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Gu Zongqin: The Pattern and Direction of Modern Coal Chemical Industry in China. Author/Source: Huahua Network – Coal Chemical Industry. Date: 2018-09-13. Clicks: 35. At the end of September, soaring prices of PX and PTA attracted the attention of many media outlets, including CCTV. The upward trend that began in mid-July has reached new highs in nearly 4 years. The underlying reasons include market factors such as rising international oil prices and the depreciation of the RMB, which lead to increased import costs; they also reflect the structural issue of China’s long-term reliance on imports for chemical products. Data shows that China’s self-sufficiency rate for ethylene is only around 50%, while that for PX is merely 43%. Due to China’s energy structure characterized by a lack of oil and gas, the high demand for chemical products in the country, as well as its high degree of dependence on imports, rank among the highest in the world. “\"If there isn’t enough oil, we can use coal as a substitute.\" To address the issue of self-sufficiency in chemical products, it is necessary to tap into the potential of coal; this constitutes the logical starting point for China’s efforts to develop modern coal chemistry and achieve comprehensive utilization of coal. To gain a comprehensive understanding of the current landscape and future development direction of China’s coal chemical industry, this magazine conducted an exclusive interview with Gu Zongqin, director of the Petroleum and Chemical Industry Planning Institute. He believes that coal chemistry holds great potential in China, but there are also a number of constraints and uncertainties. Only by understanding the current situation and making scientific and rational plans can the original goals of industrial development be achieved. Started late, achieved great results. Many people’s perception of coal chemical industry still remains at the traditional level of coking, calcium carbide, synthetic ammonia, etc. China has a long history of coal processing and utilization. Traditional coal chemical industries have made significant contributions to increasing the supply of products and meeting domestic market demands. However, due to factors such as aging facilities and outdated technology, the overall level of technology and equipment is low, resulting in high consumption of resources and energy, as well as significant shortcomings in terms of energy conservation and environmental protection. The concept of modern coal chemical industry as it is discussed today refers to a modern industry for processing and converting coal, using coal as the main raw material, with the primary goal of producing clean energy and chemical products. According to Gu Zongqin, modern coal chemical industry originated in the West**, but through the efforts of several generations, China has managed to overtake its counterparts by relying on technological research and development as well as practical engineering applications, achieving breakthroughs in various new areas of coal chemical technology. Technologies such as direct coal liquefaction, indirect coal liquefaction, coal gasification, coal-to-olefins, methanol-to-olefins, syngas-to-ethylene glycol, coal-to-aromatics, and coal-to-ethanol, which possess independent intellectual property rights, have all reached world-leading or advanced levels overall. At present, the production capacity of modern coal chemical industry in China is already quite substantial: by the end of 2017, China had 1 large-scale coal-to-oil project, 1 direct coal liquefaction facility, and 6 indirect coal liquefaction facilities, with a total capacity of 7.58 million tons ； More than 10 coal-to-olefins projects with capacities of 500,000 to 600,000 tons each have been built, resulting in a total capacity of 6.88 million tons ； There are over 10 methanol-to-olefins projects, with a total production capacity of 6.79 million tons; the combined olefins production capacity amounts to 12.67 million tons ； 4 coal-to-natural gas projects have been built, with a total capacity of 5.11 billion cubic meters. Industrial development relies on the autonomy of equipment. Gu Zongqin said that in terms of the degree of autonomy in equipment, China’s domestically developed technical equipment is widely used. The autonomy rate for major equipment and control systems such as large-scale water-coal slurry gasifiers and dry powder coal gasifiers with independent intellectual property rights, large air separation units capable of producing 100,000 cubic meters of oxygen per hour, large-scale hydrogenation liquefaction Fischer-Tropsch synthesis reactors, and large compressors all reaches around 90%. In terms of product applications, a large number of industries and equipment in China have achieved stable commercial operation, enabling the production of oils that are difficult to manufacture in conventional refineries. The ultra-clean gasoline and diesel, military fuels, high-density aviation kerosene, special rocket kerosene, as well as high-value chemicals produced through the direct liquefaction of coal have, to some extent, filled gaps in domestic supply, and hold great potential for use in the defense sector. Judging from the completed test flights of fighter jets, tests of rocket engines, and trials of armored vehicles, the performance of China’s directly liquefied coal-based fuels is excellent ； High-value chemicals produced through coal indirect liquefaction, such as low-aromatic solvent oils, high-melting-point Fischer-Tropsch waxes, and high-grade lubricant base oils, also possess a certain degree of market competitiveness. Based on the vehicle operation and bench tests conducted by the Chinese Academy of Environmental Sciences, clean diesel produced from coal can reduce the emissions of carbon monoxide, fine particulates, nitrogen oxides, and hydrocarbons in exhaust gases by 24%, 49%, 12%, and 34%, respectively, compared to diesel that meets National V standards. New situations, new problems: Looking at the recent situation, the sharp rise in the prices of chemical products is driven by two main factors – the depreciation of the RMB amid trade wars, and fluctuations in international oil prices. In Gu Zongqin’s view, the uncertainties in the international political and economic landscape will surely affect the overall development trend of the coal chemical industry. As a superpower, the United States sees its self-sufficiency in oil and gas gradually increasing, but its ability to influence global commodity prices remains strong; it still holds decisive advantages in areas such as technological innovation and monetary finance. With the rise of trade protectionism and an uncertain outlook for the Sino-US trade war, the likelihood of the United States using energy prices as a weapon is **increasing**. Our country is already the world’s largest importer of crude oil and natural gas, and it is expected that this situation will continue throughout the 13th Five-Year Plan period and for a considerable time thereafter. Against this backdrop, the capacity to replace oil through advanced coal processing, along with the existing technical and equipment resources in this field, will hold significant strategic importance for our country’s energy security. Regarding the mechanism by which international oil prices affect the coal chemical industry, Gu Zongqin pointed out that modern coal chemical production is primarily focused on manufacturing substitutes for petroleum products. However, compared to petrochemical production methods, coal chemical processes are longer, more complex, and require higher levels of investment. When oil prices are high and the prices of petrochemical products are also high, modern coal chemical production enjoys significant economic advantages. On the other hand, when oil prices fall, the cost advantages of such projects face considerable challenges. Currently, the global oil market features an overall surplus in supply, and the factors influencing international crude oil prices are complex. Unless there are any special events, it will be normal for international oil prices to remain within a lower range. According to predictions by domestic and international agencies, during the 13th Five-Year Plan period, the likely range for domestic oil prices will be between 50 and 70 dollars per barrel. This means that modern coal chemical projects will operate at the break-even point, and cost competition will become a key factor in their survival and development. In the long term, energy conservation and emission reduction are an inevitable choice for the development of China’s coal chemical industry. In fact, the transformation of the entire coal industry is driven by the concept of energy conservation and environmental protection. Regarding how modern coal chemical industry should cope with this pressure, Gu Zongqin emphasized that there are significant differences between coal chemical industry and petrochemical industry. When compared to the petroleum-based approach, the energy efficiency of modern coal chemical processes is only about 50% of that of petroleum-based processes, while their carbon emission intensity is several times higher. The technical pathway of coal chemical production determines that it necessarily requires greater investment and resource support to obtain alternatives to oil. Looking to the future, if modern coal chemical industry is to achieve sustainable development, it must start by focusing on energy conservation and emission reduction, striving to improve energy efficiency and cut pollutant emissions, in order to truly turn development opportunities into driving forces. He believes that modern coal chemical projects, thanks to the use of advanced technologies in production, can effectively control pollution and carbon emission levels as a whole. Taking wastewater as an example, the wastewater generated in modern coal chemical production can meet the discharge standards after technical treatment. However, since most coal chemical projects in China are located in western regions where the ecology is fragile and the environmental carrying capacity is low, with no suitable water bodies for discharging waste water, it is necessary to achieve \"zero discharge\" of such wastewater. At the policy level, during the 13th Five-Year Plan period, **stricter policies for water resource management as well as for energy conservation and emission reduction were implemented. Corresponding control targets were set for various provinces, autonomous regions, and municipalities. Comprehensive controls were imposed on the \"three red lines\" regarding water resources, while both total energy consumption and its intensity were subject to regulation. As a result, coal chemical projects will face challenges in meeting requirements related to water use, energy consumption, and environmental standards. It should also be noted that the forced de-coaling measures taken in some areas under environmental pressure, which require enterprises and industrial parks to reduce their coal usage in a one-size-fits-all manner, have had an adverse impact on the coal chemical industry as well. Decarbonization requires distinguishing between raw coal and fuel coal; unlike fuel coal, whose components are completely released into the environment through combustion, raw coal enters the industrial process where it is primarily converted into chemical products, with very few pollutants being emitted. There is a fundamental difference between the two, and they must be distinguished. Positive direction: Focus on key points. Since 2018, many coal chemical projects have been launched in various regions. According to media reports, there are dozens of coal chemical projects under construction or newly planned in Shaanxi Province alone, with investment amounts reaching hundreds of billions. When it comes to the coal chemical industry, it is also necessary to be vigilant regarding the risk of overcapacity. Gu Zongqin believes that modern coal chemistry is characterized by high demands for resources, technology, capital, and talent. The industrial added value generated is 4 to 5 times that of direct coal sales; it not only creates substantial output and job opportunities but also promotes the development of equipment manufacturing, infrastructure construction, and related service industries, thereby driving regional economic growth. As a result, it attracts significant investment from various regions. But what is most important at the moment is to run and manage the existing enterprises well. The new coal chemical projects were all built in the past decade, and the biggest goal at this stage is to ensure that these projects are constructed well, operated efficiently, and managed properly. Future development should build upon this foundation, including filling in gaps, carrying out upgrades and transformations, and improving the level of comprehensive resource utilization. From an industrial perspective, he believes that the coal chemical industry also needs to carry out supply-side structural reforms. Faced with the overcapacity in traditional coal chemical industries, it is not sufficient to merely make repairs to existing production capacity; those facilities that do not meet the conditions for renovation should be phased out as soon as possible. Traditional coal chemical projects should use new technologies to replace old ones, drive innovation through investment, and leverage advanced production capabilities to promote industrial upgrading. Regarding specific projects, in Gu Zongqin’s view, sufficient caution should be exercised when it comes to coal-based ethylene glycol projects. The oxalic acid route for producing ethylene glycol from coal is currently evolving toward lower costs, higher selectivity, a longer catalyst lifespan, and greater environmental friendliness. With improvements in quality and a deeper understanding by end-users of its applications, ethylene glycol produced from coal is now being used in the polyester fiber industry. The existing production capacity for ethylene glycol amounts to about 3 million tons, while additional projects under construction also have a capacity of 3 million tons; there are also many more projects that are planned or in the planning stage. There are an increasing number of new projects for producing ethylene glycol from coal, and their scale is getting larger and larger; some of these projects are so large that it’s hard to believe. If all of these projects are brought online, there will inevitably be an oversupply of ethylene glycol, leading to fierce competition based on costs. We must remain vigilant regarding this issue; it is necessary to carefully consider whether the newly built ethylene glycol production facilities will be competitive before making any decisions. From a product and technology perspective, Gu Zongqin offered the following suggestions for industrial development: First of all, emphasis should be placed on high-end industries related to the further processing of coal-derived olefins. At present, most of China’s coal-based olefin production capacity is located in the western regions, and the further processing of olefins mainly focuses on polyethylene, polypropylene, and general-purpose materials. In the future, it will be necessary to improve e-commerce and logistics services so that the western regions can respond more effectively to market demands ； On the other hand, the western olefin projects need to focus on proper project development, improve the quality of their products, and produce high-grade polyolefins such as bimodal polyethylene and high-molecular-weight polyethylene. They must make breakthroughs in technological innovation and business models in order to take the coal-based olefin industry to a new level. Secondly, a appropriate number of coal-to-oil and coal-to-gas projects should be developed. To enhance our country’s self-sufficiency in oil and gas, in addition to ensuring domestic production of 200 million tons of crude oil and 150 billion cubic meters of natural gas, it is also necessary to build a certain number of projects for converting coal into oil and gas. It turns out that the projects planned under the 13th Five-Year Plan are progressing slowly at present, and the main reason for this is the issue of profitability. **Some projects with better conditions should be given appropriate support so that they can operate with minimal profits. Finally, efforts should be made to significantly improve the domestic production capacity of equipment. For industries to develop, it is necessary to focus on technology as well as equipment; only by combining these two elements can the level of development in the industry be improved. But in reality, we tend to place more emphasis on technology than on equipment manufacturing capabilities. However, for modern coal chemical industry, the most fundamental factor is still the equipment; if the equipment cannot be produced domestically, then it cannot be considered as having independent technology. In future major demonstration projects, domestic production demonstrations of large-scale gasifiers with a coal feeding rate of 3,000–4,000 tons per day and large-scale air separation units should be carried out, with a focus on overcoming the bottlenecks in achieving self-sufficiency in equipment such as large-scale methanol synthesis towers, methanation reactors, large compressors, and key pumps and valves.