China’s coal chemical industry in a dilemma
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Coal chemical industry is a sector that consumes large amounts of energy, causes high levels of pollution, and requires significant water usage. From a long-term strategic perspective, large-scale development of this industry carries considerable uncertainties. Affected by factors such as negative economic data from the United States, international oil prices continued to fall on January 15. According to a report released by an American energy research institution, demand in the U.S. for crude oil and gasoline products declined by 5.9% in December last year. By the end of the day, the price of February delivery light crude oil futures on the New York Mercantile Exchange fell by $1.88, closing at $35.40 per barrel, a decline of over 5%. Futures prices for North Sea Brent crude oil, due for delivery in February, dropped by 55 cents on the London International Oil Exchange, closing at $44.53 per barrel. Left with no choice, the Paris-based International Energy Agency reduced its forecast for global daily crude oil demand this year by 1 million barrels. In its monthly report, the agency noted that as the global economic downturn was more severe than expected, global daily demand for crude oil in 2009 would decline by 0.6% on a year-on-year basis, dropping to 85.3 million barrels per day. In fact, it’s not just OPEC that is troubled by excessively low oil prices; more than 30 Chinese companies involved in coal-based chemical projects are also affected. In response, the **Development and Reform Commission was forced to suspend coal chemical projects on three occasions in July and September 2006, and in October 2008. Favored by high oil prices: In recent years, the boom in coal-based chemical industries has been driven by the continuous rise in the prices of oil and natural gas. This has given coal-based chemical products a significant cost advantage in production, making them the most competitive alternatives to corresponding petrochemical products. Currently, it mainly refers to new types of coal chemical processes such as coal-to-oil, coal-to-alcohols and ethers, and coal-to-olefins. Even before World War II, Germany had successfully developed coal-to-oil technology, and 17 such plants were built prior to the war, producing over 4 million tons of gasoline and diesel. However, with the exploitation of oil fields in the Middle East after World War II, international oil prices remained very low, and coal-to-oil production was set aside due to its economic unviability. The only exception is found in South Africa, where coal-to-oil plants with an annual production capacity of 8 million tons represent the only large-scale commercially operational coal-to-oil projects in the world. As the fastest-growing major developing country in the world, China’s energy consumption is increasing at a rate that is almost in line with the rise in oil prices. Its resource profile, characterized by an abundance of coal and a shortage of oil, has led to a rapid increase in dependence on crude oil imports. As a result, the Chinese people suffer greatly from high oil prices and the heavy pressure imposed by energy constraints. It can be said that driven by high oil prices and rapid growth in crude oil imports, as coal-to-oil production regained momentum on the international stage, Chinese companies rushed to enter this field. In August 2004, the Shenhua Inner Mongolia coal-to-oil project commenced construction. The total investment in its first-phase production line was 24.5 billion yuan, and upon completion it would be capable of producing 3.2 million tons of various oil products per year. This is a coal chemical demonstration project as part of China’s coal industry development plan for the 11th Five-Year Plan period; it is also the world’s first coal-to-oil production line built in Ordos, Inner Mongolia. As planned, the second phase of the project will also come online in 2010, and upon completion it will be capable of producing 2.8 million tons of various oil products per year. In addition, Shenhua Group is in negotiations with South African company Sasol regarding the introduction of the latter’s coal indirect liquefaction technology. The planned construction scale for this project is 3 million tons, with a total investment of around 30 billion yuan. Following closely behind are Shanxi, Shaanxi, Inner Mongolia, Heilongjiang, Yunnan, Anhui, Henan, Xinjiang, and so on – any province that possesses coal resources has rushed to raise funds, attract investment, or form joint ventures in order to get involved in coal-to-oil projects as soon as possible. By the end of 2006, the capacity of coal-to-oil projects under construction or in planning across the country had exceeded 40 million tons per year. Data shows that at the end of 2007, China Coal Energy invested 13.859 billion yuan to work together with Sinopec, Shenneng Group, China Yintai Investment Co., Ltd., and Inner Mongolia Manshi Coal Group on the development of a methanol production facility with an annual capacity of 4.2 million tons and a dimethyl ether production facility with an annual capacity of 3 million tons; the total investment for this project was 35.8 billion yuan ； Shenhua Group, **Kerry Construction, and Mingtian Technology have jointly invested 11.56 billion yuan in the coal-to-olefins project in Baotou ； Yili Resources Group, the controlling shareholder of Yili Technology, joined forces with Shanghai Huayi and Shenhua Group to invest 4.3 billion yuan in building the first phase of PVC and ion-exchange membrane caustic soda production facilities. At present, there are only 4 coal-to-oil projects that have been approved for pilot implementation: Shenhua with a capacity of 3.2 million tons, Yankuang with 1 million tons, and Lu’an in Shanxi and Yitai in Inner Mongolia, each with a capacity of 160,000 tons. In addition to the projects under construction, Shenhua Group is also planning coal liquefaction projects in Ningxia, Xinjiang, and Hulunbuir in Inner Mongolia, with an estimated investment of over 200 billion yuan. The total investment in Yulin coal-to-oil project of Shandong Yankuang Group is approximately 10.9 billion yuan; together with the coal-to-oil projects of Lu’an and Yitai, the total capital invested by these four companies in such projects amounts to 250 billion yuan. According to statistics, during the 11th Five-Year Plan period, funds intended for investment in coal-to-oil projects amounted to as much as 500 billion yuan, and investments in the entire coal chemical industry are set to exceed one trillion yuan in the coming years. Moderate risks arise from rapid expansion. Lin Yifu, Vice President and Chief Economist of the World Bank, pointed out that industrial investment in China often occurs in waves, and coal chemical industry is one such example. With the large-scale launch of numerous coal chemical projects, many experts have pointed out that coal chemistry is an industry with high energy consumption, high pollution levels, and high water usage. Affected by factors such as resources, technology, policies, and the environment, the current boom in China’s coal chemical industry carries significant risks. Moreover, as coal prices continue to rise, the cost advantages of this industry will be put to the test. **Zhou Dadi, director of the Energy Research Institute of the National Development and Reform Commission, said that from the perspective of the coal industry, China’s current challenge is how to produce coal in a better, cleaner, safer, and more efficient manner, as well as to make rational use of it. As for the highly sought-after coal chemical industry, he warned that \"trying to rely heavily on coal for coal-to-oil and coal-to-gas production will lead to problems in the future.\" From a long-term strategic perspective, there is still significant uncertainty surrounding the large-scale development of coal chemical industries. ” Lu Lizhu, a member of the National Committee of the Chinese People’s Political Consultative Conference and a professor-level senior engineer at the Petroleum and Chemical Industry Planning Institute, also suggested that \"coal chemical industry should be developed if it is to progress, but it must not see a rush to do so.\" ”Lu Lizhu emphasized that coal chemical industry should only be developed steadily when the technology is mature and reliable, and when it offers good economic and social benefits. This is because coal chemical industry not only relies on coal resources, but also has high demands in terms of water resources, the ecological environment, production technologies, funding, and the allocation of social resources. There are still many unfavorable factors in the development of this industry that require careful study and resolution; otherwise, it will lead to serious consequences in the future. In response, experts identified three major risks: cost risk. Coal chemical industry projects require huge investments; for example, the 3 million tons per year dimethyl ether project in Inner Mongolia and its associated facilities were built with an investment of 21 billion yuan by five major companies including China National Coal Energy Group and Sinopec. Cost risk. Generally, the investment required to build a coal-to-oil plant with an annual capacity of 1 million tons is around 8–10 billion yuan. Industry experts point out that in China, most coal chemical projects that have been launched use the market price of coal at the mine site as a basis for cost calculations, which leads to an underestimation of the actual costs. Given the high costs of coal transportation in China, the final price often doubles the price at the mine site; as a result, the profit projections for some of these investment projects are unrealistic, and it will be difficult for them to achieve their goals in the future. Wang Xiangsheng, a researcher in the securities industry at Zhongyuan Securities, also pointed out that at present, many coal chemical projects in China lack adequate feasibility studies; many of the cost assessments for such projects are based on high oil prices and low coal prices. Environmental and resource risks. The long-term and stable development of the coal chemical industry places high demands on resources; at the top of these are coal, which is abundant and inexpensive, as well as sufficient water resources ； Coal has a high carbon content and only 5% hydrogen content; the carbon dioxide emissions generated when converting coal into vehicle fuel are 7 to 10 times those resulting from crude oil refining processes. Currently, China ranks first and second in the world in terms of sulfur dioxide and carbon dioxide emissions respectively, with 90% of sulfur dioxide emissions coming from coal use. When building large-scale coal chemical projects, environmental management must be taken into account, which will result in significant external costs. Secondly, coal chemical industry has an extremely high demand for water resources. For a coal-to-oil project with an annual production capacity of 3 million tons, the water consumption per ton of product is around 10 tons, which is equivalent to the water usage amount for a population of three to four hundred thousand people. Our country is **short of freshwater resources**, especially in the western and northern regions. Price risk. Changes in international oil prices and domestic coal prices can lead to unpredictable fluctuations in the production costs of coal-to-oil processes, posing significant investment risks for coal chemical enterprises. Lu Lizhu said that the few countries in the world that possess coal-to-oil technology currently use it merely as a technical reserve or a means of energy strategic reserve, rather than as a substitute for oil. If China proceeds on a large scale with projects such as coal-to-oil and coal-to-olefins production, these enterprises will also constantly face risks and pressures such as falling oil prices, coal shortages, resource waste, and environmental degradation. This is also the fundamental reason why countries such as the United States, Japan, and Germany are reluctant to carry out coal-to-oil projects on their own territory. Struggling with extremely low oil prices, the rapid changes in the world have been beyond the expectations of those who were rushing to take action. In the second half of 2008, international oil prices plummeted sharply, and the prices of methanol and dimethyl ether – the two main products of coal chemical industry – also dropped to record lows. A survey conducted by the China Petroleum and Chemical Industry Association at the end of last year showed that in November of that year, the country’s methanol production amounted to 838,000 tons, a 9.6% decrease compared to the previous year; this marked the first time there was a negative monthly growth rate, with a sharp drop of around 17% on a month-to-month basis. According to the latest survey by the Petrochemical Association, approximately 40.3% of dimethyl ether production facilities across the country are currently shut down, 45.8% are operating at reduced capacity or on a partial scale, while only 13.9% are functioning at normal capacity. The findings of the Petrochemical Association also show that the construction progress of some newly launched coal chemical projects has slowed down significantly, with some planned or proposed projects being delayed. The 500,000-ton coal-to-oil project in Pingdingshan, operated by Henan Pingmei, has been in operation since 1999; it also collaborated with Shell on indirect coal-to-oil conversion, but was ultimately forced to stop due to the coal type not being suitable for oil production ； “The direct liquefaction project in Yilan, Heilongjiang, as part of the 15th Five-Year Plan, is on hold due to the lack of **further approval ； Yunnan Pioneer, China’s second-largest coal-to-oil project with a capacity of 1 million tons per year, faced difficulties despite the high expectations placed on it by Yunnan Province; due to a lack of funding, various supporting projects were cut back, and still the project failed to attract interest. Therefore, despite Shenhua Group’s high-profile announcement in Beijing on January 5 that breakthrough progress had been made in this coal direct liquefaction demonstration project, marking a milestone. Coal-to-oil chemical companies will strive to maintain the continuous and stable operation of their plants, identify any issues that arise during the operation of various units as soon as possible, and address them promptly, in order to achieve stable operation over longer periods of time. At the same time, Jiao Hongqiao, a senior engineer at the group, said that coal-to-oil projects consume a large amount of water. Operating such projects in winter requires additional technologies to prevent the water in the pipelines from freezing, which means that the operational costs during winter are higher than at other times. Ning Chenghao, a researcher at the Shenhua Coal-to-Oil and Chemicals Research Institute, said that studies conducted in 2007 showed that the cost of direct coal liquefaction was around $45 per ton. However, due to the significant fluctuations in coal and oil prices this year, this figure has changed greatly. Currently, international oil prices remain at extremely low levels; by extension, Shenhua Group is also in a difficult predicament with no clear way forward. In this regard, Zhou Fengqi, former director of the Research Institute of the Energy Administration, believes that when oil prices are high, the issues related to the high energy consumption, high pollution, and high water usage associated with coal-based chemical industries are given less priority compared to issues of energy supply and energy security. It now seems that if oil prices remain below $50 for an extended period, the importance and necessity of coal-based chemical industries will decrease; if oil prices fall more rapidly than coal prices, the economic viability of these industries will also decline.
Recently, at the Shen Dong Tian Long Humic Acid Factory in Wucai Bay, a reporter took a handful of brown, bead-like fertilizer from a plastic woven bag labeled “Wucai Bay Organic Fertilizer” and smelled it; it had no odor at all. These bags of “Wucaiwan Organic Fertilizer” are the result of the first coal chemical project to come online in the Zhundong Wucaiwan Coal, Electricity, and Coal Chemical Industry Zone in Jimusaer County. Zhu Zeyang, the head of the work department who has just come from the Shendong headquarters in Inner Mongolia, explained: “The organic fertilizer produced in Wucaiwan is manufactured in accordance with the **Industry Standards for Agricultural Organic Fertilizers (NY525-2002); it is a pollution-free green product. At present, the machinery is still under adjustment.” Xinjiang has a large amount of saline-alkali land. We make use of the weathered coal available locally in Wucaiwan, Zhundong, which has an organic matter content of over 75%; the unprocessed humic acid content is around 35%. By employing advanced production techniques, the humic acid content after treatment can reach 50-65%, while the organic matter content reaches 85-90%. This enables the improvement of saline-alkali soil, turning it into a source of potassium fertilizer for farmers; as the land is used more, its fertility increases, and the quality of the crops grown improves. Tianlong Factory can design different organic fertilizer formulations based on various soil properties and the requirements of different crops, thereby increasing the yield per mu of agricultural products. We have collaborated with agricultural research institutes inside and outside Xinjiang to promote demonstration fields. ”Xia Zhichun, secretary of the Development and Service Center of the Zhundong Wucaiwan Coal, Electricity, and Coal Chemical Industry Base, said that the humic acid factory in Shendong Tianlong is equipped with advanced machinery and features a high degree of automation. When the industrial park was first established, what was taken into consideration were Tianlong’s development and technical advantages, along with the coal reserves available in Wucai Bay, to plan for its development. Wucai Bay contains large amounts of weathered coal associated with coal; in the past, this weathered coal was considered waste because it had no value for combustion. Through high-tech processing, weathered coal is transformed into Wucailiwan organic fertilizer with a very high organic matter content. Processed locally, it offers a price advantage over various organic fertilizers imported from other places, and it will make positive contributions to the improvement of saline-alkali soils, the production of high-quality and high-yield agricultural products, and the development of new rural areas.
The Xinjiang Blue Book recommends the active development of coal chemical industry. The \"2009 Xinjiang Economic Blue Book\" published by the Xinjiang Academy of Social Sciences suggests that in 2009, Xinjiang should actively promote the development of the coal power and coal chemical industries, and increase efforts in the exploration and exploitation of coalbed methane. It is necessary to further refine the development plan for the coal, electricity, and coal chemical industries in the autonomous region, and submit it to the **relevant departments for approval. Continue to actively coordinate with relevant departments to advance the construction of supporting infrastructure such as water, electricity, and roads in the Zhundong area, ensuring that all projects are completed by the end of 2009. Continue to strengthen communication and coordination with **the relevant departments, with the aim of launching coal chemical industry demonstration projects in Xinjiang during the **11th Five-Year Plan period, and accelerate the approval process for coal power and coal chemical projects in Xinjiang. It is necessary to accelerate the development of Xinjiang as a base for the exploitation of coal and coalbed methane, in order to enhance Xinjiang’s strategic role in China’s coal industry. It is recommended to adopt a partnership between central enterprises and local authorities in order to further intensify the exploration and development of coalbed methane in Xinjiang. Coalbed methane is included as a substitute for new energy in the development and utilization of resources that offer advantages due to late-entry into a market. Gasification combined cycle (IGCC) power generation technology can improve efficiency and reduce emissions, and it serves as an important foundation for future advanced coal-based multi-product systems (electricity, H2, chemicals, and liquid fuels). China’s coal-dominated energy structure, together with the requirements for energy conservation, emission reduction, and sustainable development, determines the necessity of developing IGCC. “The “China IGCC Cogeneration Summit Forum” will be held in Shanghai from March 26-27, 2009. By drawing on foreign IGCC technologies and project operation experience, aligning with macro policies and industry trends, and integrating the advantages of power generation and coal chemical industries, we can jointly explore an alternative energy path suitable for China.
Under the dual pressure of falling international oil prices and the financial crisis, the coal chemical industry market is in a state of extreme downturn. However, some chemical enterprises in Shanxi have held high-profile inauguration ceremonies for their coal chemical projects, launching major initiatives with investment amounts exceeding 1 billion yuan. This phenomenon of starting operations against market trends quickly became the focus of attention in the industry, with industry experts raising doubts about it. Why are these companies taking such “abnormal” actions? What will be the future profitability of the company? With various questions in mind, the reporter conducted investigations and interviews recently. Since the fourth quarter of last year, international oil prices have dropped to around $50 per barrel. Experts believe that if oil prices remain at $50 per barrel for an extended period, the economic value of coal-based chemical industries will inevitably be significantly reduced, leading to lower economic benefits. Among all chemical products, coke prices experienced the largest decline, at 45%. The other two major products of the coal chemical industry – methanol and dimethyl ether – also experienced sharp price drops, with declines of over 25% and 22% respectively. Since the financial crisis last year, the new projects launched by these chemical enterprises in Shanxi have been coking and methanol plants, which have experienced significant declines. The investigation revealed that there are indeed quite a number of chemical projects in Shanxi that are being carried out despite the unfavorable market conditions. For example, in August last year, Shanxi Coking Group Company invested 570 million yuan to start the construction of the first phase of the Yida Chemical project, which aims to produce 300,000 tons per year of methanol and 200,000 tons per year of dimethyl ether, in the Jiexiu Coking Demonstration Industrial Park ； Shanxi Coking’s second phase of the 1.5 million tons per year coker expansion project, which was completed on October 1 last year, as well as the coking projects for which the company is currently raising funds to carry out construction; these include a 200,000 tons per year acetic acid production project, a 100,000 tons per year crude benzene hydrogenation project, and projects to upgrade production capacity for synthetic ammonia at 180,000 tons per year and urea at 300,000 tons per year ； More than 10 coal chemical projects, including the 300,000 tons per year methanol project that China Coal Group began construction of on December 5 last year in Tanzibao Town, Lingshi County, Jinzhong City, Shanxi Province, and the 100,000 tons per year methanol project of Yinyi Hongfeng. So, why have these coal chemical projects all chosen to start operations against market trends? Wei Zhengyi, general manager of Shanxi Coking Group, put it succinctly: “It is to develop a circular economy.” ”He said that the coking circular economy is a stabilizer for the chemical industry in the market. When this financial crisis struck, we effectively selected the most dynamic industrial chains, ensuring that the methanol industry chain could drive and stabilize other industrial chains. When the company’s real economy faced severe challenges, the No. 5 coke oven was officially lit for heating, demonstrating our confidence in using our own industrial chain to mitigate risks. At present, the company has a processing capacity of 20,000 tons per year for crude benzene. By the middle of this year, once the No. 5 coke oven project is completed, the company’s crude benzene production capacity will reach 100,000 tons per year. About half of the raw materials required will be supplied by the company’s own coking plant, while the rest will be purchased from external sources. Triphenyls (benzene, toluene, xylene) obtained from the processing of crude benzene can effectively improve the profitability of coking by-products. The new investment projects for 180,000 tons per year of synthetic ammonia and 300,000 tons per year of urea also use coke oven gas as a raw material to produce synthetic ammonia, which is then used to develop the fertilizer urea industry. This project also falls under the category of circular economy through the utilization of waste gases, and it can effectively expand the company’s future profit potential while reducing risks in the coke industry. “We will strive to seize this opportunity of major reshuffle to become the leader in the industry. ”He said. “Although the economic situation is poor at present, we are very confident. ”Wang An, General Manager of China Coal Group, said at the inauguration ceremony for the 300,000 tons per year methanol production facility. Regarding the methanol project of this group, which began operations against market trends, there are concerns about its future profitability. In response, Wang An said that such concerns are necessary for independent methanol companies, but not necessary for China Coal Methanol companies. The reason is that the China Coal Methanol project and the coking project are part of a circular economy initiative; not only are the raw material costs for the methanol project very low, but many of the infrastructure facilities can also be shared with Jiu Xin’s 2000,000-tonne coking project. Calculations show that even if the market price of methanol falls further than it is currently, methanol projects remain profitable. Experts in the energy sector point out that the reason why China National Coal Group pursued methanol projects despite a sluggish market is largely due to the advantages of its coal coking industry chain, as well as the reuse of traditional waste materials; by making full use of these resources, the company aims to enhance its core competitiveness and resilience to risks. Wang Jianhua, deputy director of the Chemical Industry Management Office in Shanxi Province, pointed out that in the past, it was perceived that Shanxi’s chemical industry relied on its resources and remained at the lower end of the industrial chain; whenever the economic situation fluctuated, it couldn’t even get access to the leftovers left by others. This pattern of development must be changed. He explained that during the methanol production process, excess waste gas is generated; these gases are referred to in industry as \"blowdown gas,\" and with a hydrogen content of up to 70%, they constitute an excellent industrial fuel. It is estimated that each cubic meter of this gas can produce 2,500 to 2,600 kilocalories of heat, which is equivalent to the heat generated by half a ton of coal. Just this alone can save over 70,000 tons of coal per year. Furthermore, these gases are also important raw materials in the production of chemical products such as benzene hydrogenation, which are derived from coal chemical industry processes. For this reason, when other projects were discontinued, Yida Chemical started a 300,000-ton-per-year methanol production project; once completed, this project will consume 400 million cubic meters of coke oven gas per year, save over 260,000 tons of standard coal, reduce sulfur dioxide emissions by more than 5,000 tons, and cut carbon dioxide emissions by 640,000 tons. Once the project is put into operation, it is expected that the annual sales revenue will exceed 800 million yuan, with total profits reaching 400 million yuan. Wang Jianhua believes that extending the industrial chain and developing processes for the recovery and further processing of coking products such as methanol and dimethyl ether from coke oven gas is the trend for the development of coking enterprises; such measures not only save energy but also promote sustainable development for these enterprises. “Shanxi’s chemical enterprises can no longer remain at the lower end of the industrial chain as they used to. ”He said. Zhang Yue, chairman of Shanxi Coking Group, said, “Some coking enterprises in Shanxi were also worried about the adverse effects of the financial crisis some time ago.” However, as things stand now, by utilizing the by-products generated during the coking process to expand their industrial chains, the overall advantages of a circular economy have become a solid backbone for coking enterprises to effectively cope with crises. ”Faced with the dual pressures and constraints of resource utilization and environmental issues, what path should Shanxi coking coal take in the future? “It has turned out that a circular economy is our only option; this industry can no longer operate in an extensive or exploitative manner. After a crisis, survival is key. ”Zhang Yue said with full confidence. According to investigations by journalists, Shanxi Province has already begun formulating the 12th Five-Year Development Plan for its chemical industry. It is reported that most of the coal chemical projects under key development here are those involving the deep processing of coal, the extension of the industrial chain, and projects with high added value. At present, these coal chemical projects in Shanxi that are launched based on the principles of a circular economy indicate that the coking enterprises there are actively working to extend their industrial chains, shifting from producing basic coal and coke products to those derived from coal chemistry, thus embarking on a path toward a circular economy through exploration.