Comprehensive Analysis of the Three Major Olefin Production Routes: Oil, Gas, and Coal

Figure 4: Product Distribution of Light Hydrocarbon Cracking vs. Naphtha Cracking Processes (by mass fraction, %) 1. Ethane Cracking for Ethylene Production According to statistics from the CNPC Economics & Research Institute, China currently has a total of 16 projects (including those under construction and in planning), with combined capacity approaching 20 million tons per year. Four projects have already commenced operations: Satellite Chemical, Xinpuxing Chemical, PetroChina Lanzhou Petrochemical, and PetroChina Dushanzi Petrochemical. Among these, PetroChina’s two units leverage abundant domestic natural gas resources from the Changqing and Tarim oilfields to achieve self-sufficiency in ethane supply; whereas Satellite Chemical and Xinpuxing Chemical rely on imported ethane. Meanwhile, progress on the remaining planned projects remains unclear and faces significant uncertainties—primarily due to challenges in securing reliable ethane import supplies, leasing very large ethane carriers (VLECs), and ensuring port infrastructure readiness. Furthermore, overreliance on a single supply source poses a risk: the United States is currently the world’s only major exporter of ethane and accounts for 95% of China’s ethane imports. Although U.S. export expansion to absorb domestic ethane production aligns with China’s push toward feedstock lightening, future U.S.–China geopolitical uncertainties may heighten operational risks for these projects. 2. Propane Dehydrogenation for Propylene Production (PDH Projects) Compared to ethane cracking for ethylene, PDH facilities in China are significantly larger in scale. Thanks to relatively diversified propane import sources (Middle Eastern countries collectively account for over 50%), favorable profitability, lower policy approval hurdles, and reduced capital intensity relative to conventional petrochemical projects, PDH investment has surged explosively in recent years—making it the dominant route for propylene capacity expansion. According to Argus, by end-2021, China had commissioned 19 PDH projects, with total capacity exceeding 10 million tons per year; by the end of the 14th Five-Year Plan period, capacity is expected to double, surpassing coal-to-olefins as the second-largest propylene source. However, rising international energy prices and the large-scale release of China’s propylene capacity have driven up imported propane prices continuously, significantly squeezing PDH project margins—and thereby dampening investor enthusiasm and delaying commissioning timelines for projects under construction or in planning. Currently, enterprises investing in PDH projects fall into three main categories: (i) integrated propylene-chain companies seeking to secure in-house feedstock (e.g., Wanhua Chemical, Satellite Chemical); (ii) comprehensive chemical enterprises entering the petrochemical industry via PDH to facilitate business transformation (e.g., Donghua Energy, Jinneng Technology); and (iii) emerging private refineries and traditional refineries deploying PDH as auxiliary units for their refining complexes. Should cost advantages persistently erode, firms targeting high profitability and strategic transformation through PDH will face substantial pressure—especially since such firms lack alternative feedstocks to develop differentiated products, and their downstream integration focuses predominantly on homopolymer polypropylene, resulting in limited product diversity and weak resilience amid an oversupplied polypropylene market. For them, unlocking the value of co-produced hydrogen and extending into the hydrogen energy sector represents a key future transformation pathway. Figure 5: Fluctuation in Gross Margin of Domestic PDH Process (RMB/ton) III. Summary

Regional Consumption Characteristics Analysis: East China Explanation South China Explanation Consumption Share ~35%, highest nationwide Consumption Share ~30%, second highest nationwide Key Provinces/Municipalities Shandong, Zhejiang, Jiangsu, Shanghai Key Provinces/Municipalities Guangdong, Fujian, Guangxi Consumption Structure Over 80% used for chemical purposes Consumption Structure Relatively balanced between chemical and civilian uses Core Driver Dense concentration of PDH plants; strong propylene demand Core Driver Convenient imports; concentrated refining & petrochemical capacity Import Dependence High—multiple large-scale import receiving terminals Market Feature A leading region within the 'stronger-in-the-south, weaker-in-the-north' pattern North China Explanation Central China Explanation Consumption Share ~20% Consumption Share ~15% Key Provinces/Municipalities Hebei, Tianjin, Beijing Key Provinces/Municipalities Hubei, Hunan, Henan Consumption Structure Relatively high share of civilian combustion use Consumption Structure Balanced mix of civilian and industrial use Core Driver Urbanization + rural market demand Core Driver Economic development + infrastructure improvement Market Trend Significantly affected by the 'LPG-cylinder-to-pipeline' policy Market Trend Rapid growth rate; high-potential market Introduction to PDH Plants Domestic propylene production facilities fall into four main categories: Fluid Catalytic Cracking (FCC) units, steam cracking units, Propane Dehydrogenation (PDH) units, and Methanol-to-Olefins (MTO)/Methanol-to-Propylene (MTP) units. FCC units use heavy oil as feedstock, primarily producing gasoline and diesel, with propylene as a by-product; conventional propylene yield is 4–7%, while Deep Catalytic Cracking (DCC) can raise this to 15–20%, making FCC a traditional major propylene source. Steam cracking units use naphtha, ethane, or LPG as feedstock, primarily producing ethylene with propylene as a co-product; propylene yield is ~16%, representing one of China’s primary propylene supply routes. PDH units use propane exclusively as feedstock to directly produce propylene—offering high selectivity and large single-line capacity—and constitute the fastest-growing and highest-capacity-share propylene production route domestically, albeit heavily reliant on imported propane. MTO/MTP units use coal-derived methanol as feedstock: MTO co-produces ethylene and propylene, while MTP focuses on propylene; capacity is concentrated in Northwest China and operation is highly sensitive to coal and methanol prices. Together, these four technologies form China’s diversified propylene supply landscape. PDH (Propane Dehydrogenation) units are core petrochemical facilities that catalytically convert propane into propylene. They represent a major global source of incremental propylene supply and serve as a critical link enabling high-value utilization of the LPG value chain. Below is a detailed overview covering core principles, process flow, mainstream technologies, key parameters, feedstock and products, economics, and associated risks: Core Principle and Reaction: The fundamental reaction in PDH is the catalytic dehydrogenation of propane to propylene and hydrogen: C₃H₈ ⇌ C₃H₆ + H₂. This is a strongly endothermic, reversible reaction accompanied by volume expansion; thermodynamically, high temperature (550–650°C) and low pressure (0.05–0.3 MPa) are required to shift equilibrium toward propylene formation. Side reactions—including coking, cracking, and isomerization—occur concurrently, necessitating specialized catalysts and robust regeneration systems to maintain activity and selectivity. Typical Process Flow (Generalized): 1. Feedstock Pretreatment: Using LPG (containing propane, butane, and C4+ components) as raw material, separation occurs via a depropanizer column; high-purity propane (≥95%) is drawn off as overhead product, while butanes and heavier components are removed from the bottom and excluded from the reaction section.

INSIGHT: Why build the world’s largest PDH unit in a propylene glut?

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Lummus Technology licensed the world's largest propane dehydrogenation (PDH) unit to China's ZPC, leveraging economies of scale amid global propylene overcapacity. The integrated project aims to withstand market downturns until long-term demand recovers.