Chinese firm wins approval for $4bn plant to use US gas.

A large Chinese chemical producer has won regulatory approval to start building a 30 billion yuan ($4.2 billion) petrochemical complex in east China to process ethane from the US, a company official said on Thursday.

Zhejiang Satellite Petrochemical’s plant will be the second China-based petrochemical facility aiming to cash in on cheap and abundant US ethane unlocked by the shale revolution in North America, analysts said.

The approval from the Jiangsu provincial government in early August comes amid the Beijing-Washington trade war, which led to a tariff being imposed on US crude oil for the first time last week.

China imposed an extra 5 percent tariff on ethane last September, taking total import duties to 7 percent. Even so, ethane from US shale gas offers much fatter margins for producers of ethylene than conventional plants that process naphtha into ethylene, said Kelly Cui, senior analyst with Wood Mackenzie.

Last week, Singapore’s SP Chemicals started a 650,000 tons per year (tpy) ethylene plant in Taixing in Jiangsu province that partly processes US ethane supplied under a long-term agreement, according to local media and analysts.

This is the first entirely gas-based cracker to begin operating in China and also the first to import US ethane as a feedstock,” said Woodmac’s Cui.

Zhejiang Satellite will start construction in September on a 1.25 million tons per year (tpy) ethylene plant in Lianyungang in Jiangsu province, Ding Liping, an investor relations officer, told Reuters by phone.

This is the company’s phase-one investment for a total of 2.5 million tons per year ethylene production facilities that will process fully US ethane,” said Ding, adding that construction was expected to take about a year.

The company, headquartered in Jiaxing in east China’s Zhejiang province, will then begin an expansion program to double output to 2.5 million tpy, she said.

Zhejiang Satellite, with a market capitalization of 14 billion yuan ($1.97 billion), is China’s largest producer of acrylic acid, a chemical used in making paints and wrapping tapes, where demand has grown sharply due to e-commerce.

The plant is expected to receive its first ethane from US firm Energy Transfer Partners in the fourth quarter of 2020 under a supply agreement lasting more than 10 years, with annual supplies of about 3 million tons, said Ding.

Singapore’s SP Chemicals received a 50,000 ton ethane cargo last week at Taixing for the launch of its facility, according to Refinitiv shipping data.

British chemical firm INEOS is the supplier of US ethane to the Singapore company under a long-term deal with annual volume of around 450,000 tons, said Woodmac’s Cui.

Both SP Chemicals and INEOS declined to comment.

Zhejiang Satellite is one of more than a dozen Chinese companies that began looking in early 2018 at using US ethane to produce ethylene, amid a broader industry expansion to feed China’s hunger for petrochemicals.

However, it is the most advanced in pushing through investments, with heavy spending on terminals and tankers. 

Zhejiang Satellite and Energy Transfer also announced plans in March 2018 to set up a joint venture to build a new export terminal on the US Gulf Coast to export ethane, with a goal to start commercial service in late 2020. 

Zhejiang has also nearly completed an ethane-receiving terminal at Lianyungang, including three fully built storage tanks each sized 160,000 cubic meters, said Ding.

It has also ordered six Very Large Ethane Carriers (VLECs) to be built at shipyards in South Korea, with the first vessel due for delivery in the third quarter of 2020, she added.