State-owned enterprises enter the new era of coal chemical industry

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　HC360 Chemical News: According to plans, the total investment in China’s coal chemical industry over the next 15 years is set to exceed 1 trillion yuan. A number of central state-owned enterprises and large local state-owned firms have ventured into the field of new coal chemical technologies, represented by \"coal-to-oil\" production. The \"coal-to-oil\" facility operated by China Shenhua in Ordos, Inner Mongolia, has completed nearly 96% of its construction work, which is certainly good news, especially given the recent rise in international oil prices, with crude oil futures prices approaching $100 per barrel. Projects carried out simultaneously with China Shenhua include the coal-to-oil indirect liquefaction project of Lu’an Group, the coal-based olefins and dimethyl ether projects of Shenhua Ningmei Group, and XieXin Group’s large-scale dimethyl ether and propylene projects in Inner Mongolia... At the same time, a number of central state-owned enterprises and large local state-owned enterprises such as China National Coal Group, CNOOC, Sinochem, SDIC, Yankuang, and Luneng have also ventured into the new field of coal chemical industry represented by \"coal-to-oil\" technology. With oil prices remaining high, coal-based chemical industries such as \"coal-to-oil\" have once again become the focus of discussion; they have never inspired the interest of so many different interest groups as they do today. As Chen Yafei, deputy director of the Beijing Coal Chemical Industry Research Institute, told \"State-Owned Enterprises\": \"It goes without saying that it’s about seeing business opportunities; as long as the price of crude oil is 40 dollars per barrel, profits can be made.\" ” After many twists and turns, \"coal chemical industry\" was last mentioned in an official document on November 23, in the \"Opinions on Strengthening Interaction between the East and West and Further Promoting the Development of the Western Region\" issued by the National Development and Reform Commission, which called for \"the exploitation of coal resources and the establishment of large-scale coal chemical industrial bases.\" At the local level, Inner Mongolia has set the goal of turning the eastern part of the region into an **important modern coal chemical industry hub by 2020**, and has initially planned to establish three such **important modern coal chemical industry hubs** in the eastern area: Hulunbuir, Huolinhe, and Xilinhot. Other regions were not far behind; provinces and autonomous regions such as Xinjiang, Shanxi, Anhui, Yunnan, Ningxia, and Henan also announced their plans to actively establish world-class coal chemical industry bases. This inevitably brings to mind the predicament of traditional coal chemical industry three years ago. Coal chemical industry is a process that uses coal as raw material and, through chemical processing, converts it into gaseous, liquid, solid fuels as well as chemicals. Coal chemical industry can be divided into traditional and new types. The traditional type involves areas such as coal coking, coal calcium carbide, and coal-based ammonia synthesis (fertilizers), while the new types of coal chemistry generally refer to coal-to-oil, methanol, dimethyl ether, and olefins. Currently, traditional coal chemical industry in China has a long history, while the new type of coal chemical industry is just in its infancy. Since 2004, there has been an oversupply in the traditional coal chemical industry. Documents issued by the National Development and Reform Commission indicate that, based on the status of projects under construction or planned in various regions as well as forecasts for future market demand, the production capacity of calcium carbide and coke in 2010 will still be **higher than market demand. Overcapacity will trigger fierce competition among enterprises, leading to lower product prices and a significant increase in operational risks; therefore, **policies have classified it as an area that needs to be restricted in terms of development. “The fertilizer market is limited and already saturated ； Coking is also subject to **restrictions. ”Yu Zhixiang, a coal analyst at CIC Securities Research Institute, told State-Owned Enterprises that traditional coal chemical industries do not see much development. Just as all public opinion was calling for a halt to traditional coal chemical industries, things took a turn, and new types of coal chemical industries began to emerge. With the entry of international and domestic investors, new types of coal chemical industries are moving from the laboratory stage to production. Chen Yafei suggests that enterprises that are well-established in traditional coal chemical manufacturing and operate on a large scale should gradually shift toward new types of industries. They should actively expand their operations overseas, making full use of their existing advantages in technology, talent, and management. By means of shareholding or controlling stakes, they can cooperate with regions in the west that are rich in coal resources. At the same time, they should work together with research institutions to identify projects with market potential, make proactive preparations, develop new products, and gradually undertake this transformation. The new era of coal chemical industry: According to statistics from the National Development and Reform Commission, there are currently 30 new coal chemical projects under construction, with a total investment of over 80 billion yuan. These projects will result in an additional production capacity of 8.5 million tons of methanol, 900,000 tons of dimethyl ether, 1 million tons of olefins, and 1.24 million tons of coal-derived oil. The registered production capacities are 34 million tons for methanol, 3 million tons for olefins, and 3 million tons for coal-to-oil. Xu Bin, a coal analyst at Changjiang Securities, expressed optimism to \"State-Owned Enterprises\" regarding the development prospects of new coal chemical industries: From a market perspective, with shortages of oil resources and oil prices remaining high, it is a trend to use coal chemical products as substitutes for oil ； Strategically, oil is a strategic resource; one-third of it is imported, and there are times when it cannot be purchased even with money available. It is therefore important to maintain oil reserves ； In terms of cost, 1 ton of oil can be produced from 4 tons of coal, offering a clear cost advantage ； Furthermore, coal accounts for 94.3% of the proven energy reserves; the basic situation in China is one of a shortage of oil and gas and an abundance of coal, which makes the development of coal chemical industry an inevitable choice. A new era of coal chemical industry has emerged. However, “for investors, new projects also have their advantages and disadvantages.” Enterprises’ new push into the coal chemical industry carries significant technical and financial risks; each company must weigh these risks on its own and choose the option that offers the greater benefits or minimizes the greater harms. ”Xu Bin reminded. Among them, coal-based methanol and dimethyl ether have been put into production, with production volumes ranking among the highest in the world. However, coal analyst Zhang Xiangdong said that a trend of blind expansion in methanol production is emerging, and if this continues, there will be a significant surplus of methanol supply by 2010. Furthermore, when used as a raw material in the field of alternative transportation, methanol faces insurmountable issues such as low calorific value and mechanical corrosiveness; as a result, relevant **standards for methanol gasoline have not been established for a long time. In July 2006, the National Development and Reform Commission issued a directive stating that it would no longer approve coal-to-oil projects with an annual production capacity of less than 3 million tons, methanol and dimethyl ether projects with a capacity of less than 1 million tons, and coal-to-olefins projects with a capacity of less than 600,000 tons. There is no need for concerns regarding methanol; as a material used in alternative transportation systems, dimethyl ether is more recognized by experts, and it is the most mature alternative fuel available in the consumer market. The guidelines issued by the National Development and Reform Commission regarding the management of the coal chemical industry also explicitly classify dimethyl ether as a promising alternative energy source, a fuel suitable for China’s energy structure. Coal-to-oil and coal-to-olefins are still in the stage of industrial testing and demonstration, said Xu Bin; “there are still technical and engineering risks.” Chen Yafei said that coal-to-oil is a highly profitable industry; profits can be made as long as the price of crude oil remains at $40 per barrel. Due to high international oil prices and the scarcity of oil, coal-based chemical processes such as coal-to-oil offer significant profit potential. “Only China and South Africa are engaged in coal-to-oil production, and the success of just one production line represents a remarkable achievement. ”Xu Bin said. “Coal-to-oil and olefin production are not something that small and medium-sized enterprises can undertake; only large corporate groups such as Shenhua and Yankuang are capable of entering these fields. ” Chen Yafei said, “According to the requirement of **not less than 3 million tons, an investment of 100 million yuan is needed for 10,000 tons, so a single project requires at least 30 billion yuan.” At present, Shenhua Group is the leading company in the country. The coal-to-oil project in Ordos, Inner Mongolia, which is set to go into operation next year, has attracted a great deal of attention. It represents the world’s first application of direct coal liquefaction technology, developed independently by Shenhua Group. The planned capacity is 5 million tons of oil per year; the first production line of the first phase has a capacity of 1 million tons of oil per year. It has been designated as a model project for coal chemical industry under China’s 11th Five-Year Development Plan. In addition to Inner Mongolia, Shenhua also has coal chemical projects in Ningxia, Shaanxi and other places. The project with an annual production capacity of 520,000 tons of coal-based olefins is a key project under the plan for the Ningdong Energy and Chemical Industry Base. It is also the world’s first large-scale coal chemical project that uses coal as raw material to produce polypropylene, with completion and operation scheduled for 2009. In Xinjiang, Shenhua holds a 51% stake in Xinkuang Group through capital increases and share expansions, and works with it to develop coal liquefaction projects with a production capacity of tens of millions of tons. China National Coal Group is the second-largest coal enterprise in China after Shenhua. Since the establishment of the \"China National Coal Group Energy and Coal Chemical Technology Center\" in August 2006, projects for producing 600,000 tons of olefins and 2.2 million tons of methanol in Harbin have been carried out, with total investment expected to reach 10 billion yuan. In addition, China National Coal Group has also begun to advance its coal chemical projects in Ordos. In terms of coal chemical industry, Yankuang Group stands out. It chose to develop overseas; the Ruhr region in Westphalia, Germany, is known as the world’s \"birthplace of coal,\" and Yankuang Group established a coal chemical industry base there in southwestern Shandong. Yan Tianke, head of the Coal Division at the Energy Bureau of the National Development and Reform Commission, once told \"State-Owned Enterprises\": \"Shandong’s coal resources are on the verge of depletion; therefore, large state-owned enterprises like Yankuang should be encouraged to expand their operations outside the region.\" ”Yankuang has also listed coal chemical industry as one of its core business areas, in line with its renewed strategic focus. In addition to coal companies, the enthusiasm for coal chemical industry has also spread to other central state-owned enterprises. Recently, the coal chemical industry in Jincheng, Shanxi has attracted great interest from CNOOC and Sinochem Group; the two companies will jointly make strategic investments in this industry there. In addition, leading enterprises in the energy sector such as Shandong Luneng, China Huaneng, and SDIC have also successively signed agreements in regions like Xinjiang, with investments expected to exceed 100 billion yuan. Trillions in investment may be mobilized. China’s \"Development Policy for the Coal Chemical Industry\" and \"Medium- to Long-Term Development Plan for the Coal Chemical Industry\" have been formulated. The basic principle of this development policy is to advance the industry steadily and continue to develop it in order to alleviate the shortage in oil supply. **It is planned to establish seven coal chemical industry zones in the middle and lower reaches of the Yellow River, eastern Mongolia, eastern Heilongjiang, Jiangsu, Shandong, Henan, Anhui, the Central Plains, Yunnan, Guizhou, and Xinjiang. As planned, large-scale production bases for methanol, dimethyl ether, and coal-to-oil products will be established in the middle and lower reaches of the Yellow River, Xinjiang, and eastern Mongolia. By 2020, it will become the largest production base in China for alternative fossil fuels, with an annual output of 11 million tons of coal-to-oil and 7 million tons of dimethyl ether ； Xinjiang plans to produce 10 million tons of coal-to-oil and 5 million tons of methanol per year ； In eastern Mongolia, three methanol production bases will be established in Xilinhot, Huolinhe, and Hulunbuir, with an planned annual production capacity of 10 million tons ； Zhongyuan and Yungui plan to produce 6 million tons of coal-to-oil each per year. As planned, the total investment in coal chemical industry over the next 15 years will exceed 1 trillion yuan, and new types of coal chemicals will see rapid development. To unlock investments in the trillions, the coal chemical industry can truly be called a \"rising industry\". “The development direction of coal chemical industry must be a large-scale industry, so that benefits can be significant. ”This was the most common answer given in the interviews. 1 trillion in investment implies huge business opportunities behind it. Perhaps this is the motivation behind large state-owned energy companies stepping into the field of new coal chemical industries.