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Another cycle! Oil prices rise above $80 again; the cost advantages of coal-based chemicals become evident once more. Author/Source: Huahua Network – Coal-based Chemicals. Date: 2018-05-18. Clicks: 10. Currently, the price of international crude oil futures is at $80 per barrel, which takes us back to the end of 2009 or the beginning of 2010, if I’m not mistaken. Today, the friends’ circles of those in the petrochemical industry are all commemorating the ’80s, in a very orderly manner. Regarding the consumption tax on refined oil: when the price per barrel exceeds $80, a deduction is applied to the processing profit margin, until the price of the refined oil is calculated on a zero-profit basis for processing. $80 per barrel: For coal-based polyolefin manufacturers, their cost advantage begins to become apparent compared to those using oil as a raw material. Changes in industry cycles – yet another cycle. ——Quiet Sunshine: Careful planning is needed for the development of coal chemical industry. In recent years, large coal enterprises have made significant progress in modern coal chemical demonstration projects. At the beginning of the new year, good news came from Shanxi Yangmei Group: in 2017, the group’s chemical industry ended a three-year streak of losses and achieved overall profitability, marking a positive start for the coal chemical industry. However, it is undeniable that modern coal chemical industry still faces various issues related to technology, economic viability, and environmental protection. Modern coal chemical industry offers a wide variety of products, with multiple technical approaches coexisting. In an uncertain policy environment and a complex market landscape, how to invest to generate returns and achieve transformation and upgrading is an important challenge for coal enterprises. I. The consumption tax on coal-to-oil production is too high; semi-finished paraffin is in demand. \"When oil prices are high, it’s possible to produce final products such as diesel and gasoline, but currently, a large portion of the coal-to-oil production carried out by Inner Mongolia Yitai Group Co., Ltd. (hereinafter referred to as ‘Yitai’) results in intermediate chemicals – paraffin.\" ”In Dongsheng District of Ordos City, a person familiar with Yitai Coal Chemicals told reporters that “Yitai’s 1.2 million tons per year fine chemicals project in Hangjin Banner is capable of producing around 900,000 tons of fischer-tropsch synthesized wax, with the amount of finished wax being around 700,000 tons.” ” “The main products include FTO products, coal-based synthetic waxes, and more than a dozen other fine chemical products. The consumption tax on coal-to-oil production is too high. Although Shenhua Ningxia Coal Industry Group Co., Ltd. has requested a reduction in this tax, there has been no resolution yet. At present, the 160,000-ton demonstration project run by Yitai produces these fine chemical products. ”The aforementioned person added. In fact, it’s not just Yitai; many leading companies in the coal-to-oil sector, including Shanxi Lu’an Mining (Group) Co., Ltd. (hereinafter referred to as “Shanxi Lu’an”) and Yankuang Group Co., Ltd. (hereinafter referred to as “Yankuang Group”), have turned to fine chemical products such as paraffin. The reason for this is the high consumption tax on coal-to-oil products, as well as their poor economic efficiency; therefore, it is necessary to develop such products in a way that allows for larger production scales and lower costs, so as to replace some of the conventional oil products. Data shows that the unit tax rate for consumption taxes on gasoline, naphtha, solvent oil, and lubricants is 1.52 yuan per liter, while the unit tax rate for consumption taxes on diesel, aviation kerosene, and fuel oil is 1.2 yuan per liter. For coal-to-oil projects, the consumption tax for each ton of diesel is around 1,411 yuan, while the consumption tax for each ton of naphtha is about 2,105 yuan. The total business taxes and surcharges amount to approximately 1,746 yuan per ton; consumption taxes alone account for nearly 30% of the total cost. In 2017, after consideration by **seven ministries and commissions, approval was given for a preferential policy of exempting coal-to-oil demonstration projects from consumption tax for 5 years; however, no official approval document has been issued to date. Coal-to-oil processes are divided into direct liquefaction and indirect liquefaction. The projects that are currently in operation mainly use indirect liquefaction, which is further divided into high-temperature Fischer-Tropsch and low-temperature Fischer-Tropsch processes; at present, Lu’an and Yitai primarily use the low-temperature Fischer-Tropsch process. However, due to technical limitations, low-temperature Fischer-Tropsch processes still primarily produce oils; even if waxes are produced, the amount generated is not significant. High-temperature Fischer-Tropsch is essentially moving in the direction of greater sophistication; on one hand, it results in products with higher added value, and on the other hand, it allows avoidance of high consumption taxes. However, for coal-derived oil products, what is their true direction in the long term? “First is to reduce costs; ultimately, it is still necessary to rely on one’s own competitiveness to capture the market. Second is the pursuit of high-end positioning, leveraging features that other products do not have to capture the high-end market. Third is differentiation: fully leveraging the advantages of one’s own products to enter differentiated markets. Of course, relevant policy support is also needed and necessary. ”Ruan Lijun, director of the Coal Chemicals Division of the China Coal Processing and Utilization Association, said in response to reporters. II. Coal-to-gas conversion can address the gas shortage, but it is costly and results in low production. There has always been a deficit of natural gas in the country, and its reliance on imported natural gas is increasing; against the backdrop of the shift from coal to gas, this gap in natural gas supply continues to widen. Will this bring new opportunities for the development of coal-to-gas technology? “Coal-to-natural gas is part of unconventional natural gas; it constitutes an important component of China’s natural gas production and represents an effective way to address shortages of gas supplies. However, due to the current inversion between costs and prices, it requires support from relevant local policies. At the same time, the layout takes into account nearby markets as a whole, rather than just nearby resources. ”Ruan Lijun analyzed and believed. Similar to coal-to-oil projects, constrained by natural gas price regulations and persistently high coal prices, despite the great potential for the development of natural gas, coal-to-gas projects remain costly, and achieving profitability remains a significant challenge. Ruan Lijun believes that there are three reasons why coal-to-gas projects are facing difficulties: first, these projects have not reached their designed production capacities, and the actual output is even lower. Of the 4 coal-to-gas projects that have been completed, aside from Xintian, only the first phase of construction was finished for the rest. However, some basic facilities and projects were completed ahead of the main construction work. Furthermore, the actual output is even lower, with the production load rate rarely exceeding 50%. Second, the cost is higher than the gas price, resulting in a cost inversion. After **multiple price adjustments, the total cost of coal-derived gas is now significantly higher than the gate price of natural gas. Third, enterprises lack market influence. Coal-to-natural gas is different from coal-based chemicals, as it can be sold in the market. Coal-to-gas production must be fed into the pipeline network, which means that both output and price are subject to restrictions, and one cannot decide on them independently. During the interview, the reporter learned that the development of coal-to-gas technology still requires strong policy support; otherwise, it is difficult to achieve genuine progress under the existing conditions of the domestic oil and gas market. If coal-to-gas projects continue at the current pace, it will mean an increasing level of losses; some of these companies are already considering a shift to other activities, such as the production of olefins or ethylene glycol. The main component of coal gas is methane, with some tar or a small amount of other products produced as by-products. III. Transformation toward refined coal chemical industries: While the shift to oil production from coal was driven by economic considerations, the transformation of industries such as coal-based olefins and ethylene glycol is more determined by market factors. There is a wide variety of high-value coal chemical products, and the market conditions for different products vary. Some of these coal chemical products face challenges such as overcapacity, limited market size, and immature technology. By the end of 2015, China’s production capacity for coal-to-oil, coal-to-natural gas, and coal-to-olefins (including methanol-to-olefins) was 2.54 million tons per year, 3.1 billion cubic meters per year, and 8.62 million tons per year, respectively. The actual production volumes in 2015 were 1.15 million tons, 1.88 billion cubic meters, and 6.48 million tons, respectively. As of August 2017, 28 coal/methanol-based olefin production projects in China had been put into operation or successfully tested, with a total olefin production capacity of 12.9 million tons per year. However, in most current coal-to-olefins projects, the end products are polyethylene and polypropylene, and structural contradictions related to low-grade polyolefins are becoming apparent. Currently, coal-based polyolefin manufacturers are actively developing specialized materials, adhering to a strategy focused on differentiation and higher performance. In terms of moving toward higher-end or more sophisticated products, whether the coal chemical industry can succeed in its transformation is also closely related to the overall conditions of the industry. For example, the slow pace of replacing imported high-end polyethylene is not solely a problem related to coal-based chemical industries; it is also connected to domestic refining agents, catalysts, petrochemical technologies, and research and development efforts. There are many successful examples of the refined development of traditional coal chemical industries, but the focus of modern coal chemical industry during the 13th Five-Year Plan period is still on demonstration and upgrading; at present, refined development mainly takes place at the design and planning level. “The challenges faced by coal-based products mainly relate to technology and environmental protection, etc. With increased investment and technological progress, these products are becoming more technologically advanced, their environmental impact is decreasing, and the relevant standards are continually improving. Future new challenges may arise from technological breakthroughs and industrial applications in new energy. ”Ruan Lijun pointed out. IV. Inevitable environmental pressures Environmental protection has always been an issue that cannot be ignored in the development of coal chemical industry. For a long time, high water consumption and the generation of waste materials such as wastewater, exhaust gas, and solid waste have been points of criticism against this industry. Most wastewater treatment processes for modern coal chemical projects employ a near-zero discharge approach that includes \"pre-treatment + biological treatment + membrane concentration of wastewater + evaporation crystallization\". The clear water obtained after membrane concentration is reused, while the concentrated saline water is sent to evaporation ponds for natural evaporation or to evaporation crystallizers to enable the reduction and recovery of wastewater volume. With the implementation of new environmental protection laws as well as special action plans aimed at addressing air pollution, water pollution, and soil pollution, the pollution control requirements for the coal deep-processing industry will become stricter, making it more difficult for such projects to obtain access to water, energy, and meet various environmental standards. In the course of its development, modern coal chemical industry is also seeing changes in areas such as water consumption and wastewater treatment in order to meet environmental protection requirements. “Faced with environmental protection pressures, the industry has been actively investing and making efforts to address these issues, and significant progress and achievements have already been made. ”Ruan Lijun told the reporters. On December 22, 2015, the Ministry of Environmental Protection issued the \"Environmental Access Requirements for Modern Coal Chemical Industry Projects (Trial)\“. This document stipulates that in areas where there are no suitable water bodies for wastewater discharge, effective measures must be taken to handle highly saline wastewater, in order to prevent contamination of groundwater, air, soil, and other environments. At the same time, the location selection for evaporation ponds, drying ponds, oxidation ponds, and temporary storage ponds, as well as measures for preventing groundwater contamination and for monitoring, should also comply with the \"Standards for Contamination Control of Hazardous Waste Landfills\" (GB 18598), in order to prevent pollution of groundwater. Under increasingly stringent environmental regulations, many coal chemical projects and those currently under application for **departmental approval use evaporation crystallization technology to treat high-concentration brine. In terms of water consumption, taking coal-to-oil production as an example, it originally required 10 tons of water to produce 1 ton of oil through direct coal liquefaction. However, as a result of ongoing improvements, by 2016 the water consumption per ton of oil produced in Shenhua Group’s (now **Energy Investment Group**) Ordos coal-to-oil project had dropped from 10 tons at the time of design to around 5.8 tons; at its best, it was less than 5 tons per ton of oil produced. In addition, our country has committed to reaching a peak in carbon dioxide emissions around 2030 and strives to achieve this as soon as possible; the industry involved in the deep processing of coal is also under pressure to reduce carbon emissions. A study published by the international environmental organization Greenpeace, titled \"Estimation of Carbon Emissions from China’s Coal Chemical Industry during the 13th Five-Year Plan Period,\" shows that industrial activities accounted for over 70% of China’s total carbon emissions in 2015; among these, the carbon emissions generated by China’s coal chemical products made up 13% of China’s total industrial emissions. The predicted carbon emission levels for the coal chemical industry by the end of the 13th Five-Year Plan period under the planning scenario, extreme scenario, and forecast scenario are 301 million tons, 409 million tons, and 792 million tons respectively. V. In the future, coal chemical industry projects require large investments, and it is difficult to increase profit levels; many such projects in China have found themselves in a difficult situation. In this regard, Zhai Hong, Secretary of the Party Committee and Chairman of Yangmei Group, believes that to advance the coal energy revolution and expand the coal value chain, it is necessary to actively develop modern coal chemical industries based on clean conversion. The rapid development of coal chemical industry has laid a solid foundation for the clean and efficient utilization of coal, playing an important role in promoting the transformation and upgrading of the coal industry. Sun Qiwen, director of the **Key Laboratory of Coal Liquefaction and Coal Chemicals, wrote that, taking into account China’s resource characteristics and through technological innovation, China’s modern coal chemical industry makes full use of coal resources to produce a wide range of clean fuels and chemicals, which can complement those produced through petroleum-based methods. In fact, the 13th Five-Year Plan period and the longer time ahead will be a crucial stage for the upgrading and demonstration of China’s modern coal chemical industry. Industry experts believe that coal chemical industry is a development direction suitable for China’s national conditions, and its growth prospects will further expand as coal continues to play a dominant role in China’s energy consumption. Li Shousheng, president of the China Petroleum and Chemical Industry Federation, pointed out at a forum recently that the modern coal chemical industry still faces various issues such as constraints related to water resources and environmental protection, the need for optimization and improvement of production processes and technology integration, as well as product homogenization. If China’s modern coal chemical industry is to find a way to survive, it must change its development model. Recently, 12 departments including the **Development and Reform Commission** and the **Energy Bureau** issued the \"Opinions on Further Promoting the Merger, Reorganization, Transformation, and Upgrading of Coal Enterprises\", which call for coal and coal chemical enterprises to carry out mergers and reorganizations based on market demands, to develop modern coal chemistry in an orderly manner, to facilitate the on-site conversion of coal, and to produce products with high technological content and high added value. Hu Qianlin, Deputy Secretary-General of the China Petroleum and Chemical Industry Federation and Secretary-General of the Coal Chemicals Committee, pointed out that high-end development and high added value are the key directions for the modern coal chemicals industry during the 13th Five-Year Plan period; coal chemicals enterprises should actively pursue high-end, differentiated, and distinctive approaches in the design and application of downstream products.