Oil prices are approaching $110 per barrel – where are the break-even points for various coal chemical production methods?

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Recently, Brent crude oil prices rose to $110 per barrel, far exceeding the break-even points for various coal-based chemical production methods. The break-even point for coal-to-olefins is around $45–50 per barrel, for coal-to-oil it is about $55–65 per barrel, and for coal-to-natural gas it is approximately $60–70 per barrel. Under oil price scenarios of $100/barrel, $120/barrel, and $150/barrel, the cost advantage of coal-based chemical manufacturing over petroleum-based chemical manufacturing will be 20% to 50% respectively. In an era of high oil prices, the economic advantages of the coal chemical industry have been fully established. Analysis of the break-even points for various coal chemical production routes. Modern coal chemistry primarily includes processes such as coal-to-oil, coal-to-natural gas, coal-to-olefins, coal-to-ethylene glycol, and coal-to-aromatics. The technical maturity, investment scale, and cost structure vary significantly across different routes, resulting in different break-even points as well. 1.1 Coal-to-olefins: the most cost-effective route. Coal-to-olefins (CTO/MTO) is currently the most cost-effective route in coal chemical processing. According to data from Shenhua Research Institute of Science and Technology, the break-even point for coal-based olefins is only 45–50 dollars per barrel, which is much lower than that of other production methods. In its cost structure, fixed costs related to coal-based olefins account for approximately 50–60% (of which equipment depreciation and financial expenses make up 49%), while the cost of raw coal constitutes only around 22%. This cost structure makes coal-based olefins relatively less sensitive to fluctuations in coal prices, but more sensitive to product prices (which are linked to oil prices). 1.2 Coal-to-oil: A strategic reserve for energy security. Coal-to-oil production involves two technical approaches: direct liquefaction and indirect liquefaction. The break-even point for direct liquefaction is around $55–60 per barrel, while that for indirect liquefaction is around $60–65 per barrel. Unlike coal-to-olefins, the fixed costs in coal-to-oil production account for as much as 80%, with equipment depreciation and financial expenses being the main components; the cost of raw coal accounts for only 13–14%. 1.3 Coal-to-natural gas: Significant regional competitiveness. The break-even point for coal-to-natural gas production is approximately $60–$70 per barrel. In its cost structure, raw materials (coal) account for 52.5%, depreciation and repair costs account for 29.3%, and fuel and power account for 5.3%. At a coal price of 300 yuan per ton, the production cost of coal-to-natural gas is approximately 1.59 yuan per cubic meter, which is lower than the price of imported LNG (around 2.91 yuan per cubic meter). Economic feasibility analysis under different oil price scenarios 2.1 Analysis of the $100/barrel scenario: When the oil price is $100 per barrel, all coal-based chemical production routes are profitable. Among them, coal-based ethylene glycol has the strongest profitability (+50%), followed by coal-based olefins (+40%). Coal-based oil yields a profitability of around 25%–28%, while coal-based natural gas is now generating considerable profits (+18%). At these oil price levels, the coal chemical industry as a whole enjoys a significant cost advantage. 2.2 Scenario analysis at $120 per barrel: When oil prices reach $120 per barrel, the coal chemical industry enters a period of high profitability. The profitability for coal-based ethylene glycol can reach +80%, for coal-based olefins +65%, for coal-based oil +45%~50%, and for coal-based natural gas +38%. At this point, the cost advantage of coal-based chemical products over petroleum-based ones is quite evident, which will attract substantial investment into this sector. 2.3 Scenario analysis for $150 per barrel: A oil price of $150 per barrel represents an extreme scenario, but it cannot be entirely ruled out given the escalation of conflicts in the Middle East. Under these conditions, the profitability of various coal chemical routes will reach extremely high levels: coal-to-ethylene glycol +120%, coal-to-olefins +95%, coal-to-oil +68%~72%, and coal-to-natural gas +60%. This will completely transform the landscape of the global chemical industry. Coal chemical industry vs. petrochemical industry: An in-depth comparison of cost structures. There are fundamental differences in the cost structures of the coal chemical industry and the petrochemical industry. Coal chemical industry has high fixed costs and low variable costs, while the petroleum chemical industry is the opposite. This difference determines the competitiveness of the two in different oil price environments. 3.1 Comparison of raw material costs The core advantage of the coal chemical industry lies in the stable low prices of coal. The cost per ton of coal in the northwestern region’s open-pit mines is only 122–260 yuan per ton. In contrast, the petrochemical industry relies heavily on imported crude oil; in 2024, the average price of Brent crude oil was around 82 dollars per barrel, with crude oil costs accounting for over 70% of the total costs in this industry. The raw material cost for coal-based olefins is approximately 1,055 yuan/ton lower than that for oil-based production (7,319 yuan/ton for coal-based vs. 8,373 yuan/ton for oil-based). 3.2 Comparison of energy and process costs: Coal chemical industries have high energy consumption, with approximately 4.5 tons of coal required per ton of methanol produced; however, the costs of electricity and steam in the northwest region are lower than those in the east. For example, through the pure oxygen oxidation process, Jinneng Equipment Group has reduced coal consumption per ton of ammonia by 14 kg, saving 621 million yuan in costs annually. The petrochemical industry features a high degree of integration in refining and processing; through processes such as cracking and reforming, carbon atoms are converted efficiently (at over 90%), but an oil refining stage is required, resulting in double the investment for the entire industrial chain. 3.3 Key Oil Price Threshold For competitive purposes, various studies indicate that $50–$55 per barrel represents a critical threshold for the competitiveness of coal-based chemical industries: when crude oil prices are below $50 per barrel, the cost advantages of oil-based chemical production become apparent ； When it is above $60 per barrel, the cost of coal-based chemical production is lower ； When the price is above $80 per barrel, coal chemical industry has a significant advantage.