Chinese Petrochemical Giants Placing Bold Bets on the Future of Energy Transition

China: Chinese oil refiners and petrochemical firms are investing billions of dollars to meet the increasing demand for energy transition technologies. They aim to produce top-quality chemicals used in solar panels and Lithium-ion batteries. The investments show China's desire to lessen its reliance on imports and strengthen its control over the supply chains for renewable energy and electric vehicles. The decision sets Chinese businesses against Dow Chemical, Exxon Mobil, and BASF in the production of crucial materials.

The change is being driven by companies like Wanhua Chemical, Zhejiang Petrochemical Corp (ZPC), Hengli Petrochemical, and state oil major Sinopec Corp. Manufacturing higher value goods like Polyolefin Elastomers (POE), which are used to protect the cells on solar panels, ultra-high-molecular-weight Polyethylene, and Carbon fiber for wind turbine blades is replacing the production of more basic petrochemicals for polyester fabrics and plastic packaging.

Overproduction, and weak demand for commodity chemicals, as well as China's quickly expanding industries like solar and electric cars, are the main reasons for businesses to expand into high-end, high performing materials. Some of the transition is being driven by China's oversupplied Polyethylene and Polyester markets because of years of fast petrochemical production expansion.

The initiative supports Beijing's call for businesses to overcome technological barriers to generating vital new materials, develop local supply chains, and capitalize on China's position as the largest producer of solar panels, EV batteries, and other electric cars in the world. Businesses are turning to the new energy sectors where China currently dominates manufacturing.

To produce the new materials, ZPC, Hengli, and the smaller refiner Shandong Chambroad Petrochemical are each investing billions of dollars, with production beginning in 2025. The biggest refiner and producer of basic chemicals in the nation, Sinopec Corp., is refocusing its investment on high-end chemicals like Ethylene Vinyl Acetate (EVA) for solar panels, large-tow Carbon fiber for use in aircraft, and lighter, stronger wind turbine shafts.

According to Hengli Petrochemical statement, which is expanding its petrochemical complex in Dalian, northeastern China, with a 20 billion yuan ($2.77 billion) chemical park, China is no longer short of bulk commodity chemicals and has entered a phase of cost rivalry.

Wanhua Chemical stated in May that it will spend 3.4 billion yuan this year on raw materials for the anodes, cathodes, and electrolytes used in Lithium batteries after establishing a specialized battery technology unit in late 2022.

To meet demand that is anticipated to increase at double-digit rates, predicted that China's production capacity for POE, a material used for solar panel encapsulation that resists ultraviolet light and is more durable than EVA, will increase to 1 million metric tons per year from zero by 2025 at a cost of about 20 billion yuan. Twelve businesses, including subsidiaries of Sinopec and PetroChina, are currently developing or planned POE capacity.

The domestic supply would partially replace China's POE imports, which, according to Chinese customs, will reach a record 690,000 tonnes value of 13.7 billion yuan in 2022, growing at an average rate of 23% annually over the last five years.

While China manufactures 90% of the photovoltaic encapsulant film and controls 80% to 90% of the world's solar capacity, there is no local production of POE pellets. Wanhua and Sinopec are anticipated to be China's first commercial POE producers. Sinopec revealed trial output at its Maoming refinery in April.

Zhejiang's parent company Rongsheng Petrochemical, ZPC anticipates opening a POE facility by 2025 or 2026 that will be capable of producing 400,000 metric tonnes annually. Since many are planning (POE plants), whoever acts faster will win.