Progress and Investment Analysis of Coal-to-Olefins Projects in Our Country

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China’s per capita consumption of polyolefins is only 5 kilograms of polyethylene and 4.5 kilograms of polypropylene, which is far below the levels of developed countries; therefore, China has enormous potential demand for polyolefin products. At the same time, due to China’s high dependence on imports for polyolefins at present (50.1% for PE in 2005, and 36.7% for PP) ； In 2006, the PE ratio was 44.69% and that of PP was 34.33%). Therefore, as a direct extension of the coal-to-methanol industry chain, coal-to-olefins can not only effectively expand the downstream market demand for methanol but also diversify the raw materials used in olefin production in China and improve the self-sufficiency level of domestic resin raw materials. Policies for the coal chemical industry are currently being formulated and improved; they will be divided into 7 sections and are expected to be introduced by the end of 2007 or early 2008. Following the introduction of this policy, the entry barriers for the coal chemical industry, which requires investments in the order of several billion yuan, will not be reduced. China’s coal resources are mainly concentrated in Shanxi Province, the northern Shaanxi–inner Mongolia region, northern Xinjiang, and the areas at the borders of Sichuan, Guizhou, and Yunnan. The coal resources in these four regions account for 9.6%, 38%, 31.4%, and 5.3% of the country’s total coal resources respectively, totaling approximately 85.3%. The 13 provinces (autonomous regions) with developed coastal industry and agriculture together have only 168.6 billion tons, accounting for just 3.4% of the total resources ； The remaining provinces (autonomous regions and municipalities) account for about 11.6%. The imbalance is also evident in the fact that the vast majority of coal resources are located in areas with poor natural conditions and poor transportation links, and far away from economically developed regions. This means that coal must be transported over long distances from the place of production to the place of sale. It can be argued that to the east of the Daxinganling–Taihang–Xuefeng Mountains range, the potential of coal resources has been largely exhausted; it will be difficult to increase reserves and production in the future. Therefore, the transportation of coal from the west to the east and from the south to the north in China is an inevitable trend. China is rich in coal resources, and methanol is one of the coal chemical products that can be produced on a large scale at present. Currently, methanol serving as a substitute for petroleum has become a reality. In the long term, methanol can also become one of the main alternatives to oil. Research on the production of ethylene and propylene from methanol is showing initial promise; at current oil and olefin prices, the expected economic benefits of producing olefins from methanol are roughly comparable to those of producing them from naphtha and light diesel. Therefore, from the perspective of China’s alternative oil resources, the moderate development of the methanol industry holds significant strategic importance. In recent years, China’s PE production capacity has grown rapidly. Currently, there are over 20 polyethylene production enterprises across the country, with around 30 production units, most of which utilize foreign technology. In 2006, the national production capacity for polyethylene resin was 7.225 million tons, while the actual output reached 5.99 million tons, representing a 15% increase compared to 2005; the average operating rate of the production facilities was 88% ； Apparent consumption also grew rapidly, rising to 10.834 million tons in 2006, an increase of 3.25% on a year-on-year basis ； As the resin among China’s five major general-purpose resins with the highest import volume, PE imports reached 4.95 million tons in 2006, a decrease of 6.4% compared to the previous year; imports accounted for 45.7% of total apparent consumption. Compared with developed countries, China’s PP industry still faces issues such as a large number of production enterprises, small-scale facilities, and high production costs. In 2006, in China there were only 21 companies whose PP production exceeded 100,000 tons; their total production capacity amounted to 4.373 million tons per year, accounting for 70% of the country’s total production capacity. To cover the 30% gap in PP supply and demand in our country, China will add approximately 5 million tons of PP production capacity between 2007 and 2009, with each new facility having a capacity of over 200,000 tons per year. If all these projects are put into operation on schedule, China’s total PP production capacity in 2010 will reach approximately 11 million tons per year. At present, polypropylene in China is mainly used to produce woven products, film products, injection-molded products, and textile products, and is widely applied in fields such as packaging, electronics and electrical appliances, automobiles, fibers, and construction pipes. With the rapid development of the domestic economy, China’s apparent consumption of polypropylene is set to maintain a high growth rate in the next 5 years. It is estimated that by 2010, China’s apparent consumption of polypropylene will increase to 11.76 million tons. In the coal-based olefins industry, the olefins projects carried out by companies such as Shenhua, Datang, Dow, Yankuang Group, and Yunnan Petrochemical Group/Xinyunwei Group Co., Ltd. are among the best in China and even internationally. As a result, technology and resources are concentrated in the hands of these large enterprises, which hold a leading position in the industry and possess strong competitiveness. Some other companies that have started producing coal-based olefins have relatively weaker competitiveness. Against the backdrop of high crude oil prices, coal-based olefins have a significant cost advantage. Take Shenhua Group’s Baotou coal-to-olefins project as an example; the site of this project is located only about 90 kilometers away from the Shenhua Wanli coal mine. The construction scope includes a 1.8 million tons per year methanol plant, a 600,000 tons per year methanol-to-olefins (MTO) plant, a 300,000 tons per year polyethylene plant, and a 300,000 tons per year polypropylene plant, among others. The entire project consumes 3.45 million tons of raw coal and 1.28 million tons of fuel coal per year, with a reported total investment of 11.7 billion yuan. According to estimates by researchers at Shen Yin Wan Guo, the cost of producing 300,000 tons each of ethylene and propylene in the first phase of this project is 3,276 yuan per ton, which is equivalent to a crude oil price of $30 per barrel; thus, the production costs are highly competitive compared to those of the petrochemical route. Compared to ethylene plants using petroleum feedstocks, coal-based olefin plants require much higher investment. The total investment in Shenhua Baotou’s 600kt/a coal-to-olefins project, which utilizes MTO technology, as well as Ningxia Coal Industry Group’s 520kt/a olefins plant that employs Lurgi’s MTP technology, both exceeds 10 billion yuan. Taking into account the large-scale coal-to-olefins projects planned in Yunnan, Inner Mongolia and other regions at present, the investment per ton of ethylene produced is 30,000–35,000 yuan. Coal-to-olefins plants require a higher level of investment, with the total investment being approximately 1.5–2 times that of oil-based routes. The main reasons for the high investment costs in coal-based olefin projects are as follows: First, the raw material coal used in coal-based olefin plants is solid, and before it can be gasified, it must go through complex processes such as grinding and pulping; this requires large-scale equipment and results in high costs ； Second, the investment in the gasification unit is high, accounting for about 50% of the total factory investment. The patent fees for processes ranging from gasification to the production of end products are relatively high, at 180–250 dollars per ton of ethylene produced, which is significantly higher than the 10–30 dollars per ton associated with traditional methods ； Third, coal-to-olefins plants require substantial utility infrastructure, demanding additional investment in the construction of systems such as boilers, power plants, power supply and distribution systems, circulating water systems, and wastewater treatment systems. In short, coal-based olefins are technology-, capital-, and talent-intensive industries that require high levels of comprehensive strength from enterprises ； The core technology, the methanol-to-olefins process, has yet to see any commercial implementations, and there is no existing experience available to guide project construction and operational management ； Developing coal-to-olefins projects at coal mine entrances faces significant constraints in terms of water resources and urban support ； Coal-to-olefins projects are located far from major consumer markets, resulting in high transportation costs for the products. Therefore, the barriers to entry in the coal-based olefins industry are high, which increases the risks for potential companies entering this sector. High barriers to entry also mean that exiting the industry carries risks as well. Furthermore, the coal-to-olefins industry is a technology- and capital-intensive sector with a wide range of implications; its project construction is complex, making implementation challenging. At the same time, it is an emerging industry, and there are still many uncertainties and risks in its development.