Coal supply shortages emerge: Will the coal chemical industry face a crisis of shortage?

Thread Content

As is well known, our country is rich in coal resources; \"abundant in coal, scarce in oil, and limited in gas\" are the characteristics of our country’s energy resources. In recent years, **in consideration of energy strategic security and the development of an ecological civilization, efforts have been intensified to make more efficient use of coal, with a focus on the development of modern coal chemical industries. However, in a few regions and certain projects, concerns have emerged during the development of coal chemical industries regarding coal resources that are considered to be the least likely to present problems, which requires close attention. In the author’s observation, the conflict between coal chemical industry development and limited coal resources has already emerged in certain areas of our country. Taking the Mengdong region as an example, there are currently a total of **5 brown coal mines in this area**, including **4 mines that have been approved for operation** and one mine that has not been approved but still has the capacity to produce coal. The capacity of the 4 approved coal mines is as follows: Xi San Mine at 20 million tons, Wulantuga Mine at 4 million tons, Dong Er Mine at 10 million tons, and GCL Mine at 1.8 million tons ； 10 million tons from West Mine No. 2, which operates without approval but has actual mining capacity. The approved production capacity of these mines amounts to 35.8 million tons of lignite, with a total capacity of 45.8 million tons. In 2016, the actual production volume in the Xilinhot area was less than 35.2 million tons. Due to factors such as collapses during mining at Donger No. 2 Mine and a high stripping ratio, there has been virtually no output in the past two years, and there will not be much output for a considerable period of time to come as well. In the coming period, the actual production volume in the Mengdong region will remain at around 35 million tons. Based on the current actual coal demand in the Mengdong region, a large thermal power plant requires 15 million tons of coal per year, while other industrial projects consume 3 million tons; as a result, only around 17 million tons of coal remain for coal chemical projects. However, at present, two large-scale coal chemical projects have already been put into operation in the Mengdong region: one is a coal-to-olefins project with an annual production capacity of 460,000 tons, which requires approximately 8 million tons of coal per year ； A coal-to-natural gas project with a capacity of 4 billion cubic meters per year requires approximately 24.5 million tons of coal per year. Just for these two projects, 32.5 million tons of coal resources are required, which is almost equal to the total amount of coal from the currently approved coal mines in eastern Mongolia. Not only that, there is another reason for the shortage of lignite in the Mengdong region. The coal-to-natural gas process that was demonstrated in our country in the early stages used pressurized gasification of pulverized coal, and its characteristic is that the gasification furnace can only process coal pellets of a specific size. Due to its brittleness and tendency to pulverize, lignite has a very low rate of agglomeration. An expert did some calculations for the author: brown coal mines process brown coal into lump coal, which is then loaded onto trucks and sent to the project site. After going through processes such as unloading using dump trucks, conveyor belts, storage in coal yards, and screening before being fed into the furnace, the proportion of lump coal in this material is approximately 36%. In other words, generally speaking, when lignite is transported from coal mines to the sites where coal-to-gas projects are carried out, the yield of finished products is only around 36%; whereas if such projects operate at full capacity, they require approximately 17 million tons of lump coal per year. This means that for the normal operation of a coal-to-natural gas project with an annual production capacity of 4 billion cubic meters, around 50 million tons of raw coal are required to meet the project’s needs. In other words, the total approved production capacity of the existing coal mines in the Mengdong region is not sufficient to support a coal-to-natural gas project. The shortage of coal in this region has not yet become fully apparent because the production capacity of existing coal chemical projects is far from reaching their designed levels. To the author’s knowledge, before 2016, the production capacity generated by these two coal chemical projects in that region was around 20% of their designed capacity. Nevertheless, there was still a shortage of local coal supply. As far as the author knows, the two existing coal chemical projects in eastern Mongolia are already facing difficulties in securing a supply of coal. Due to the unreliable supply of local lignite and its quality not meeting the requirements for continuous and stable operation of gasification units, some projects resort to purchasing coal from farther areas such as Ordos, which results in high costs and significantly reduces the economic viability of these projects. At present, the shortage of coal for coal chemical industries in the Mengdong region is just beginning, and it is not an isolated case; similar problems are also emerging in other regions. For example, a large coal chemical project was built in a certain area of Liaoning, and the original design plan called for obtaining coal from the eastern part of Mongolia to meet the project’s needs. However, in reality, the Mengdong region is preoccupied with its own needs, and it is likely to be unable to meet the coal demand for coal chemical industries in the Liaoning region at that time. To the author’s knowledge, although about 90% of the first phase of this coal chemical project has been completed, it was forced to stop three years ago due to factors such as the unmet requirements regarding coal supply and the market, resulting in significant economic losses. In the author’s view, the main reasons for the shortage of coal used in coal chemical projects in certain areas are as follows: 3. First, some companies do not conduct thorough investigations into coal sources during the project feasibility stage. In order to get their coal chemical projects approved, some companies tend to use the coal reserves and potential production capacity in the location of the project as a basis for proceeding with it; they exaggerate the amount of coal resources available there, preferring to assume they do exist rather than believing they do not. For example, the basis for a company to undertake a coal chemical project is the locally approved lignite deposit, which contains hundreds of millions of tons of coal – amount sufficient, based on theoretical calculations, to meet the project’s needs for over a century. However, in reality, after the project was launched, this highly anticipated coal mine faced difficulties in mining, and its production capacity could not be fully utilized, which led to shortages of coal after the project began operations. During the feasibility study phase, some companies focus only on the overall picture and not on the details, assuming that as long as the project is built in an area rich in coal, there will be a sufficient supply of coal. What is not known is that coal-rich areas do not have coal everywhere. Even in areas with abundant coal, if too many projects are launched, it can lead to a shortage of coal in those specific areas. Such examples are not uncommon in reality. Therefore, when conducting feasibility studies for coal chemical projects, it is essential to conduct a thorough and realistic assessment of the coal supply sources. Not only should the coal demand over the next few years be taken into account, but also the availability of coal supply throughout the entire life cycle of the project. Otherwise, coal chemical plants that require hundreds of millions of yuan in investment might end up facing the dilemma of having nothing to process. Second, the approval of some projects did not take full account of the comprehensive balance of coal resources. The problem is below; the root cause is above. The imbalance between supply and demand for coal resources in some areas is directly related to China’s current project approval system. For example, approving coal mine projects, coal chemical projects, power generation projects, and other industrial projects is not a first-level ** authority, nor is it necessarily the responsibility of a single department. The approval departments operate independently, focusing on one thing at the expense of another, thus losing balance. In some places, **in order to launch more projects and boost GDP, coal mines are allowed to have multiple wives.** Some approval authorities do not have a complete understanding of the coal resources available in various regions, as well as the approved production capacity and actual production levels; they rely solely on the \"feasibility studies\" submitted by enterprises without conducting a thorough and comprehensive assessment of the local resources, which leads to errors in project approval. In some cases, even when approving projects, only the political and social significance is taken into consideration, without regard for the viability of the project. A large coal chemical project in a certain area was approved despite the fact that there is no coal in that region; it is said this was done for political reasons aimed at supporting the economic development of old industrial bases and cities with depleted resources. However, due to the lack of guaranteed coal resources in this area, the project was forced to stop operations after it was launched, creating a difficult situation from which it was hard to escape, with the huge investment at risk of being wasted. The list is endless. The administrative approval mechanism is also a major cause of the imbalance between coal chemical projects and coal resources. Third, the one-size-fits-all approach to capacity reduction has led to an artificial imbalance in coal resources in certain regions. At one point, the rapid expansion of coal mines across the country led to an overall surplus in China’s coal production, resulting in a supply exceeding demand in the coal market. As a result, prices remained low for a long time, and coal companies suffered heavy losses. To reverse this situation, **structural reforms on the coal supply side were introduced, with reducing coal production capacity as a key focus. Unfortunately, the remedy turned out to be worse than the problem. The one-size-fits-all approach to reducing coal production has artificially exacerbated coal shortages in certain areas. For example, the Mengdong region already faced a tight coal supply, but all coal mines were assigned targets to reduce production capacity, resulting in a significant drop in coal output. Some coal mines, although they had been in operation for a long time, did not have the approval of the relevant regulatory authorities; as a result, they were shut down completely during this capacity-reduction process, leaving the region without an important source of coal. After the approved production capacity was set for some coal mines, due to market demand and lax supervision in the past, as well as local protectionism, these mines tended to overmine, resulting in actual coal production levels that were much higher than the approved capacities. During the capacity reduction efforts, authorities not only enforced strict rules against overmining but also reduced the approved capacities further, which led to a significant drop in actual coal production in that region and exacerbated the shortage of coal resources there. In conclusion, the author believes that if relevant parties do not pay attention to the balance between coal chemical projects and coal resources, problems will inevitably arise on a larger scale in the future, with consequences that are impossible to estimate. According to the latest reports from relevant media, there are currently 70 coal-to-natural gas projects at various stages of development in China, with a total production capacity of over 200 billion cubic meters. These projects are also concentrated in a few coal-rich areas, and if all of them are completed, the annual coal consumption will exceed 1.3 billion tons. If we roughly estimate the amount of coal used in coal-to-oil, coal-to-olefins, and coal-to-ethylene glycol projects at various stages, the annual coal consumption for coal chemical industries in the future will be nearly 3 billion tons, which is almost equal to the total current annual coal consumption in China. If that is the case, a widespread imbalance between the supply and demand of coal chemicals and coal in the future is almost inevitable.