New coal chemical industry may see a new round of growth

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New coal chemical industry may experience a new wave of growth. Published on: 2012-10-03. The new coal chemical industry represents the most practical energy solution for China. The country’s resource endowments and energy prices make coal chemistry the best solution to its energy problems. Coal chemical industry is the process of using coal as a raw material and undergoing chemical processing to convert it into gaseous, liquid, solid fuels as well as chemicals. Against the backdrop of abundant coal resources in our country and a generally bullish outlook for international oil prices, coal chemical industry represents the best solution to our country’s energy problems. Our country is one that is \"rich in coal, short of oil, and lacking in gas\". Of the proven fossil fuel reserves in my country, oil and natural gas account for 6%, while the remaining 94% is coal; coal holds an absolutely dominant position in China’s fossil fuel structure. According to BP, in 2011 China’s coal reserves amounted to 114.5 billion tons, with an exploitable lifespan of about 33 years. Meanwhile, according to media reports, the Ministry of Land and Resources stated that new coal reserves across the country exceeded 60 billion tons in the first half of 2012. Compared to oil and gas, China still has enormous potential in terms of coal reserves. The resource endowment dominated by coal provides a solid foundation for the development of coal chemical industry in China. The price advantage of coal drives the development of coal chemical industry in our country. The continuous rise in international oil prices in recent years has provided market momentum for the development of oil alternatives. In an environment of long-term bullish oil prices, the price advantage of coal becomes even more evident. Price advantage is the core driving force for the development of coal chemical industry. Energy security issues provide the necessity for the development of coal chemical industry. On the one hand, China’s resource profile of abundant coal, limited oil, and scarce gas means that crude oil production is insufficient to meet the demands of the country’s rapid economic growth; as a result, China’s reliance on oil imports has been increasing in recent years. On the other hand, oil imports and prices are often influenced by factors such as ** and geopolitics, putting China’s downstream enterprises in a disadvantaged position and making it difficult to ensure energy security. This energy security issue underscores the necessity for the development of coal chemical industry. New coal chemical industry is the direction of development for coal chemicals. The coal chemical industry can be divided into traditional coal chemicals and new types of coal chemicals. Traditional coal chemical industry mainly includes sub-sectors such as ammonia synthesis, methanol production, coking, and calcium carbide production. The new type of coal chemical industry is one that focuses on the production of petroleum substitutes, and it mainly includes products such as coal-based ethylene glycol, coal-based oil, coal-based olefins, and coal-based natural gas. The problem of overcapacity in traditional coal chemical products is severe. Traditional coal chemical industry mainly includes products such as synthetic ammonia, methanol, coking, and calcium carbide, which are widely used in industries such as agriculture, steel manufacturing, light industry, and building materials. It plays a crucial role in driving national economic growth and ensuring people’s livelihoods. In 2011, China’s production volumes of synthetic ammonia, methanol, calcium carbide, and coke were 50.6 million tons, 26.27 million tons, 17.5 million tons, and 404 million tons respectively, all of which ranked first in the world. However, its industrial structure was relatively backward, its competitiveness was low, and there was a serious problem of overcapacity. There is still a supply-demand gap for new coal chemical products, offering broad market potential. The new type of coal chemical industry is based on carbon-one chemical technology, with coal gasification (000968) serving as its core. It makes use of advanced chemical technologies such as catalytic synthesis, separation, and biochemistry to produce clean energy sources that can replace petroleum, as well as various chemical products such as refined oil, ethylene glycol, dimethyl ether, ethylene, and propylene. Based on the current situation, there is still a huge supply-demand gap for new coal chemical products in the domestic market, indicating broad market potential. Policies drive development; new coal chemical industry may experience a new boom. The 12th Five-Year Plans of coal-producing provinces support the growth of the new coal chemical industry. The 12th Five-Year Plans of coal-producing provinces support the growth of the new coal chemical industry. Nationwide, **the approach toward coal chemical industry is mainly “upgrading and setting examples, along with total volume control.” However, since the new coal chemical industry represents a clear area for investment growth during the 12th Five-Year Plan period and boasts significant resource advantages, coal-producing provinces hold a positive attitude toward investing in coal chemistry. According to the 12th Five-Year Plan for new coal chemical industries in the major coal-producing provinces, investment in such industries is expected to reach 2 trillion in the future. New policy guidelines for coal chemical industry are likely to be introduced, potentially sparking a wave of investment. The much-anticipated policies related to the coal chemical industry are set to be released in the near future. The \"Planning for Demonstration Projects on Advanced Coal Processing\" and the \"Development Policies for the Advanced Coal Processing Industry\" serve as the guiding plans for the future development of this industry, and are therefore highly anticipated by the sector. **Li Ye, director of the Department of Energy Conservation and Technological Equipment at the National Energy Administration, said recently that the \"Plan for Demonstration Projects on Advanced Coal Processing\" and the \"Development Policies for the Advanced Coal Processing Industry\", prepared by the National Development and Reform Commission and the National Energy Administration, have been approved by the office meeting of the head of the National Development and Reform Commission, and are set to be released and implemented in the near future. Among them, a total of 18 key demonstration projects were approved, including gasification technology, synthesis technology, and large-scale equipment; in addition, 15 demonstration projects for the deep processing of coal were approved in 11 provinces and regions such as Inner Mongolia and Xinjiang. A billion-yuan investment boom in the new coal chemical industry is likely to emerge. Due to the large scale of new coal chemical projects and their high capital investment requirements, an investment boom in this industry is likely to occur: 1) The total investment expected for these 15 demonstration projects exceeds 300 billion yuan. Among the 15 demonstration projects, there are 6–7 coal-to-natural gas projects, 3–4 coal-to-olefins projects, 1–2 coal-to-oil projects, and 1 coal-to-dimethyl ether project. Based on estimates of the investment per project, among the 15 demonstration projects, the investment costs for just four of them – the production of natural gas from 5.5 billion cubic meters of coal in Yili, Xinjiang; the production of 3 million tons of dimethyl ether in Ordos, Inner Mongolia (600295); the indirect liquefaction of coal on a scale of 1 million tons in Yulin, Shaanxi; and the indirect liquefaction of coal on a scale of 4 million tons in Ningdong, Ningxia – will exceed 100 billion yuan. Under conservative estimates, the total investment for all 15 demonstration projects will exceed 300 billion yuan ； 2. It is prudent to estimate that the scale of investment in this industry during the 12th Five-Year Plan period could exceed 1 trillion. Based on the available data, a total of 104 large-scale coal chemical projects were officially submitted to the **Development and Reform Commission** for approval during the 12th Five-Year Plan period. According to the technical plans submitted by various regions, if all of these projects were built during that period, the investment required would exceed 2 trillion yuan. We believe that although there is still caution regarding investments in new coal chemical industries at present, even if conservatively estimated to be 50% of the projects approved, it would still result in investments in the amount of over 1 trillion. Therefore, we believe that coal-to-natural gas could become a hot investment area, and new projects in this sector are still worth looking forward to. The reason is as follows: First, coal-to-natural gas may become a hot spot for investment. One of the key bottlenecks in coal-to-gas conversion is the issue of pipeline transportation for gas. According to public information, Sinopec plans to invest 250 billion yuan in building two coal-to-natural gas pipelines with an annual gas transport capacity of 60 billion cubic meters, in order to transport the natural gas derived from Xinjiang’s coal resources to the provinces in the central and eastern regions. The coal-to-natural gas pipeline project is expected to receive approval from the National Development and Reform Commission in the near future; coal-to-natural gas is likely to enter a phase of actual development and may become a hot spot for investment. Secondly, the 60 billion cubic meters of gas pipelines are expected to drive 360 billion yuan in investment in coal-to-natural gas projects. Based on an investment of 24 billion yuan for a coal-to-natural gas project with a production capacity of 4 billion cubic meters, pipelines with a gas transmission capacity of 60 billion cubic meters are expected to drive a total investment of 360 billion yuan in coal-to-natural gas projects, so further development of such projects remains promising.