With an investment of 47 billion yuan, the break-even point for Shenhua’s coal-to-oil projects 2 and 3 will fall below $50 per barrel

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Investment of 47 billion yuan: The break-even point for Shenhua’s coal-to-oil projects 2 and 3 will drop below $50. Author/Source: Huahua Network – Coal Chemicals. Date: 2018-10-29. Clicks: 25. As autumn fades and winter approaches, China’s energy system will face another major challenge related to winter heating. Reporters were informed that China’s large state-owned energy enterprises have received instructions from the central government to make **energy security their top priority and implement plans to increase production. At present, the major state-owned energy enterprises have held party group meetings to discuss and implement plans for increasing production and ensuring supply. The **Energy Group**, which has been in existence for less than a year as a result of mergers and restructurings, is also making efforts to ensure a secure supply of **energy**. The **Energy Group**, established on November 28, 2017 through the restructuring of State Power Investment Corporation and Shenhua Group. Unlike the approach of \"consolidation within the same industry\" adopted by other central state-owned enterprises, **Energy Group focuses on the consolidation of upstream and downstream industries, thereby creating an integrated industrial chain development model. After the merger, **Energy Group operates in eight business segments: coal, thermal power, new energy, hydropower, transportation, chemicals, technology and environmental protection, and industrial finance. It is the world’s largest coal producer, thermal power generator, wind power producer, and company engaged in coal-to-oil and coal-based chemical manufacturing. “Since the merger, **Energy Group has leveraged its advantages in coal and power integration to achieve a smooth start and a favorable beginning. ” **Zhang Guohou, deputy secretary of the Party leadership group of the energy group, told reporters. In the first half of this year, various indicators such as the volume of coal used, electricity generated, total railway traffic volume, port handling volume, and shipping volume all reached record highs. All of these indicators exceeded the sum of the corresponding figures for the two companies prior to their merger. Not only were all eight business segments profitable, but the rate of profit growth was also significantly higher than the rate of revenue growth. While making a good start, **the energy group is also working to ensure long-term** energy strategic security by planning to build a second and third coal direct liquefaction production lines. “If necessary, coal-to-oil projects can be replicated continuously. ”**Yan Guochun, general manager of the Coal-to-Oil Chemicals Company under the Energy Group, told reporters, “Our technology is now mature. The reason it wasn’t replicated in the past was mainly due to economic considerations.” . ” The “replication” referred to by Yan Guochun is the world’s only million-ton-scale direct coal liquefaction project owned by a coal-to-oil chemical company. This project possesses complete independent intellectual property rights; it uses coal as raw material to directly produce petroleum products under the action of catalysts and hydrogen-supplying solvents. Therefore, it is vividly referred to as “coal to oil”. Construction of this production line began in 2004, and trial production was successful by the end of 2008. The current annual production capacity of this facility is 1.08 million tons, enabling the direct production of gasoline, diesel, and aviation fuel. From an economic perspective, the Ordos coal-to-oil facility currently consumes approximately 3.5 tons of coal per ton of oil produced; after deducting the fuel coal, 2 tons of coal are used as raw material per ton of product manufactured. At the current levels of raw material costs and taxes, the company will not incur losses when international crude oil prices are above $55 per barrel. With the construction of the second and third production lines, the oil yield is expected to increase by about 10%, and the break-even point for coal-to-oil production will drop below $50 per barrel. **The coal-to-oil projects of the energy group involve huge investments, and they were initially established as **model projects for energy strategic security. Since the 1980s, coal-to-oil projects have been listed as **major scientific and technological research projects by the Ministry of Science and Technology. In the second half of the 20th century, with the two Middle East wars and the subsequent oil crises, the West also placed great emphasis on the development of coal-to-oil technology. In 1996, through **collaboration, China worked together with the United States, Japan, and Germany on the preliminary work for coal-to-oil projects. In the early 2000s, the \"China Shenhua direct coal liquefaction technology\" was regarded, along with the US HTI process, the German IGOR process, and the Japanese NEDOL process, as among the world’s representative new processes for direct coal liquefaction. Initially, the American HTI process was chosen, but significant defects were found in this process, so a domestically developed direct coal liquefaction process was adopted instead. In June 2004, this technology passed the expert evaluation organized jointly by the China Petroleum and Chemical Industry Association and the China Coal Association, and possesses complete independent intellectual property rights. Compared with other similar technologies promoted during the same period, **the technology used in the Energy Group’s coal-to-oil project is one that has been put into commercial operation; whereas the technologies claimed by companies such as Yanchang Petroleum and Sanju Environmental Protection remain in the experimental stage and have not been applied on an industrial scale.** The Energy Group’s coal-to-oil project is currently the only commercial coal-to-oil project in the world with a production capacity of millions of tons per year. China’s dependence on imported oil exceeds 60%. In 2017, China’s oil imports amounted to 396 million tons, while the country’s total apparent oil consumption (the sum of domestic production and net imports) was 590 million tons; domestic oil production, on the other hand, dropped to 192 million tons. This means that for every 10 tons of crude oil consumed by China, 6.7 tons need to be imported from abroad. China’s main route for importing oil from the Middle East and East Africa is the Strait of Malacca, and this strategic passage is controlled by other powers as a strategic tool. Another challenge in the past expansion of coal-to-oil projects was the lack of standards. Recently, the **State Administration for Market Regulation** and the **Standardization Administration Committee** issued two new **standards**: \"Mixed Aromatics Produced by Direct Coal Liquefaction\" and \"Naphtha from Direct Coal Liquefaction\". These two standards were developed under the leadership of Shenhua Coal-to-Oil Company, filling the gap in **standards for the coal-to-oil industry in China and providing a basis for assessing the quality of coal-to-oil products. These two standards will come into effect officially on February 1, 2019. “It is impossible for coal-to-oil to completely replace oil. But our coal-to-oil technology is already mature. As long as there is a demand, we can replicate it, which will help ensure energy security. ”**A responsible official from the coal-to-oil division of the energy group told reporters, “But the coal-to-oil project itself is a result of China’s strategy to replace oil with alternative fuels.” If necessary, we can keep replicating it to ensure energy strategic security. ” In September 2002, the **Commission for Development and Reform approved the feasibility study report for Phase 1 of the project through the document titled “Notice on Issuing the Request from the **Planning Commission for Approval of the Feasibility Study Report for Phase 1 of the Shenhua Coal Direct Liquefaction Project” (Document No. Ji Ji Chu Zi [2002] 1587). It was approved that the total scale of the project’s construction should be 5 million tons of oil products per year, with the construction to take place in two phases. One of these phases involves 2.5 million tons, and it is composed of three production lines. In August 2004, the **Commission for Development and Reform approved, through the document \"Approval on Issues Related to the Process Optimization Plan for Phase I of the Shenhua Direct Liquefaction Project\" (Fa Gai Neng Yuan [2004] No. 1743), an adjustment to the total construction scale of Phase I to 3.2 million tons of oil products. Given the high risks associated with this project, the first phase is implemented using a phased construction approach: one production line is built first as the initial phase (referred to as the preliminary phase), and once that is successful, the other two production lines will be constructed. The initial production capacity of the plant was 1.08 million tons per year of diesel, naphtha, and liquefied gas, and it began commercial operations in January 2011. Furthermore, in accordance with the **Reply Letter from the National Development and Reform Commission regarding the addition of a synthetic oil production facility to the first phase of Shenhua’s direct coal liquefaction project** (Document No. FGWB-NY [2007] 1302), Shenhua Group constructed a demonstration project for indirect coal liquefaction with an annual capacity of 180,000 tons within the premises of the direct coal liquefaction project (referred to as the Shenhua 829 Project). This project was successfully put into operation in November 2009.