Chinese oil refiners are spending heavily to tap clean energy boom

BEIJING – China’s oil refiners are spending billions of yuan to produce chemicals for the renewables sector, as the nation’s clean energy boom ripples through to even its dirtiest industries.

Beijing’s

ambitious climate targets are opening up new areas of investment

across the economy. For oil processors, the added challenge is how to replace revenue from traditional, carbon-intensive sectors like transport, where demand for gasoline is close to peaking as electric vehicles take an ever-increasing share of the market.

Protective coatings like ethylene-vinyl acetate or EVA, and polyolefin elastomer or POE, are finding new applications in solar cells. China’s EVA capacity is expected to more than double by 2025 to five million tonnes a year, according to one industry forecast, with nearly half of national consumption now linked to the solar industry.

“Chinese companies have been investing heavily in EVA capacity and POE technology to reduce dependence on imported materials and improve supply chain security,” said Mr Shaohua Feng, chemicals analyst at S&P Global Commodity Insights. New materials for wind, solar and battery production provide “huge growth opportunities” for petrochemical firms, he said.

State-owned oil major Sinopec Group, the nation’s biggest refiner, is at the forefront. It broke ground last week on a massive 1.5 million-tonne-a-year ethylene project at one of its largest plants in Zhenhai. China leads the world in terms of ethylene production, the base chemical from which EVA is derived. 

Zhenhai investment

The investment at Zhenhai is worth 38 billion yuan (S$7.1 billion) and involves 18 new projects, including three units with total capacity of 800,000 tonnes delivering EVA and POE, among other compounds. Earlier in the month, Sinopec also announced three billion yuan in spending on a 100,000 tonne EVA unit at its Guangdong plant and a 50,000 tonne POE unit at its refinery in Maoming.

Sinopec’s investment is an attempt to snatch back market share from the private players that have entered the sector since 2021, according to Ms Teng Xiaofang, an analyst at industry consultant SCI99. It is also notable, given the capacity cap of one billion tonnes a year imposed in October on China’s refining industry, another sign that Beijing is calling time on the expansion of its most polluting industries as it seeks to meet its carbon goals.

Still, the materials remain niche in the context of China’s total demand for crude. Some 12 per cent of oil is used as a feedstock for petrochemicals. Ethylene is just one of many compounds produced, and only a fraction goes to making EVA.

But the margins are impressive. “EVA and POE are currently the most profitable products on ethylene lines,” said Ms Teng. The EVA margin has topped 5,000 yuan a tonne in 2023, whereas other downstream uses of ethylene are struggling to break even, she said. BLOOMBERG