The problems revealed by China’s coal chemical industry demonstration projects

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Problems Revealed by China’s Coal Chemicals Demonstration Projects Author/Source: Date: 2017-06-12 Clicks: 15 Chen Danjiang In accordance with the requirements of the \"13th Five-Year Plan\" for the development of modern coal chemicals, project demonstration remains a key task for this sector in the coming period. In a sense, the so-called project demonstration is actually a process of trial and error. So far, what problems that require improvement have modern coal chemical industries shown? After interviewing some industry experts and project managers, the author identified several key aspects. First, the design scheme is not optimized. As for the coal chemical projects that have been built and put into operation in China, the lack of competitiveness in many of these projects is due to issues in their design. There are many reasons for this; these include issues such as insufficient design capabilities and experience on the part of the design firms, as well as suboptimal design solutions. On the owner’s end, there is a desire to see things completed quickly, ignoring the standard construction timeline for chemical projects, which involves 5 years of design work, 3 years of construction, and then operation once completed. As a result, the owners press the design firms to produce drawings as soon as possible, which leads to carelessness in the design process. This in turn results in frequent design changes, and it is quite common for projects to be demolished and rebuilt over and over again. The bigger problem is that due to suboptimal and inadequate design, production becomes unstable after the project is completed, with astonishing waste of energy and materials, making it difficult to control the cost of the products. For example, system configuration. Modern coal chemical industries are large in scale, and most adopt multi-series configuration schemes. Moreover, the system optimization for some projects has been insufficiently considered, and the site layout and utility plans are not optimized enough. For example, the long distances within the factory area were not taken into sufficient consideration; traditional centralized setups were still used for utility systems and auxiliary systems, which resulted in insufficient supply at the end points and high points, as well as difficulties in returning the flow back. Another example is the energy consumption associated with system transportation; although the concentration of a certain substance is low, its total amount can still be significant. If balance is not taken into account, processing facilities will be lacking during production, or considerable amounts of energy will be wasted ； Another example is the idealization of the scale of upstream and downstream equipment, which results in equipment capacity that is either too low or too high; in particular, when the capacity is too low, the equipment lacks the ability to cope with variations in raw materials and fluctuations in production load. Another example is the layout of power boilers and air separation units. To reduce heat loss and shorten the length of high-pressure steam pipelines, it is generally advisable to place the air compressors as close as possible to the boilers. Since the boilers are usually located downwind, the air separation units are also placed downwind or slightly downwind of them, which results in excessive levels of carbon dioxide and hydrocarbons in the air drawn in by these units… Modern coal chemical projects involve investments in the range of tens or even hundreds of billions of yuan; any significant or numerous design errors can lead to incalculable losses. Second, investment is difficult to control. Coal chemical projects are capital-intensive industries. A coal-to-natural gas project with an annual production capacity of 4 billion cubic meters requires an initial investment of around 36 billion yuan; the interest payments to financial institutions alone amount to over 2 billion yuan per year. If there is even a slight lapse in the construction process, a 10% overrun of the budget would amount to 3.6 billion yuan, and the annual financial interest costs would increase by more than 200 million yuan. In fact, for coal chemical projects, whether the investment costs are well controlled often becomes the key to the success or failure of the project. For example, for coal-to-olefins projects with a capacity of 600,000 tons each, some companies keep their investment at around 17 billion yuan; such projects prove successful after going into operation, and they are still able to generate profits even in an environment where product prices are currently low ； However, there are also projects whose total investment approaches 30 billion yuan, resulting in excessive financial costs; the products cannot cover these costs, and such projects incur losses as soon as they begin operations. The author became aware of such a case. Since its operation began, a coal-based fertilizer factory in a certain area has achieved the designed production volume, yet it continues to incur losses year after year. Recently, its parent company required it to prepare a plan to turn losses into profits over the next 5 years, but despite every effort made, the company was unable to come up with a plan that would enable it to be profitable. The fundamental reason is the high investment costs incurred during project construction, which results in persistently high financial costs. Coupled with the fact that fertilizers are products with severe overcapacity and thus cannot see rising prices, these combined factors make it difficult for companies to achieve profitability no matter how hard they try. There are many other similar coal chemical enterprises as well. People call such projects hard-loss projects. Third, the “coal at the beginning and water at the end” problem remains difficult to resolve. The so-called coal head problem refers to the fact that the gasification technology used in some coal chemical projects has not yet been fully perfected. It is understood that many coal chemical projects already in operation in China are grappling with problems related to the “coal feedstock”, and are still striving to find solutions. For example, in some projects, the gasifier does not match perfectly with the type of coal available at the project site, resulting in an unstable and incomplete gasification process. As a consequence, the output of syngas is insufficient to meet the needs of subsequent production processes, preventing the project’s capacity from being fully utilized. The two first coal-to-gas projects in our country to be built and put into operation – Keqi Coal-to-Gas and HuiNeng Coal-to-Gas – encountered problems with the lining inside the gasification furnaces during operation, as they did not fully understand the characteristics of the coal used; this led to shutdowns for maintenance. In some projects, since the gasification furnace can only handle lump coal, a large amount of fine coal generated during production cannot be processed, which becomes a bottleneck restricting production ； In some projects, the insufficient concentration of water-coal slurry affects the production volume of syngas in the gasifier ； More problems arise from a mismatch between the gasification furnace and the type of coal, which leads to instability in the coal feed and directly affects production. The so-called water tail problem refers to the wastewater treatment for a project. **When approving coal chemical projects, it is required that these projects achieve zero wastewater discharge. However, in reality, due to the large volume of wastewater generated by such projects, it is difficult to achieve true zero wastewater discharge using existing wastewater treatment technologies. All coal chemical projects required to achieve zero emissions use evaporation ponds without exception to store the wastewater generated during production as well as the wastewater that cannot be fully treated. However, the contradiction between the limited capacity of the evaporation ponds and the unlimited wastewater generated during the project’s production process is difficult to resolve. Last year, a coal chemical project experienced a dam failure in its evaporation pond due to excessive accumulation of wastewater, resulting in a serious environmental incident that forced the project to shut down for nearly a year for rectification. Fourth, poor management. These days, many companies are carrying out benchmarking activities in order to improve their management. Some companies use certain technical indicators of more advanced firms, such as product energy consumption, material consumption, and costs, as benchmarks. Yet they are unable to improve these technical indicators or reduce their consumption levels, without being able to identify the reasons for this. In the author’s observation, one of the key reasons is the failure to grasp the fundamental aspect of excellent corporate management mechanisms. For example, some state-owned enterprises have overly long management chains and too many management levels, which results in very low efficiency in handling tasks and high investment costs. The management structures of some large domestic coal chemical enterprises have as many as 4 or 5 levels. For any matter, from seeking approval to making a decision, from formulating a plan to carrying it out, the process takes a long time; by the time a decision is made by those in charge, it’s often too late. In a rapidly changing market, such a management style with strong elements of a planned economy has no future if it is not changed. In reality, similar projects yield vastly different results in terms of operation due to varying management approaches. For example, a private coal chemical enterprise launched a coal chemical project identical to one carried out by a large state-owned enterprise. However, this private enterprise has only two levels of management, and its management team, as the entity responsible for operating the project, is highly efficient – its size being less than half that of similar state-owned enterprises – resulting in a relatively streamlined decision-making process. The private enterprise purchases spare parts and accessories as needed during the production process; its inventory value amounts to less than 3 million yuan. And similar state-owned enterprises have inventory amounts of hundreds of millions of yuan alone. This private coal chemical enterprise not only has investment costs that are **lower than those of state-owned enterprises, but its operating costs are also the best among similar companies; as a result, it has become one of the benchmark companies for reference in the same industry, especially for state-owned enterprises in this sector. The management model determines the effectiveness of a company in saving energy and reducing consumption. A coal-to-olefins plant with an annual production capacity of 600,000 tons requires nearly 20 million tons of raw coal and fuel coal per year; as supply and demand fluctuate, savings or waste in coal usage can amount to hundreds of millions of yuan. Coal chemical enterprises generate a large amount of by-products during the production process; if utilized properly through quality improvement and conversion, these by-products can yield significant benefits. Although international oil prices are currently low and the prices of coal-based chemical products are cheap, under the same market conditions, some coal-to-olefins companies are able to turn a profit. A careful analysis of the factors that enable these profitable coal chemical enterprises to succeed shows that they have done an excellent job across the entire value chain – for example, by integrating coal, electricity, and chemical production to create a comprehensive value chain, and by utilizing by-products and waste in a circular economy approach, thereby gaining a cost advantage. Trial and error in demonstration projects is not the goal; exposing the problems of such projects is also not the goal. What matters is making corrections and avoiding such problems – the aim is to prevent these issues from being replicated and carried over to subsequent coal conversion projects.