Is the cost of coal 90 yuan? Shenhua’s coal-to-oil break-even point is $40

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This post was last edited by liaifeng on 2018-9-6 19:51. Is the cost of coal 90 yuan? Shenhua’s coal-to-oil project reaches its break-even point at $40/ton. Author/Source: Date: 2017-01-09. Clicks: 34,016. At the end of 2016, Shenhua Ningxia Coal Group (hereinafter referred to as “Shenhua Ningxia Coal”) announced that its project for the indirect liquefaction of 4 million tons of coal per year had been completed and put into operation. This is currently the largest chemical project in terms of one-time investment for construction in the global petrochemical and coal chemical industries. According to information provided by Shenhua Ningmei, the estimated investment for this project is 55 billion yuan; it will be able to process 20.46 million tons of coal per year, with an annual output of 4.05 million tons of oils such as diesel and naphtha. A total of 37 major tasks related to the localization of technologies, equipment, and materials were completed for this project, with a localization rate of over 98%. Zhang Yuzhuo, chairman of Shenhua Group, stated publicly that the successful commissioning of this coal-to-oil project marks a substantial step forward for China in terms of energy strategic reserves, and it indicates that China’s capacity for integrating manufacturing technologies has reached a new level. However, some industry experts in the coal chemical sector are concerned that, with coal prices at 400 yuan per ton and oil prices at 80 dollars per barrel, indirect coal-to-oil production can still generate certain profits ； However, when oil prices drop below $60 per barrel and coal prices stay above 550 yuan per ton, it becomes difficult to be profitable in coal-to-oil production. Coal-to-oil production: On December 28, 2016, Shenhua Ningmei’s 4 million tons per year coal indirect liquefaction project was put into operation. According to Shenhua Ningmei, this project involves **37 major tasks related to the domestic development of technologies, equipment, and materials; it is characterized by its large scale, high investment costs, complex manufacturing processes, and numerous areas of technological innovation. Shenhua Ningxia Coal stated that the 4 million tons per year coal-to-oil project is a demonstration project established to meet the rapidly growing demand for oil in China, taking into account the country’s resource profile of abundant coal, limited oil, and scarce gas, as well as the relative advantages of Ningxia’s resources in terms of coal, water, and land. “Shenhua has always been a ‘leader’ in coal-to-oil technology, serving as a benchmark in the industry not only in terms of investment scale but also in terms of technology. ”Li Jing, an analyst in the coal chemical industry at Jin Yin Dao, told reporters that the successful commissioning of Shenhua Ningmei’s 4 million tons per year coal-to-oil project serves as a model for the entire coal-to-oil industry. Li Jing explained that coal-to-oil conversion, as a major approach for the clean and efficient utilization of coal, makes use of systematic integration and optimization of process technologies, along with advanced energy-saving and environmental protection techniques. This helps to minimize the consumption of resources such as coal and water, reduce the emission of waste materials, and thereby improve the level of clean and efficient resource utilization. By reviewing available information, reporters have found that as of now, Shenhua’s coal-to-oil projects are already in commercial operation, with several demonstration projects for coal-to-oil and coal chemical processing having been established. In addition to the coal-to-oil project with an annual production capacity of 4 million tons that has been put into operation this time, Shenhua Ningmei has also built six large-scale modern coal chemical projects, including ones with annual capacities of 250,000 tons for methanol, 210,000 tons for dimethyl ether, 600,000 tons for methanol, 500,000 tons for coal-based olefins, 60,000 tons for polyoxymethylene, and 500,000 tons for methanol-to-olefins. The reporter learned that the 500,000 tons per year coal (for methanol production) to olefins project of Shenhua Ningmei began construction in March 2011; by September 2014, the facility was operating at full capacity, and this project has generated profits of over 100 million yuan for Shenhua Ningmei. In addition to advantages such as capital and technology, a person interviewed from Shenhua Ningmei said that the successful progress of Shenhua’s coal-to-oil project is related to its early planning in the field of oil products. According to this person, in February 2010, Shenhua Group obtained the qualification for wholesale of refined oil. Later, with the commissioning of Shenhua Ordos Coal-to-Oil Branch, the first Shenhua coal-to-oil gas station in Ordos began operating in 2012. With the commissioning of this 4 million tons per year coal-to-oil project, Shenhua Ningmei has also established terminal sales operations to support it. The aforementioned individuals told reporters that in order to facilitate direct sales, Shenhua Ningmei has currently established a coal-to-oil sales subsidiary and has obtained the necessary \"Permit for Operating Hazardous Chemicals\". At the same time, a sales plan for mixed diesel products was also developed, and purchase and sales cooperation agreements were reached with several companies. It is understood that Shenhua Ningxia Coal has already held discussions with the local land, commerce, and planning authorities regarding the location and construction of gas stations; it is planned to build over a hundred such stations, with the first demonstration station to be constructed within the coal-to-oil chemical industrial park. Li Jing said that in 2017, 12 projects in China’s coal-to-oil industry would come online, with a total production capacity of 12.78 million tons per year, which is sufficient to meet the requirements set out in the **National Development and Reform Commission’s Work Plan for Strengthening Air Pollution Control in the Energy Sector**. In terms of the overall volume of coal-to-oil production, its share of the total amount of refined oil is very small; Shandong’s local refineries produce 163 million tons of refined oil per year, and the amount produced through coal-to-oil methods is less than one-tenth of that figure. Therefore, coal-to-oil production will not affect the entire refined oil market; it can only be said to supplement the refined oil market in a certain region. Unfazed by high coal prices? “Shenhua has long been a pioneer in China’s coal-to-oil industry; it is likely that Shenhua is the only company capable of securing a share of the market in this field. ”A vice president of a coal chemical enterprise in the Northwest region told reporters that the industry generally sets the break-even point for coal-to-oil production at $50–$60 per barrel of oil. However, Zhang Yuzhuo, chairman of Shenhua Group, has publicly stated that as long as international oil prices remain above $40 per barrel, Shenhua’s coal-to-oil projects can achieve reasonable returns. “The reason why Shenhua’s cost of coal-to-oil production is lower than the industry average is not only due to its technical advantages, but also because it has unique advantages in the procurement of raw coal. ”The person from the aforementioned coal chemical enterprise said that Shenhua is China’s largest coal company, and the cost of mining coal there is low. It is understood that the price of coal at the entrance of Shenhua Shendong Coal Mine is only 90 yuan per ton, while the cost per ton of oil is merely 1,200 yuan; thus, it can even compete with oil companies whose production cost is 30 dollars per barrel. Therefore, Zhang Yuzhuo’s claim that Shenhua’s coal-to-oil project can be profitable as long as international oil prices remain above $40 per barrel is clearly a conservative estimate. However, starting from the second half of 2016, coal prices soared, exceeding 600 yuan per ton at one point. Industries that rely on coal as a raw material faced difficulties; in particular, thermal power companies repeatedly requested the relevant authorities to reduce coal prices. So, has the coal chemical industry, which uses coal as a raw material, been affected by rising coal prices? Li Jing believes that after the surge in coal prices, it is coal companies that benefit, and most of China’s coal-to-oil projects are under the control of such companies. For example, Shenhua, Yitai, Lu’an, Jinmei, and others are all large-scale coal enterprises. Therefore, the aforementioned impact is nothing but profit being moved from one hand to another. Furthermore, the vice president of the aforementioned coal chemical company said that in China, coal chemical products cannot be purchased on credit; payment is usually made upon delivery or in advance before the goods are taken, which is why such products are often regarded by coal companies as \"cash cows\". Furthermore, there is a wide variety of coal chemical products available today; in addition to coal-to-oil and coal-to-natural gas, there are also coal-to-olefins and coal-to-paraffin, and the production ratios among these products can be adjusted through various processing methods. After coal prices rose in the second half of 2016, the prices of coal-based olefins also soared, enabling coal chemical companies to reap substantial profits. Among them, Pucheng Clean Energy Company, which is part of Shaanxi Coal, generated profits of over 600 million yuan in just the second half of the year. Therefore, for the entire Ningxia Coal Chemical Industry Base, an increase in coal prices is not necessarily a bad thing. Furthermore, according to data provided by Gold and Silver Island, after multiple technical improvements, the energy conversion rate for direct coal liquefaction via coal-to-oil processes can reach 58%, while that for indirect liquefaction is 43%, which is higher than the approximately 40% conversion rate of conventional thermal power plants.