Coal-to-oil companies born at the wrong time; debates over the future of this industry resurge

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This post was last edited by jordan569 on 2013-1-6 at 22:36. Author/Source: http://chemease.cbichina.com/ Date: 2009-4-8 -------------------------------------------------------------------------------- The decline in international oil prices and the rise in domestic coal prices have created difficult conditions for China’s coal-to-oil enterprises, as they operate in an unfavorable environment. Coupled with controversies regarding environmental protection, water consumption, and energy efficiency, the development of coal-to-oil technology faces certain challenges. According to interviews conducted by journalists recently, since December last year, the pilot operations of China’s first batch of industrial demonstration projects for direct and indirect coal-to-oil conversion have been successful one after another, producing high-quality diesel, naphtha and other products, indicating that the industrialization of coal-to-oil technology is accelerating. Experts believe that, in the long term, the prospects for coal-to-oil remain quite attractive. Significant progress has been made in industrialization. On March 23, Inner Mongolia Yitai Group announced that the 160,000-ton per year pilot project for the indirect conversion of coal into oil, located in Zhungeer Banner, Inner Mongolia, had successfully completed its trial operation, producing target products such as diesel. According to Li Yongwang, deputy director of the **Key Laboratory of Coal Conversion at the Chinese Academy of Sciences and the lead scientist on the coal-to-oil project, this is China’s first large-scale industrial facility for indirect coal-to-oil conversion that has managed to produce oil on a pilot scale. The diesel produced meets the Euro IV standards, indicating that significant progress has been made in the industrialization of the indirectly coal-to-oil conversion technology developed independently in China. Just on December 31 of last year, the first million-ton-scale demonstration production line for direct coal-to-oil conversion at Shenhua Group also completed its process setup and produced qualified products on a trial basis. Currently, Shenhua Group is continuing to tune and improve the production lines, striving to prepare for the 1,000-hour trial production in May. As an important part of its energy strategy, Shenhua Group’s coal-to-oil project is located in Yijinholuo Banner, Inner Mongolia, a region rich in coal resources. Construction began in May 2005, with a total planned capacity of 5 million tons; the first phase of the project involves the construction of three production lines, yielding an annual capacity of 3.2 million tons. The first pilot production line that was successfully developed can, once in operation, convert around 3.5 million tons of coal per year, producing 1.08 million tons of products such as diesel and naphtha – a output volume equivalent to that of an oil field with an annual production capacity of 100 million tons. It is reported that the successful trial production of Shenhua Group’s coal-to-oil project marks China as the world’s first country to master the key technologies for producing oil from coal on a million-ton scale. Meanwhile, coal-to-oil projects implemented by other companies have also made breakthroughs. On December 22 of last year, a small coal-to-liquid fuel production facility belonging to Shanxi Lu’an Mining Group also managed to produce oil products. The 160,000-ton coal-to-liquid fuel project, built with the help of technology provided by the Shanxi Institute of Coal Chemistry under the Chinese Academy of Sciences, is also in the process of final testing, and trial operation is expected to take place in the near future. Due to its resource profile of abundant coal, limited oil, and scarce gas, coal accounts for over 70% of China’s energy production structure. With economic development, the contradiction between oil supply and demand in our country is becoming increasingly acute. Zhao Shuanglian, deputy head of the Inner Mongolia Autonomous Region, who is deeply aware of the oil shortage, said that promoting the industrialization of coal-to-oil conversion and turning \"coal fields\" into \"oil fields\" can open up new channels for liquid energy production, which is of great significance for ensuring energy security. Progress is being made steadily; in the face of tight oil supply and demand, **when formulating the development plan for the coal chemical industry during the 11th Five-Year Plan period, it was decided to advance the construction of coal liquefaction demonstration projects in an orderly manner, in order to lay the foundation for industrial development. It is against this backdrop that Shenhua Group’s coal-to-oil project was launched first. It is reported that if the first demonstration production line progresses smoothly, Shenhua Group will build two more million-ton-scale production lines in the near future. Li Yongwang believes that China currently possesses the technology and demand for coal-to-oil production, and the time to advance its industrialization is essentially ripe. Zhang Shuangwang, chairman of Yitai Group, also said that through further tuning and improvements, efforts will be made to bring the demonstration project into a stage of stable, full-capacity production this year. Subsequently, through equipment and catalyst upgrades, as well as the application of the next-generation coal fractionated liquefaction technology currently in pilot scale, the production capacity will be increased to 600,000 tons. If progress goes well, an oil-from-coal facility with an annual production capacity of 5 million tons of oil products will be further developed, and products such as ethylene will be produced to increase added value. According to the preliminary plans released by Lu’an Mining Group, if the 160,000-ton project progresses smoothly, it will be expanded further into a coal-to-oil project with a capacity of 3 million tons; the capacity of each production line is also planned to increase from 160,000 tons to over 400,000 tons. Luan Mining Group plans to build a coal-to-oil facility with an annual production capacity of 15 million tons by around 2020. Meanwhile, enterprises such as Yanzhou Mining Group and Xuzhou Mining Group are also planning coal-to-oil projects. Among them, Yanzhou Mining Group’s 1 million-ton coal-to-oil project in Yulin City, Shaanxi Province, was launched in February 2006; progress has been made regarding environmental assessments and other related tasks, and the project is now awaiting approval from the **National Development and Reform Commission. The planned production capacity for the first phase of this project is 5 million tons, with each production line having a capacity of 1 million tons, and a second phase with a capacity of 5 million tons is also under planning. A long-term perspective is necessary when looking at the market. The high oil prices and tight supply conditions in previous years stimulated companies’ interest in developing the coal-to-oil industry. In addition to the projects that were launched earlier, more than 10 provinces and regions, including Xinjiang, Shandong, Shaanxi, Guizhou, and Ningxia, also decided to get involved in this area by planning to build coal-to-oil projects. Some experts predict that by 2020, China’s coal-to-oil production capacity could reach 30 to 50 million tons. However, international oil prices suddenly reversed and plummeted in the second half of last year, and are currently around only 50 dollars per barrel. To curb the impulse to build coal-to-oil projects, the **National Development and Reform Commission** introduced policies in 2006 stipulating that coal-to-oil projects with a capacity of less than 3 million tons would not be approved. Last September, the **National Development and Reform Commission issued new regulations stipulating that, with the exception of the Shenhua Group’s coal-to-oil project, which may continue, and the Ningdong coal indirect liquefaction project in Ningxia, which is not approved and therefore cannot start, all other projects must be halted. Low oil prices, tightened policies, and funding shortages have cooled down the enthusiasm for \"coal-to-oil\" projects across various regions. However, through persistent efforts, the coal-to-oil projects of Yitai Group and Lu’an Mining Group, which started construction earlier, were still approved for implementation. According to experts such as Li Yongwang, the direct and indirect coal-to-oil demonstration projects consume approximately 3.5 tons and 4.02 tons of coal per ton of oil produced, respectively. However, compared to the beginning of the project, coal prices have now more than doubled, leading to increased production costs. Therefore, if any coal-to-oil projects come online in the near future, they will face certain profit pressures. According to Li Yongwang, based on current coal prices, the cost of the coal-to-oil demonstration project is around $50 per barrel. With the expansion of production scale, improvements in catalysts, and the application of coal fractionation liquefaction technology, the amount of coal required per ton of oil produced will gradually decrease to around 3 tons. The investment needed for a production capacity of 10,000 tons will drop by about 50%, from around 160 million yuan. The cost of producing oil will also fall to approximately 40 dollars per barrel, thereby **enhancing** the profitability of enterprises. Zhao Shuanglian, deputy head of the Inner Mongolia Autonomous Region, analyzed that as a strategic resource, the current low level of international oil prices will not persist. Furthermore, the coal companies undertaking coal-to-oil projects are all highly capable, and these projects adopt a combined coal and oil production model, granting them strong market resilience. View scientific development objectively. At present, there are ongoing controversies surrounding the coal-to-oil industry. Some argue that current coal-to-oil technology should not be industrialized but rather kept as a technical reserve. Furthermore, there are also criticisms that coal-based fuels consume enormous amounts of water, have very low energy efficiency, and cause significant pollution during production. In response, Li Yongwang and others pointed out that new technologies are difficult to improve without being tested in practice. Furthermore, the industrialization process can also improve the level of scientific research and equipment manufacturing, as well as help train and develop talent. In addition, the water consumption per ton of oil in coal-to-oil demonstration projects ranges from 10 to 12 tons, while this figure can be reduced to 6 to 8 tons per ton of oil when coal-based indirect oil production reaches economic viability. In contrast, the water consumption per ton of coal-based methanol is about 15 tons, while that for coal-based ammonia synthesis is around 30 tons. Meanwhile, taking the indirect coal-to-oil production as an example, once the scale is increased to 600,000 tons and cascade liquefaction technology is applied, the energy efficiency will rise from less than 40% in the demonstration phase to around 43% to 45%, which is already on par with that of thermal power plants; if the scale is further increased, it can even reach around 55%. Furthermore, by applying technologies such as the reuse of exhaust gases, waste heat recovery, and carbon dioxide capture, the carbon dioxide emissions of coal-to-oil demonstration projects are over 70% lower than those of thermal power plants. To achieve the goals of green development, Shenhua Group’s coal-to-oil project has also installed comprehensive environmental protection facilities such as oil residue power generation, wastewater treatment, and recycling, resulting in nearly zero emissions of pollutants. The coal-to-oil demonstration project of Yitai Group is also equipped with pollution control systems such as bag filter dust removal, wastewater treatment and reuse, sulfur recovery, and waste heat recovery. Some experts and business leaders suggest that, first and foremost, coal-to-oil production remains an emerging industry in our country. Given the huge investment required, the shortage of technical and managerial talent, as well as the market risks that cannot be ignored, projects should be carefully evaluated before being launched. **Support should also be provided in areas such as research and development, talent training, market development, and taxation. Second, **policies** should be strictly implemented, with scientific planning; progress should be made step by step, starting on a small scale before moving to larger ones, and development should proceed steadily on the basis of establishing good examples. At the same time, calculations show that an annual production capacity of 3 million tons of oil products represents the economic scale for coal-to-oil industrialization projects. With the advancement of technology and the accumulation of industrialization experience, **the technical, scale-related, and environmental standards should be raised to promote the orderly development of the coal-to-oil industry. Third, coal-to-oil projects require large amounts of coal and water; the first batch of pilot projects were all established by large coal companies, located in the heart of major coal fields. Therefore, when planning industrial development in the future, it is still necessary to adhere to the pithead principle and implement co-production of coal and oil in order to improve cost control in the coal-to-oil industry; such projects should not be established in areas lacking coal resources. . Note $ # , $ $