Mainland China is “rich in coal, poor in oil, and with a little natural gas,” according to a common saying. One of the oil products China lacks is propane (C3H8). However, the country has a large and growing propylene (C3H6) industry. Propylene is made by removing two hydrogens (H2) from propane in a process known as “propane dehydrogenation.” While propane itself is a relatively low-value gas that is usually burned as fuel, China’s increasing demand for propylene as well as the resurgence in interest in hydrogen energy and fuel cells has driven new investment into propane dehydrogenation (PDH) chemical plants.
Much propylene in China was historically obtained as an indirect by-product of naphtha or ethane steam cracking; PDH plants, in contrast, produce propylene and hydrogen directly in a dedicated process. In fact, of the multiple ways to produce propylene in China today, the PDH process is now the fastest-growing. Large state-owned enterprises (SOE) like SinoPec and PetroChina have explored recycling off-gas from refineries to produce propane as a feedstock for new PDH plants. Unlike the non-dedicated naphtha or ethane cracking processes, the PDH method produces relatively high purity propylene as well as increasingly-valuable by-product hydrogen.
Liquified natural gas (LNG) is a mature – yet expensive – fuel in China for both the heating and automotive industries. While the country has some reserves in the southwest, overall LNG in China is scarce. A recent emerging trend is to import liquified petroleum gas (LPG), which has about twice the energy of LNG, to replace some LNG processes. LPG is mostly composed of propane and butane (C4H10). Large SOEs in China are now adjusting supply chains to import more LPG specifically to obtain propane as a feedstock for new PDH plants to produce propylene, most of which is used in the food, paint, and plastics industries in China.
Previously, about three-quarters of worldwide propylene production came as a by-product of producing ethylene (C2H4), and was used to fuel the large plastics industries along the Pearl River Delta. However, SOEs in China have recently begun producing ethylene directly from ethane (C2H6) extracted from imported LNG. However, because much propylene was historically produced as a by-product of ethane cracking, the recent trend towards direct ethylene production from ethane dehydrogenation has reduced the volume of by-product propylene available on the market. This gap in supply combined with general increasing demand for propylene as well as surging demand for hydrogen has incentivized investments in new PDH plants, especially around the Hangzhou Bay area.
Another reason to invest in PDH plants to produce the valuable propylene (C3H6) directly from the less valuable propane (C3H8) is stability of production; traditional steam cracking of naphtha over a catalyst depended on the supply of off-gas from refineries, which fluctuated according to the demand for more valuable primary products. The production efficiency of PDH plants is about 1 ton of propylene from every 1.2 tons of propane. The hydrogen is extracted from the propane over a catalyst heated to temperatures of about 600˚C. Most PDH processes in China use either the Catofin or Oleflex processes which use chromium and platinum catalysts, similar to how the proton exchange membrane (PEM) catalyst operates in a fuel cell. Platinum group metals (PGM) are critical to both production and consumption of hydrogen in China.
Unlike ethane or naphtha cracking, the PDH direct process for propane and hydrogen production uses simpler equipment and a faster chemical process. The simpler equipment also has correspondingly-lower maintenance costs. PDH equipment with a production capacity of 600,000 tons per year usually costs around 3 billion RMB, much more than a plant of similar scope producing other olefins or methanol from coal. PDH plants in China usually cost around a third of the price for a new naphtha cracker and have the benefit of directly producing propylene.
A traditional combined ethylene and propylene plant would cost around 6 billion RMB. Furthermore, the most expensive component of such a combined plant would be the coal gasification component, which requires large amounts of water. China is a mostly arid country anyway and coal-producing regions are even further from water sources. Overall, current high crude oil prices have lowered the relative cost of producing propylene and hydrogen directly from propane using the PDH process. Most crude oil and propane consumed in China is imported, so the economic question is one of choosing imported feedstocks rather than arranging domestic supply chains.
Because most propane is imported, the plants consuming the feedstock are usually located in coastal provinces, such as Shandong in the north and Jiangsu and Zhejiang in east China, north and south of Shanghai, respectively. These three provinces each claim about 25% of China’s propylene production capacity from PDH. Regarding the use of by-product hydrogen as a fuel, all three provinces also have fuel cell electric vehicle (FCEV) pilot fleets. These three provinces together with the remaining 25% – spread between Guangdong, Fujian, Hebei, and Hainan – comprise about 20 PDH plants with annual consumption of about 13 million tons per year (MTY). Additional capacity of 0.43 MTA was added in 2021, but analysts at SinoPec expect total production in the PRC to exceed 23 MTA by 2025, with production ultimately leveling out at around 30 MTA later in the century.
Examples of recent PDH projects in China include the Zhongjing Petrochemical PDH facility in the city of Fuqing, Fujian Province. This plant cost 3.5 billion RMB and is expected to produce 0.75 MTA propylene and 0.05 MTA of hydrogen. SinoPec also announced a large increase in LPG production in May of 2021 that is expected to lower the price of propane feedstock. Further north, Golden Energy New Materials invested in a PDH project with production capacity of 0.9 MTA in the city of Qingdao, Shandong Province. The Golden Energy project is officially called a hydrogen energy integrated pilot program, emphasizing the value of the hydrogen by-product in addition to the propylene. Further south, Jiu-Feng signed a hydrogen supply agreement with Dongguan Ju-Zheng-Yuan, one of the only PDH facilities in the Pearl River Delta, to buy high-purity by-product hydrogen to supply local hydrogen refueling stations (HRS) to refuel FCEV pilot fleets. A safety incident interrupted production at the Ju-Zheng-Yuan facility in 2020, but local production has now resumed at about 1.2 MTA of propylene.
Another saying asserts that China “consumes half of everything.” While this saying holds true for many commodities, like steel, it appears not to confirm to the propylene industry – at least not yet. China consumes more than 15% of the world’s propylene, which may sound like a large figure, but is less than the 50% the size of the country’s economy would imply. It is no wonder then that demand for the olefin is growing by about 5% a year in China. Increasing demand for by-product hydrogen, previously a disregarded off-gas, has further boosted the profitability of PDH plants.
Further upstream, demand for LPG has also increased correspondingly. As a percentage of total sales at PDH plants, hydrogen is still low but the huge demand caused by growing numbers of FCEVs as well as other hydrogen energy applications has drawn the price of the molecule up over the past decade. Guangdong Province, for example, has a target hydrogen price of 30 RMB/kg, but the production interruption at Ju-Zheng-Yuan in 2020 caused the price to jump to 80 RMB/kg in 2021. This “hydrogen drought” became so severe earlier in 2022 that entire fleets in Guangzhou and Foshan were grounded for lack of hydrogen fuel.
Large-scale production of green hydrogen from electrolysis of water powered by renewables may be the ultimate solution to supply of the molecule, but in the near-term by-product hydrogen from increasingly-profitable PDH plants is an important, viable source for China’s growing hydrogen energy and fuel cell industry.