cracking
MTO(Coal route)

50
4540353025201510530430
330230130

Coal Price ， RMB/t

Brent Price(FOB),$/bbl

Naphtha cracking

303400 3900 4400 4900 5400 5900 6400
Cost of olefins +10％ ROCE,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
MTO(gas route)

50

1.55

Brent Price(FOB),$/bbl

45

1.4

401.2535

1.1

300.95250.8

200.65150.53900

4400

490054005900

Gas Price，RMB￥/cubic meter

Naphtha cracking

6400

Cost of olefins +10%ROCE,RMB￥ /t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economic for oil-substitutes
 The evaluation of MTO

The MTO process is reliable.
The MTO process can compete against naphtha cracking ineconomics at high oil price.see the next table:
Gas price，
RMB￥/m3

Cost+10%ROCE，
RMB￥/tBreakeven Brent
oil price，$/bbl

Breakeven coal price，
RMB￥/t

0.61

3900

20130

0.91

4900

30

295

1.07

5400

35

385

1.225900

40470

1.376400

45550

9The MTO process has the splendid prospect in the future,but it
will not be developed widely now owing to lack ofcommercialization.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
4) MTP（Methanol To Propylene)
The MTP process is developed by Lurgi in 1999, with ZSM-5 ascatalyst, the reactor is fixed-bed.
The process is not commercialized yet. In March 2005,theprocess was transferred to a corp. in Iran, with the capacity of
100kt/a.
The process is easy to be commercialized because of thecharacter of its fixed-bed reactor.
A 480kta MTP project in Henan Province China is inprogramming .

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
 Olefins cost plus ROCE comparison between MTP andnaphtha cracking
Naphtha cracking

MTO(coal route)

500

4540400

35300

30200

2520100

1503400

3900

4400

4900

5400

5900

Coal Price ， RMB/t

Brent Price(FOB),$/bbl

506400

Cost of olefins+10%ROCE,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
MTP(gas route)

50

245

1.75

40

1.535

1.25

30

125
200.75

150.5
3900

4400

4900

5400

5900

Gas Price， RMB/cubic meter

Brent Price(FOB),$/bbl

Naphtha cracking

6400

Cost of olefins+10%ROCE,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
 The evaluation of MTP

The MTP process can be commercialized now.
The MTP process can compete against naphtha cracking ineconomic at Chinese gas price, see the next table:
Gas price,
RMB/m3

Product cost+10%
ROCE,RMB/t

Breakeven Brent
oil price,$/bbl

Breakeven coalprice,RMB/t

0.80

3900

20125

1.114900

30

290

1.27

5400

35375

1.42

5900

40450

1.58

6400

45530

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes5）Ethylene from Bio-ethanol
The plants are mainly located in India、Pakistan、Peru etc., thelargest capacity is 64kt/a.
The plants in China are all small, the largest is 20kt/a（belong toAnhui Fengyuan group）.
There are two kinds of process, fixed-bed & fluidized-bed,thefluidized-bed process appears to require lower investment andto have lower cost, but it isn’t being commercialized.
The feed of bio-ethanol plant can be gained from corn or sweetsorghum etc..
Sweet sorghum has a short storage period because it is easy togo moldy.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes5）Ethylene from Bio-ethanol
Sweet sorghum

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes

Ethanol cost +10%ROCE,RMB/t

 Ethanol cost plus ROCE for different corn price
5500
5000
4500
4000
3500
3000
900

1000

1100

1200

1300

1400

Corn price,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
Ethanol cost plus ROCE for different sweetsorghum haulm price
95% ethanol
cost+10%ROCE,RMB/t

4500
4000
3500
3000
2500
2000
90120

150

180

210

Sweet sorghum haulm price,RMB/t
Note: the rate of recovery for by-products is 50%.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes
Olefins cost plus ROCE comparison between dehydration ofethanol and naphtha cracking

60
55504540
35
30
25
20
15

Notes：Dehydration ethanol: 300kta

Ethanol

Naphtha cracking:1000kta

4000
3600
3200
2800
2400
2000
1600

4400

4900 5400

5900 6400 6900

Ethanol Price， RMB/t

Naphtha cracking

Brent Price(FOB),$/bbl

7400

Cost of olefins + 10% ROCE,RMB/t

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

2. Economics for oil-substitutes


Evaluation of ethanol dehydration
The fixed-bed process is an old process, the fluidized-bed processneed to be verified via commercial-scale plant.
The development of bio-ethanol dehydration to produce ethylene is
influenced by the prices of biomass and oil.
Brent
price,$/bbl

Olefins
cost+10%ROCE,RMB/t

Breakeven cornprice,RMB/t

Breakeven haulm
price,RMB/t

2544001300

603049001370

803554001530

100405900

1700

120

The recovery rate of by-product is the primary factor influencing theprofit and the cost.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

3. Conclusions and suggestions

Oil shortage and its growing oil price isenhancing the feasibility of oil substituteresources.
Oil-substitutes from coal ,gas and biomaterial
have good economics at a high oil price.
People are recognizing the importance ofutilizing bio-mass resources.
The oil substitutes industry has the brighter
prospect especially in the Oil shortage country
like China.

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPECIEEJ: October 2005

•Contact: report@tky.ieej.or.jp

中国石化集团公司经济技术研究院
Economics&Development

ResearchInstitute(EDRI),

SINOPEC