Why have modern coal chemical projects become ‘discarded pieces’”

Thread Content

Why have modern coal chemical projects become “abandoned projects”? Author/Source: Sinochem News Date: March 17, 2022 Page views: 3 — The coal chemical industry under the backdrop of the “dual carbon” strategy and restrictions on “two high” industries (Part 1). Following Sinopec’s decision to abandon its planned 23-billion-yuan investment in a 600,000-ton/year coal-to-olefins project in Guizhou, reclassifying it instead as a “biodegradable new materials project”, Shanxi Coking Coal Group’s Feihong Chemical recently announced that it intends to “temporarily halt progress” on its own integrated project involving the production of 600,000 tons/year of olefins and methanol from coke oven gas. Additionally, the company has initiated efforts to evaluate and advance a “transformation project”. This inevitably gives the impression that modern coal chemical projects have become “abandoned projects”. 　　In fact, looking further back, in recent years there have been reports from various regions of large-scale modern coal chemical projects being shut down, their construction delayed, or completely abandoned. Among them, the most notable case is that the demonstration project for the utilization of coal in different grades to produce new chemical materials in Yulin, Shaanxi—a project currently under construction with a total investment of 126.2 billion yuan—was abruptly put on hold last July, sparking speculation and concerns across various sectors. 　　Why do modern coal chemical projects, which often involve investments of hundreds of billions of yuan, end up being abandoned? The author believes this is related to the industry’s strong reliance on resources and its cyclical nature. Since the coal chemical industry relies heavily on industrial policies, resource availability, and market cycles, it can be said to be at the mercy of these factors; any change in policies or markets can have a severe impact on it. Judging from several projects that have been put on hold, delayed, or redesigned as disclosed by the industry, all are constrained by industrial policies, market conditions, and future prospects. 　　First, it is constrained by coal availability. The coal chemical industry is characterized by relatively high energy consumption and carbon emissions. Against the backdrop of China’s “dual carbon” strategy, it is evidently difficult to achieve a significant expansion in production capacity. Over the past 10 years, **to promote the healthy and orderly development of the coal chemical industry, a series of highly targeted environmental protection policies have been introduced. As a prelude to the “dual carbon” strategy, the “dual control” of energy consumption has become a key measure to drive the green and low-carbon transformation of the economy. In the past two years, **relevant departments and local authorities** have introduced a series of policies to firmly curb the uncontrolled development of high-energy and high-emission projects. Some provinces have implemented systems for reducing capacity, coal consumption, energy consumption, carbon emissions, and pollutant emissions in relation to high-capacity and high-emission projects; as a result, it is difficult for new coal chemical projects to obtain sufficient additional quotas, and alternative sources are even harder to find. Coupled with the policy upheld by the development and reform departments over the past few years, which requires that both fuel coal and raw material coal be included in the energy consumption assessment criteria, coal chemical enterprises find it extremely difficult to operate effectively. 　　Second is the increased difficulty and cost of using coal. Last year, domestic coal prices kept rising, with an even faster increase in the third quarter. Especially after October, with the arrival of the heating season, demand for coal surged sharply, leading to a severe shortage in many areas. Coal-using enterprises rushed to purchase supplies from intermediaries in the market, which drove coal prices up to 1,900 yuan per ton, reaching an all-time high. From late October to early November, the interruption of long-term supply contracts for some coal-using enterprises further exacerbated the impact on industries such as electricity and chemicals. The soaring prices of raw coal have led to a significant increase in production costs, placing heavy financial pressure on companies; as a result, most coal chemical projects experience only increased revenue without corresponding increases in profits. The severe shortage of raw coal supply has also made it difficult for some enterprises to maintain normal production levels, and they have yet to recover so far. Statistics show that the production capacity of fertilizer manufacturers in provinces such as Henan and Shandong is only around 80%. 　　Third, it is constrained by deteriorating expected benefits. The profitability of the modern coal chemical industry is closely related to the price trends of coal and crude oil. “Since the 13th Five-Year Plan period, affected by significant fluctuations in raw material prices, modern coal chemical enterprises have achieved unsatisfactory operating results in most years, except for 2018 and 2021 when their performance was relatively good. In particular, during 2019–2020, apart from coal-to-olefins, which still managed to be profitable, coal-to-oil, coal-to-gas, coal-to-methanol, and coal-to-ethylene glycol all incurred massive losses; overall, the industry saw no profits at all. As a result, some enterprises were burdened with heavy obligations, while others were forced to halt production for maintenance, leaving newcomers feeling disheartened. Of course, aside from market factors, some large-scale modern coal chemical projects suffer from high production costs due to their massive investments, long construction periods, and heavy financial expenses, which renders them unable to cope with market fluctuations. In 2021, the continuously soaring coal prices further led to inverted costs for enterprises, making them acutely aware of the unpredictability of the market. Due to deteriorating expected returns, some projects were put on hold or suspended in order to cut losses decisively; some enterprises promptly modified their processes to produce products such as new chemical materials. 　　There are shortcomings in the upgrading of the high-end segment of the coal chemical industry chain. Under the impact of products derived from petroleum routes and imported products, the industry’s profitability continues to be affected. Looking at several coal chemical projects in the industry that have adjusted their construction plans, a common feature among them is the extension of the industrial chain and an increase in the variety of products. By integrating with petrochemical, salt chemical, and fluorosilicon chemical industries through co-production, these projects manage to boost the added value and profit margins of their products, which represents an excellent direction for the development of modern coal chemical enterprises.