In which direction should modern coal chemical industry develop?

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Major strategic research findings from the Academy of Engineering: Which direction should modern coal chemical industry take? Author/Source: Date: 2017-12-18 Clicks: 43 The characteristic of China’s resource endowment is an abundance of coal resources, while oil and natural gas resources are relatively scarce. To ensure **energy security and accelerate the diversification of raw materials**, during the 11th and 12th Five-Year Plans, against the backdrop of high international crude oil prices, **initiated the construction of a number of modern coal chemical demonstration projects**. Demonstration projects for coal-to-oil, coal-to-natural gas, coal-to-olefins, and coal-to-ethylene glycol have been successfully put into operation. Both technological innovation and industrialization in this field have reached world-leading levels. After repeated discussions and extensive deliberations, the \"13th Five-Year Plan for Demonstrating Advanced Coal Processing Industries\" and the \"Plan for the Innovative Development of the Modern Coal Chemical Industry\" were released at the beginning of 2017. However, given that international oil prices have remained low for a long time and the modern coal chemical industry faces significant economic pressures, there is ongoing debate and controversy in China regarding how and in what direction this industry should develop in the future The major consulting project of the Chinese Academy of Engineering, titled “Strategic Research on Key Issues Concerning the Sustainable Development and Regional Coordinated Growth of China’s Refining and Coal Chemical Industries,” was carried out over a period of 2 years. Based on on-site inspections of more than 20 modern coal chemical projects, academicians and experts in the fields of petrochemicals and coal chemicals conducted systematic discussions on the current status and future directions of the development of modern coal chemical industries, and arrived at the following research findings. I. Modern coal chemical industry has established a foundation for its development 1. The industry has reached a certain scale of development: By the end of 2016, China had 1 direct coal liquefaction project and 5 indirect coal liquefaction projects in operation, with a total production capacity of 6.95 million tons per year ； 10 sets of coal-to-olefins plants with a capacity of 500,000–600,000 tons each have been built, resulting in an overall annual production capacity of 5.74 million tons ； 3 coal-to-natural gas projects have been built, with a total capacity of 3.1 billion cubic meters per year ； Eleven 200,000-ton coal-to-ethylene glycol plants have been built, with a combined production capacity of 2.7 million tons per year. 2. Internationally leading core technologies: The process technologies for direct coal liquefaction, indirect coal liquefaction, coal gasification, methanol-to-olefins, methanol-to-ethylene glycol, and methanol-to-aromatics, which rely on independent intellectual property rights, are all at the world-leading or advanced level. The degree of self-sufficiency in industrial equipment has reached around 90%. A large number of autonomous gasification technology devices have been put into industrial use, possessing the capability to manufacture large-scale gasifiers (with a coal feeding capacity of ≥3,000 tons per day), large-scale air separation units (with an oxygen production capacity of ≥100,000 cubic meters per hour), large-scale hydrogenation liquefaction and Fischer-Tropsch synthesis reactors (with a weight of ≥2,000 tons), large-scale process compressors, large high differential pressure and wear-resistant pressure control valves suitable for harsh conditions, as well as high-temperature coal slurry pumps and other major equipment and control systems. The demonstration projects that have been completed have undergone commercial operation and continuous improvement over time, resulting in enhanced levels in terms of process technology, energy efficiency, and environmental protection. For example, in the newly built 4 million tons per year coal indirect liquefaction project operated by Shenhua Ningmei, the water consumption per ton of oil produced has dropped from 16 tons to 6 tons; outstanding projects can achieve near-zero emissions. 3. It produces oils that are difficult to manufacture in conventional refineries. Direct coal liquefaction yields ultra-clean gasoline and diesel, military-grade fuels, high-density aviation kerosene, rocket fuel, and other special types of oils, as well as chemicals with high added value. Some of these products fill gaps in the domestic market, and they hold great potential for use in the defense sector. Completed tests of fighter jets, rocket engines, and armored vehicles have demonstrated the excellent performance of directly liquefied coal-based fuels. High-value chemicals such as low-aromatic solvent oils produced by coal indirect liquefaction, high-melting-point Fischer-Tropsch waxes, and high-grade lubricant base oils possess certain market competitiveness. According to the vehicle operation and bench tests conducted by the Chinese Academy of Environmental Sciences, compared with diesel meeting National V standards, coal-based clean diesel can reduce the emissions of carbon monoxide, fine particulate matter, nitrogen oxides, and hydrocarbons in exhaust gases by 24%, 49%, 12%, and 34%, respectively. 4. It has become an important supplement to petrochemical products. The development of modern coal chemical industry has promoted diversification of raw materials in the petrochemical sector, helping to offset the shortage of naphtha supply in China and enhancing the availability of certain chemical products. By the end of 2016, the total production capacity for coal-based olefins reached 5.74 million tons per year, accounting for 11.39% of the country’s total production capacity for ethylene and propylene ； The total production capacity for coal-to-natural gas is 3.1 billion cubic meters per year, with actual production amounting to 2.16 billion cubic meters, accounting for 1.57% of the country’s total apparent natural gas consumption ； Eleven 200,000-ton coal-to-ethylene glycol plants have been built, with a combined production capacity of 2.7 million tons per year, accounting for 32.8% of the country’s total ethylene glycol production capacity. 5. Having gone through periods of both high and low oil prices, the industry has demonstrated the economic viability of its technologies. Research findings indicate that when international oil prices remained at high levels, modern coal chemical projects achieved good profitability ； When international oil prices are around $40 per barrel, companies involved in coal-to-oil and coal-to-gas production suffer losses, while coal-to-olefins projects achieve only modest profits. The results of the project study show that, with a coal price of 220 yuan per ton, under the current strictest environmental regulations and a carbon trading price of 20 yuan per ton, the break-even point for direct coal liquefaction projects is 50–55 US dollars per barrel for Brent crude oil; the break-even point for indirect coal liquefaction is 60–65 US dollars per barrel; and the break-even point for coal-based olefins is 40–45 US dollars per barrel. That is, when international oil prices remain at or above 65 dollars per barrel, modern coal chemical industries can operate without incurring overall losses ； When international oil prices are around $85 per barrel, modern coal chemical industries can basically achieve the industry benchmark internal rate of return (11% before tax). Recently, international oil prices have rebounded to around $60 per barrel, bringing good news for the development of modern coal chemical industry. It should be noted that the modern coal chemical industry is still in its initial stages of development. There are still issues such as the need for further improvement in process technologies, stronger industry regulation, and adjustments to the industry’s layout. Problems that receive widespread concern and worry, including water resources, environmental protection, carbon emissions, and industrial competitiveness, continue to hinder the development of this industry. These issues need to be addressed gradually through upgrades during the 13th Five-Year Plan period and through further technological innovation. II. Opportunities and Challenges Faced by Industrial Development During the 13th Five-Year Plan period, the development of modern coal chemical industries encountered new situations and challenges; favorable conditions and restrictive factors coexisted, with opportunities alongside challenges. Opportunity 1: The positioning for industrial development has been clearly defined. On December 28, 2016, on the day the Shenhua Ningmei coal-to-oil demonstration project was put into operation, **** issued an important directive: “The completion and operation of this major project are of great significance for enhancing China’s ability to ensure its own energy supply, promoting the clean and efficient use of coal, and fostering development in ethnic minority areas. It represents a valuable exploration of an energy development approach that is safe, efficient, clean, and low-carbon, and it is an important achievement of the strategy of driving development through innovation.” In February 2017, with the approval of the State Council, the **Energy Administration issued the ‘13th Five-Year Plan for Demonstrating Advanced Coal Processing Industries’** ； In March, the National Development and Reform Commission and the Ministry of Industry and Information Technology jointly issued the “Plan for the Innovative Development and Layout of the Modern Coal Chemical Industry”. The plan clearly states that “the moderate development of the coal deep-processing industry is not only necessary for building up strategic technological and production capacity reserves in the energy sector, but also an important measure for promoting the clean and efficient utilization of coal and ensuring national energy security.” It also calls for “fostering the coal deep-processing industry into a key component of China’s modern energy system,” thereby further defining the industry’s role at the national level. Opportunity 2: **The need for energy security. Our country has become a major global consumer and importer of oil and natural gas. In 2016, the reliance on imported crude oil was over 60%, while the reliance on imported natural gas was 36.6%, with a trend of increasing year by year. Driven by increasingly stringent environmental regulations, the pace of improving the quality of petroleum products is accelerating. Developing coal-to-oil technology can help diversify the supply of high-quality, clean petroleum products, thereby reducing the impact of their use on hazy weather conditions. China has a high degree of dependence on imports for some basic petrochemical products; in 2016, the self-sufficiency rates for ethylene (on an equivalent basis), p-xylene, polyethylene, ethylene glycol, and styrene were 52.5%, 43%, 62.9%, 34.6%, and 60% respectively, indicating significant potential for the development of the modern coal chemical industry. Opportunity 3: The need for clean and efficient utilization of coal. The widespread foggy weather across the country necessitates that our country pay attention to and enhance the clean use of coal. The modern coal chemical industry is a strategic emerging industry that promotes the clean and efficient use of coal as well as the transformation and upgrading of the coal industry; it represents an effective way to extend the coal industry chain. Coal-to-oil and coal-to-gas technologies can convert coal, which has a complex composition and is considered \"unclean,\" into high-quality, clean oil products and natural gas. Coal-to-chemicals technologies enable the full conversion or utilization of elements such as carbon, hydrogen, sulfur, and oxygen present in coal; the amount of gaseous pollutants generated during these processes is much lower than that resulting from direct coal combustion, and some of the carbon can be incorporated into chemical products. Opportunity 4: The needs of regional economic development. Modern coal chemical industry projects require large investments, have high added value, and involve high taxes per ton of oil products. Developing this industry can effectively boost regional economic development and assist coal-producing provinces in optimizing and upgrading their industrial structures; as a result, the major coal-producing provinces are quite enthusiastic about it. Challenge 1: International oil prices remain low. International crude oil prices remain low, which significantly reduces the production costs of petrochemical products in the domestic market and lowers the prices of such products. Modern coal chemical projects operate under conditions of little change in raw material costs and a significant drop in product prices, resulting in a substantial decline in their profitability. At present, aside from the meager profits in coal-based olefin production, most modern coal chemical projects operate at a loss; cost competitiveness has thus become a key factor for the survival and development of modern coal chemistry. Challenge 2: Competition from domestic and international petroleum, natural gas chemical products, etc. China suffers from severe overcapacity in oil refining, and the rapid development of alternative fuels is intensifying competition in the refined oil market. By the end of 2016, the total refining capacity across the country reached 783 million tons per year, ranking second in the world; a number of large-scale refining or integrated refining and chemical processing facilities were still in the planning or construction phase. In recent years, alternative fuels such as natural gas, fuel ethanol, methanol, and biodiesel have seen rapid development; in 2016, their combined output accounted for 5.7% of the total refined oil production. The rapid development of electric vehicles in the future will reduce consumption of petroleum products. Domestic polypropylene production capacity is growing rapidly, and regional saturation or even excess may occur in the future ； Internationally, the Middle East and the United States have, thanks to their natural gas resources and advantages in low-cost shale gas development, significantly expanded their ethylene production capacity in recent years; their low-cost chemical products will have a certain impact on China’s coal-based chemicals industry. Competing with domestic and international petroleum and natural gas chemical products at full market cost prices will become a tough task and a high requirement for the development of modern coal chemical industry in our country. Challenge 3: The pressure to protect the environment and reduce carbon emissions is increasing continuously. With the implementation of new environmental protection laws as well as special action plans aimed at addressing air pollution, water pollution, soil pollution, etc., **the requirements for pollution control in the modern coal chemical industry have become increasingly strict, making it more difficult for new projects to meet the requirements regarding water use, energy consumption, and environmental standards. To implement the Paris Agreement reached at the Paris Climate Conference, it has become an inevitable trend for our country to introduce carbon trading or impose environmental protection taxes, which will affect the overall competitiveness of the modern coal chemical industry. Challenge 4: Increasing constraints on water resources. After more than a decade of demonstration and development, with the continuous optimization of process technologies and the rapid improvement in management levels in modern coal chemical projects, the water consumption per unit product has been significantly reduced. For instance, at the newly completed Shenhua Ningxia Coal Industry’s 4-million-ton-per-year indirect coal liquefaction project, this figure has dropped to 6 tons of water per ton of oil products. Nevertheless, the total amount of water consumed by such projects remains substantial. The modern coal chemical industry is primarily located in the western regions where coal resources are abundant. The large-scale implementation of numerous modern coal chemical projects will exacerbate the shortage of water resources in these areas, and water has become a key factor restricting the development of this industry. III. Key development priorities and future directions for modern coal chemical industry during the 13th Five-Year Plan period. The “Demonstration Plan for the Upgrading of the Coal Deep Processing Industry (2016–2020)” clearly outlines the key tasks for the modern coal chemical industry during this period. It calls for carrying out demonstration projects aimed at upgrading five main models and related general technologies and equipment, namely coal-to-oil production, coal-to-natural gas production, quality-based utilization of low-rank coal (multi-product co-production), coal-based chemical production, and the integrated utilization of coal and petroleum. Through system integration, process optimization, adjustment of the product structure, and improvement in management, the environmental and water resource issues existing in modern coal chemical industry can be addressed, thereby further reducing project costs and enhancing the industry’s competitiveness. Research suggests that the 13th Five-Year Plan period and the longer timeframe that follows will be a crucial time for upgrading China’s modern coal chemical industry. It is necessary to focus on strengthening research and efforts in the following areas: first, advancing the research and development as well as production of ultra-clean oil products and specialty oils derived from coal. Taking advantage of the high cycloalkane content, low freezing point, high density, and low viscosity index of oils produced by direct coal liquefaction, research is being conducted on the production of products that are difficult to manufacture using conventional petrochemical methods. In particular, these oils are used for military and civilian aircraft, space rockets, as well as special armored vehicles, thereby meeting China’s growing demand for specialty oils and supporting national defense needs. Taking advantage of the ability of indirect coal-to-oil conversion to produce ultra-clean oils that are free of sulfur and contain low levels of olefins and aromatics, it provides high-quality blending components for the production of clean oils and oil upgrades. This enables the manufacture of high-quality naphtha for steam cracking, as well as high-value products such as high-quality paraffins, solvents, alpha-olefins, and premium lubricants. As the demand for upgraded specialty fuels and oils in our country increases, the advantages of coal-to-oil products will be further highlighted. Second, develop high-end and differentiated new material product chains for coal-based olefins and coal-based ethylene glycol. The oxalate route for producing ethylene glycol from coal is evolving toward lower costs, higher selectivity, and a longer catalyst lifespan. As the quality of the product continues to improve and downstream users increasingly adopt and utilize this product, ethylene glycol produced from coal is now being used on a large scale in the polyester fiber industry. Downstream processing of PE and PP can yield hundreds of market-end products, but most of the polyolefins produced from coal at present are low-end bulk products, with few specialized grades of polyethylene and polypropylene available. Efforts in scientific and technological research should be focused on key common technologies and equipment, in order to quickly change the current situation of similar end products and create a new landscape characterized by higher-end and differentiated end products. Through technological innovation and international cooperation, expand the product chain to rapidly develop a range of high-end, differentiated PE and PP products. Several companies and research institutions have already begun research in this area. Third, it promotes the continuous, stable, and clean production of coal-to-natural gas under high load conditions. To address the current issues associated with coal-to-natural gas production, such as the difficulty in getting the resulting product into gas transmission pipelines, large fluctuations in demand as a peak-shaving energy source throughout the year, and poor economic viability of such projects, efforts should be intensified to ensure the secure supply of natural gas through imported pipelines, solve the problem of transporting energy over long distances from coal-rich areas, and provide clean fuel for regions where air pollution control is a priority. Fourth, efforts should be made to promote new models for the differentiated and graded utilization of low-grade coal. Compared to the direct combustion of coal, the advantage of grading and utilizing low-grade coal in a targeted manner lies in the ability to achieve hierarchical utilization of materials and energy, thereby improving the efficiency of coal utilization and increasing its added value. For low-rank coals with a late coalification period, high volatile matter content, and high reactivity, value-added utilization is achieved through technologies such as pyrolysis, semi-coke utilization, and tar hydrogenation, in order to explore new models for integrated production of oil, gas, chemicals, and electricity, thereby improving the overall level of clean and efficient coal utilization. Fifth, it is necessary to strengthen the integrated development of modern coal chemical industry and the oil refining industry. Strengthening the integrated and coordinated development of the coal chemical industry and the refining industry not only helps to enhance the overall competitiveness of the modern coal chemical industry, but also enables the use of coal-based oil products, with their favorable properties and cleanliness, to improve the quality of refined oils in the refining industry and reduce refining costs. Given the current overcapacity in the oil refining sector, it is necessary to actively explore how these two industries can leverage their respective strengths, adopt a differentiated layout, and integrate for development, thereby achieving product blending and complementary product performance. The two industries coordinate in terms of resource utilization, complement each other’s technological strengths, and integrate their products, thus forging a path for the development of the chemical industry suitable for China. Independent refineries could consider developing coal-to-hydrogen technology to save on hydrogen production materials such as natural gas and light hydrocarbons, thereby helping to reduce the costs of oil processing ； For modern coal chemical plants and refineries that are located at a certain distance apart, it is possible to explore ways to achieve \"hydrocarbon complementarity\" and the comprehensive utilization of coal, oil, and gas resources, as well as to consider the possibilities of integrated development of oil and coal, coal and aromatics, and coal chemicals. **Leveraging the advantages of coal resources in China’s western region, modern coal chemical industries should be developed there. This would create a complementary layout to the petrochemical industry, fill gaps in the regional market, and promote the downstream development of petrochemical products in the central and western regions. Relying on technological innovation, the development of modern coal chemical industry has overturned the notion that traditional C1 chemistry yields only a limited range of downstream products. It is believed that the innovative development of modern coal chemical industry in the future will further expand the broad product range of C1 chemistry.