Low oil prices and difficulties in making profits have highlighted the contradictions in the development of the coal chemical industry

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Low oil prices and difficulties in making profits have highlighted the contradictions in the development of the coal chemical industry. Author/Source: Date: 2017-11-20 Clicks: 9. After years of development, China’s modern coal chemical industry has seen an increasing scale of investment, achieving significant progress in terms of technological innovation and production capacity. **A series of policies have created new opportunities for the development of this industry, with projects such as coal-to-olefins and coal-to-oil reaching world-class levels in terms of scale. As the scale grows larger, issues such as a scattered industrial layout, short supply chains, and bottlenecks related to water resources and environmental protection gradually emerge; for some projects, the day they start operating is also the day they begin to incur losses. Some experts and business leaders believe that, against the backdrop of low oil prices, the coal chemical industry still needs to make continuous efforts in areas such as technological innovation, extending the industrial chain, and establishing standard systems. 　　Coalification is making rapid progress as a direction for transformation. In recent years, China’s reliance on oil and gas imports has continued to increase, making it one of the world’s major energy consumers and importers. In 2016, China’s dependence on imported crude oil exceeded 60%, while its dependence on imported natural gas was 36.6%, with a trend of increasing year by year. China has a high degree of dependence on imports for certain basic petrochemical products, and a significant gap will remain during the 13th Five-Year Plan period. 　　“Oil supply has become a strategic issue restricting the economic and social development of our country, and shortages of olefins and aromatics also hinder the development of downstream industries. Given China’s resource profile, developing modern coal chemical industry is an inevitable choice for achieving oil substitution. ”Liu Zhongmin, an academician of the Chinese Academy of Engineering, said. 　　After more than 10 years of development, China’s coal chemical industry has established a number of demonstration projects for coal-to-oil and coal-to-olefins production, with its technological innovation and industrial scale ranking among the best in the world. Especially since the 13th Five-Year Plan, new breakthroughs have been achieved in areas such as coal gasification technology, coal liquefaction technology, and coal-based olefin and aromatic hydrocarbon production technologies. 　　According to Li Shousheng, president of the China Petroleum and Chemical Industry Federation, in the first half of the year, China’s coal-to-oil production capacity was 6.93 million tons per year, with output of 1.55 million tons; coal (methanol)-to-olefins production capacity was 12.42 million tons per year, yielding 5.3 million tons; coal-to-ethylene glycol production capacity was 2.7 million tons per year, with output of 700,000 tons; and coal-to-natural gas production capacity was 5.1 billion cubic meters per year, with output of 1.1 billion cubic meters. 　　However, correspondingly, the fine chemical industry accounts for a low proportion in China’s coal chemical sector; oil-based products are mostly at a low level, while the production capacity for high-end products is concentrated in the hands of a few foreign and joint-venture companies. In China, high-end chemical materials and special, advanced specialty chemicals are still in the stage of extensive research and development but limited practical application. 　　In February of this year, the **Energy Bureau issued the ‘13th Five-Year Plan for the Development of Advanced Coal Processing Industries’. In March, the **Development and Reform Commission and the Ministry of Industry and Information Technology jointly released the ‘Plan for the Innovative Development of the Modern Coal Chemical Industry’, which further clarified the role of this industry at a national level, strengthened the overall strategic planning for it, and provided guidance for ensuring its scientific and healthy development. 　　“We must have a clear understanding of our country’s resource endowments and make good use of coal in a clean and efficient manner. **The series of policies introduced at this level reflect a **high level of emphasis on the modern coal chemical industry, and the sector is set to encounter new opportunities for growth. ”**said Li Ye, Director of Regulation at the Energy Bureau. 　　High investment, low returns, and prominent environmental issues: The coal chemical industry is developing rapidly, with many projects requiring investments of several billion or even hundreds of billions of yuan. Problems such as scattered development patterns, short industrial chains, as well as constraints related to water resources and environmental protection are increasingly evident, making it difficult to improve profit levels. Especially against the backdrop of low international oil prices, the coal chemical industry is under considerable pressure. 　　At present, China’s coal chemical industry is in a phase of industrial upgrading. The scale of the industry continues to grow, but the proportion of fine chemicals is low, and some projects are at a low level. There is an urgent need to advance structural adjustments in the industry, innovation-driven development, and supply-side reforms to address overcapacity; it is not possible to wait for rising oil prices to resolve these issues. 　　“China’s coal market is relatively independent, and coal prices are less affected by crude oil prices. However, the prices of coal chemical products are significantly impacted by low oil prices. With raw material costs remaining unchanged, the prices of these end products drop sharply, resulting in a decline in profitability for coal chemical companies. ”Li Shousheng said. 　　The process flows and technical integration in the coal chemical industry still need to be optimized and upgraded. Wang Jiming, an academician of the Chinese Academy of Engineering, believes that many coal chemical projects are still in the demonstration stage; there are issues with insufficient systematic optimization and integration in their process design. The compatibility between the main chemical processing units and the environmental protection facilities, as well as among different chemical processing units themselves, is inadequate. This leads to increased investment and resource consumption, preventing the projects from operating at full capacity. 　　After years of rapid development, the problem of fragmentation in China’s modern coal chemical industry has gradually become apparent. Coal chemical industry projects require large investments and can drive rapid growth in the regional economy. Many regions launch such projects blindly, regardless of whether the quality of the coal is suitable for use; as a result, there are multiple coal chemical parks in one province, leading to a scattered layout of projects. The phenomenon of \"first having projects, then parks, and only afterwards planning\" persists despite repeated attempts to put an end to it. Yao Min, deputy general manager of Shenhua Ningmei Group, said that modern coal chemical industries should leverage the clustering effect, as a scattered layout causes significant harm to industrial development. 　　A short industrial chain and a long distance from the end markets are also prominent problems faced by China’s modern coal chemical industry. Recently, at the 2017 China International Coal Chemicals Development Forum held in Yinchuan, Ningxia, reporters saw that most of the products displayed by the participating companies were raw materials. Some industry insiders believe that China’s petroleum and chemical industry is essentially an industry focused on basic raw materials, and it is far removed from the end markets. Shang Jianxuan, deputy general manager of Shaanxi Chemical Industry Group, said that modern coal chemical industry must be linked to product and market demands. At present, the northwest region has limited appeal for downstream enterprises, leaving a long way to go in developing the industrial chain. 　　Furthermore, the coal chemical industry is facing increasing environmental pressure. Li Shousheng believes that in the future, the pollution control requirements for the coal chemical industry will become stricter, making it more difficult for projects to meet the requirements regarding water use, energy consumption, and environmental standards. How to improve the environmental protection technology level of the modern coal chemical industry and reduce costs related to wastewater treatment, solid waste management and disposal, as well as air pollutant control will become important research topics. 　　At the same time, the rapid development of the coal chemical industry has also led to a relative lag in the establishment of relevant standard systems. In recent years, **several industrial policies have been formulated or introduced to regulate the development of the deep processing industry for coal. Overall, however, the modern coal chemical industry still lacks a systematic standardization framework, especially in terms of key standards for project construction, environmental protection and safety, as well as products. 　　Stimulate innovation to break free from development pitfalls. The sharp drop in coal prices in previous years and the difficulties faced by the industry provided many coal companies with valuable lessons. They turned to coal chemical processing as a way to transform and upgrade themselves and escape from these development challenges, hoping that the development of coal chemical projects would bring them a \"second chance\". However, issues such as process convergence, product convergence, overcapacity in certain sectors, and the lack of mastery over core technologies in fine chemicals have always been obstacles to the healthy development of China’s coal chemical industry. Experts and entrepreneurs believe that as strategic emerging industries, continuous efforts are needed in terms of technological innovation, extending the industrial chain, and formulating relevant standards. 　　First, strengthen technological innovation in the coal chemical industry to improve the efficiency of coal chemical projects. Xiao Zengjun, chairman of Feiyang Group, believes that China’s coal chemical industry started with technological innovation, and serious problems will arise if it remains stuck using old technologies. It is essential to pay close attention to the trends and changes in new technologies both domestically and internationally, and to use technological innovation to address various issues such as those related to the need for optimization and improvement of production processes and technology integration in industrial development, thereby promoting the clean and efficient use of coal. 　　Second, it is necessary to strengthen the rational planning of the coal chemical industry to avoid a rush to enter this sector. Wang Jiming, Yao Min and others believe that building modern coal chemical projects in areas rich in coal resources in the west can help balance economic development between the east and west. However, it is necessary to pay attention to industrial layout and structural adjustment, as well as product structure and transportation issues; the choice of product forms such as gas, liquid, solid, or electricity should be made based on local conditions. At the same time, the rational layout of coal chemical industry should be strengthened in accordance with the principles of park-based development, scale expansion, diversification, and high-end orientation. 　　Third, it is to change the single product structure, continuously extend the industrial chain, and leverage the agglomeration effect. Shang Jianxuan and Li Shousheng believe that efforts should be made to develop high-end, differentiated industrial chains for coal-based olefins and aromatics, in order to create a robust \"product tree\". By leveraging the advantages of coal-based ultra-clean fuels and specialty oils, indirect coal liquefaction can produce products that are difficult to manufacture through traditional petrochemical methods. These fuels can be used in military and civilian aircraft, space rockets, as well as special armored vehicles, thereby meeting China’s demand for specialty oils. 　　Fourth, accelerate the development of coal chemical industry standards to regulate the future growth of this sector. The coal chemical industry urgently needs to establish a systematic standard system tailored to its own characteristics, including comprehensive standards, standards for raw materials and products, standards for project construction, equipment standards, safety and environmental protection standards, and standards for pollutant emissions.