HomeCompany newsWankai's Future-Proof Investment: Pioneering Natural Gas-Based MEG for Sustainability

Wankai's Future-Proof Investment: Pioneering Natural Gas-Based MEG for Sustainability

MEG (MEG) is a pivotal raw material in the production of polyester chips, exerting a substantial influence on market pricing. As global demand for polyethylene terephthalate (PET) chips intensifies, the role of MEG and the volatility of its prices have come under sharp focus. This paper delves into the critical role of MEG, its impact on market dynamics, and the strategic responses of manufacturers to the challenges posed.

1. The Core Role of MEG in the Polyester Chip Industry

1.1 The Key Role of MEG in Polyester Chip Production

MEG (EG) serves as a core raw material in the production of polyester chips, playing a crucial role. This colorless, odorless, and sweet-tasting liquid compound reacts with purified terephthalic acid (PTA) through an ester exchange reaction during the chip manufacturing process, forming bis(2-hydroxyethyl) terephthalate (BHET). BHET then undergoes further polymerization to produce PET, which is the primary component of polyester chips.

1.2 The Impact of MEG Quality on PET Chip Quality

The quality of MEG directly determines the quality of the final polyester chips. Manufacturers must strictly control the quality indicators of MEG to ensure the quality of PET. For instance, the purity of MEG significantly affects the mechanical and chemical properties of PET. To produce high-quality PET, the purity of MEG needs to be above 99.99%. Additionally, controlling the moisture content is crucial as moisture not only affects the efficiency of the polymerization reaction but also influences the molecular weight and performance of PET.

1.3 The Correlation Between MEG Cost and PET Prices

The market supply and demand for MEG, as well as its cost, have a significant impact on polyester chip prices, given that raw material costs account for over 70% of the production costs. From 2014 to 2023, the correlation coefficient between global polyester chip prices and raw material costs reached as high as 0.94, highlighting the significant impact of raw material prices on the market. The calculation formula for raw material costs is: Raw Material Cost = 0.855 × PTA Price + 0.335 × MEG Price. This formula indicates that although the proportion of MEG (MEG) in the cost is less than that of PTA, its price fluctuations still have a significant impact on the cost of polyester chips.

2. Wankai's MEG Project: Strategic Layout and Visionary Investment 

2.1 Project Overview

The project aims to expand the company's bottle-grade PET chip industry chain, particularly by achieving self-sufficiency in the production of the key raw material, MEG, in order to reduce costs and enhance its overall competitiveness and sustainable development capabilities within the polyester chip industry.

With the capacity of its bottle-grade polyester chips (PET) reaching 3 million tons, Wankai New Materials Co., Ltd. has seen a corresponding increase in demand for its primary raw material, MEG (MEG). To meet this growing demand and optimize its supply chain, Wankai initiated an investment on February 15, 2023, in the construction of Sichuan Zhengdakai New Material Co., Ltd., launching the "Annual Production of 1.2 Million Tons of MEG and 100,000 Tons of Electronic Grade DMC New Material Project."

The project is divided into two phases: the first phase involves the construction of an annual production capacity of 600,000 tons of polyester-grade MEG; the second phase will add an additional annual production capacity of 600,000 tons of polyester-grade MEG and 100,000 tons of electronic-grade DMC. MEG is a crucial raw material for manufacturing products such as polyester fibers and antifreeze, while electronic-grade DMC is primarily used as an electrolyte in new energy batteries.

Currently, the construction of the first phase of the project has commenced, including the establishment of a 200,000-ton/year synthetic ammonia unit, and has progressed to a more critical second-stage construction phase. 

2.2 Natural Gas-Based EG Production: Innovation and Sustainability

The most traditional method for MEG production relies on oil, the supply and demand dynamics of which are complex and variable, influenced by macroeconomic conditions, geopolitical factors, and particularly energy transition and supply security issues. 

The Zhengdakai project's natural gas-based production route represents a significant innovation with promising prospects in the field of MEG preparation. Especially compared to the oil-based route, the natural gas method for preparing MEG has unique sustainability advantages. 

Firstly, the project is located in an area rich in natural gas resources, where the utilization of natural gas is well-developed and less costly. Moreover, natural gas, as a clean energy source, provides a rich production feedstock for MEG.

In terms of economic benefits, the process for preparing MEG from natural gas is relatively simple and efficient. The natural gas is compressed and desulfurized, then subjected to a non-catalytic partial oxidation (POX) technology to produce synthesis gas, which undergoes a series of treatment steps to ultimately produce MEG. This relatively shorter process flow helps to reduce costs and improve economic returns. Additionally, in the process of preparing MEG from natural gas, DMC (dimethyl carbonate) is an important intermediate, which also serves as an environmentally friendly solvent widely used in the new energy sector. Consequently, the project's co-production of 100,000 tons of DMC is a crucial part of achieving efficient utilization of the facility.

From an environmental perspective, natural gas, as a clean energy source, offers a more environmentally friendly process for MEG production. Compared to traditional coal chemical routes, the natural gas to MEG process can significantly reduce greenhouse gas emissions, cut nitrogen oxide emissions by over 80%, and reduce particulate matter emissions by over 90%. Furthermore, the natural gas route for MEG is also more resource-efficient, with a conversion rate of over 90%.

2.3 Strategic Forward-Looking Industry Development: Building the Upper Stream of the Polyester Chip Industry Chain

The Chinese MEG market has long suffered from a supply shortage, posing significant challenges for polyester chip manufacturing companies. Data indicates that in 2015, China's MEG import volume reached a high of 14.5 million tons, accounting for 70.7% of total consumption. Although production capacity has increased subsequently, the reliance on imports remains high, with the import volume still accounting for 35% in 2023.

This imbalance between supply and demand not only leads to sharp fluctuations in MEG prices—the price of MEG in China rose from around CNY 5,000 per ton(≈$700) in 2015 to around CNY 9,000(≈$1260) per ton in 2023—but also directly impacts the production costs of downstream PET chips manufacturers. From 2015 to 2023, the production cost of polyester chips increased by about 30%.

In response to industry challenges, forward-thinking and innovative companies have started to actively expand into the upstream of the industry chain. Wankai is a prime example. By acquiring Zhengdakai, Wankai has established an industrial platform that accelerates its layout in the upstream raw material business for PET chips. 

Specifically, the company's investment in the construction of a 1.2 million-ton MEG joint production project, which also produces 10,0000 tons of DMC, represents not only a strategic integration of the polyester industry chain but also a significant elevation of the company's position within the industry chain. According to the company's plans, starting from 2024, Wankai will purchase 1.02 million tons of MEG annually, a scale that is sufficient to meet the company's internal needs. 

With a forward-looking perspective, Wankai is developing a more comprehensive polyester industry chain. This will bolster its ability to mitigate market risks, amplify its overall competitive advantages and market influence within the polyester industry, as well as cultivate stronger partnerships with downstream PET packaging manufacturers.

3. Conclusion

Overall, Wankai's strategic investment in this ambitious project, focusing on sustainable and innovative production of MEG, aims to pursue a comprehensive upstream and downstream integration strategy and bolster its competitive position in the polyester industry. Crucially, Wankai hopes that this strategic move will enable it to better serve the needs of downstream PET packaging manufacturers, thereby creating more opportunities for collaboration and mutually beneficial partnerships. 

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