Will coal-to-ethanol become the second \"coal-to-olefins\"?

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Since the second half of 2014, the main price of crude oil has remained at a low level between $45 and $55 per ton, which has led to a **decline in the economic viability of China’s five major coal-based chemical products: coal-to-oil, coal-to-olefins, coal-to-natural gas, coal-to-ethylene glycol, and coal-to-aromatics**. Especially for coal-to-natural gas projects, since their pricing formula is indirectly linked to crude oil prices, the highest price at the distribution stations in Xinjiang is **lower than the cost of producing coal-to-natural gas, even though Xinjiang has the lowest coal prices in the country. Faced with the dire situation of modern coal chemical industry, coal-based ethanol is gradually becoming a hot topic of discussion in the industry. Will it become the “sixth pillar” of modern coal chemical industry in the future, serving as a second source of coal-based olefins for large-scale development? To this end, the \"Zhongxun Chemical Industry Information Research Institute\" conducted a comprehensive, in-depth, and systematic study of the industry, resulting in the \"2017 Coal-to-Ethanol Market Research Report\". The report mainly discusses the topic from the following 9 major aspects: 1. The current development status of fuel ethanol abroad – are there any aspects that China can learn from? 2. The current status of the production and sales of biofuel ethanol in China; can coal-based ethanol serve as a reference? 3. The current status of ethanol production via synthetic methods in China – is the technology mature? Are there any access restrictions? 4. Development bottlenecks of industrial ethanol – are there any prospects for the future? 5. The theoretical demand volume for fuel ethanol – can this volume represent the actual demand? Where are the sales restrictions? 6. The pricing model for biofuel ethanol is **regulated and linked to gasoline; what about ethanol produced from coal? 7. Economic analysis of synthetic and biological ethanol at low oil prices? 8. What are the impacts or potential risks of importing low-cost fuel ethanol on China? 9. Is China suitable for large-scale development of coal-to-ethanol production? We reviewed the report on coal-to-ethanol prepared by the \"Zhongxun Chemical Information Research Institute\" and have extracted some of the information as follows: According to its \"2017 Coal-to-Ethanol Market Research Report\", some key points are as follows: First, in terms of demand, there are currently two main areas where ethanol is used: industrial ethanol, which is utilized in the production of chemical products ； One is fuel ethanol, used in ethanol-blended gasoline for vehicles. The current and future demand for industrial ethanol is on the order of 1 million tons, and it is primarily used to produce ethyl acetate. At the same time, some enterprises producing ethyl acetate have also secured ethanol as a raw material, reducing the need to purchase ethanol from external sources. Overall, coal-to-ethanol differs from coal-to-oil. The main product of the indirect coal-to-oil process is diesel, which can account for around 60% of the output; fine chemical products can also be produced depending on the actual circumstances. In contrast, due to the limitations in the production of industrial ethanol, coal-to-ethanol applications rely on fuel ethanol, that is, ethanol-blended gasoline, which has a larger demand market. According to statistics, China’s gasoline production in 2016 was 129.32 million tons. Based on the requirement of a 10% addition, the demand for fuel ethanol was 12.932 million tons. Taking into account the production volume of ethanol produced through biological methods, the demand for coal-based fuel ethanol in the country has reached its limit of around 10 million tons. Taking Shaanxi as an example, according to official Shaanxi data: in 2016, the Shaanxi branches of CNPC and Sinopec sold a total of 6.0515 million tons of refined oil to the Shaanxi market, while the Yanchang Petroleum Group Company sold 10.163 million tons of refined oil. At present, Yanchang Petroleum already has a coal-to-ethanol production facility with a capacity of 100,000 tons. If ethanol were to enter the gasoline market, and assuming that 50% of Yanchang Petroleum’s total output of 10.163 million tons is used for gasoline production, then around 500,000 tons of fuel ethanol would be needed. Self-sufficiency in fuel ethanol is therefore an emerging trend. Currently, Yanchang Petroleum Group has completed the feasibility study for a 500,000-ton industrial facility and has begun the design of the process package. Facing the 6.0515 million tons of refined oil produced by Sinopec and CNPC, and assuming a 50% proportion for gasoline, the gasoline sales volume is approximately 3 million tons; accordingly, about 300,000 tons of fuel ethanol are needed. In other words, in the Shaanxi region, a production capacity of 300,000 tons of coal-based ethanol is sufficient to meet the demands of the local market. Therefore, when launching a coal-to-ethanol project, it is essential to take into account the market demand in the local area or in the surrounding regions that it can serve. Based on the available demand landscape, assess whether your ethanol costs and scale are suitable for the future development of your company. Secondly, from a sales perspective, China currently does not have synthetic fuel ethanol; all fuel ethanol available on the market comes from biological sources, namely grain ethanol, non-grain ethanol (cassava), and cellulose ethanol. The initial purpose of developing bio-ethanol was to process aged grain; initially, certain policy subsidies were provided, and it was allowed to be sold through the systems of Sinopec and CNPC. Coal-to-ethanol production has not yet been scaled up in China, so there are currently no sales policies for fuel ethanol. For refined oil, a **special product that is subject to strict controls**, the lack of policy support means that any attempt to implement it will lead to its abandonment right away. Therefore, coal-based ethanol products still need to wait for **clearer policies. If synthetic fuel ethanol can benefit from the sales channel policies applicable to bio-based ethanol, the sales channels for coal-based ethanol will be smooth, thereby **reducing risks**. Additionally, at present, fuel ethanol is sold only in a restricted manner across the whole or parts of 12 provinces and municipalities nationwide, and it has not yet been made available throughout the country. This is also a factor that needs to be considered. Third, regarding the pricing model for fuel ethanol, **according to the regulations**, the price of biofuel ethanol is calculated as gasoline of the same grade multiplied by 0.9111. Gasoline prices vary from province to province, and accordingly, the prices of fuel ethanol also differ significantly. Taking Shaanxi as an example again, during the period of low oil prices in recent years, the prevailing tax-inclusive price of fuel ethanol in that region was between 5,000 and 6,000 yuan per ton. Based on a 17% value-added tax rate, the tax-exclusive price corresponded to 4,274–5,128 yuan per ton. This is also the lower range that can be used as a reference for launching coal-to-ethanol projects. Following the high prices of crude oil, the price of fuel ethanol rose as well, reducing risks. http://img.yf116.cn/image/img/20170831/10334379841.jpg Fourth, the cost and selling price of biofuel ethanol: Taking COFCO Biochemicals as an example, the figures shown in its annual report represent the operating costs. It can be seen that the price of fuel ethanol decreases as crude oil prices fall; the average tax-exclusive selling price in 2016 was only 5,827 yuan per ton, compared to 8,216 yuan per ton in 2013 when oil prices were high. The production cost of ethanol via biological methods is primarily influenced by the prices of food crops, non-food crops, and cellulose, and is not related to crude oil prices. Therefore, the levels of crude oil and fuel ethanol prices directly determine the profitability of ethanol producers. http://img.yf116.cn/image/img/20170831/103411380515.jpg Based on the views presented in the report, it is analyzed that there are two key reasons for launching coal-to-ethanol projects: first, there is demand for industrial ethanol and fuel ethanol in the area where the project is located or in the surrounding regions ； Second, the price of fuel ethanol is calculated based on the historical prices of local gasoline, the cost of ethanol produced from coal is estimated, and its profitability is analyzed. Secondly, it is crucial to determine whether fuel ethanol will be subject to mandatory and restricted sales nationwide in the future ； It is also crucial to wait and see **how policies will be clarified regarding whether coal-based ethanol will be included. After all, from an environmental perspective, ethanol-blended gasoline represents the **desired direction for development; whereas from a practical usage standpoint, it is the drivers who decide whether to use it. The poor performance of ethanol-blended gasoline has always been a point of criticism within the industry. Without **compulsory push or internal demand, it is difficult to get the market moving. Third, the biggest difference between coal-based ethanol and coal-based olefins is that olefins are marketable products; industrial ethanol can be sold freely, whereas fuel ethanol must be blended into gasoline before it can be sold, which results in various restrictions on pricing and distribution channels. This is also the uniqueness of coal-based ethanol products. Fourth, compared with biofuel ethanol, the cost of coal-based ethanol remains relatively competitive. However, compared to imported fuel ethanol, if **tariff policies are relaxed in the future, it will face significant market disruptions. Therefore, it remains to be seen whether coal-to-ethanol can become the second \"coal-to-olefins\"!