Can the “moratorium” on coal-to-oil production be lifted?

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This post was last edited by jordan569 on 2013-1-6 at 20:40. As the new year approaches, various ominous signs related to oil continue to strain people’s nerves. Firstly, the prices of refined oil products in our country have risen again, with the price of 93-octane gasoline exceeding \"7\". Secondly, a diesel shortage has once again hit many areas in our country. Thirdly, in 2010, China’s crude oil imports increased by 9.1%, reaching 212 million tons; its dependence on foreign oil was as high as 55%, up 2 percentage points from 53% in 2009. Fourth, international crude oil prices have rebounded to around $90 per barrel, with breaking the $100 mark seeming only a matter of time. In this context, a topic that seemed to have cooled down for a while has resurfaced: can the ‘moratorium’ on coal-to-oil conversion be lifted? The technical barriers have finally been overcome. China’s coal-to-oil industry has faced controversy since its inception, and the reason for this lies mainly in the high technical requirements and significant investment risks associated with coal-to-oil technology. The main concern is whether coal-to-oil technology can enter the industrial demonstration phase on schedule. If the technology is not up to standard, the risk of investing hundreds of millions of yuan is simply too great. In addition to technical barriers, energy efficiency, coal conversion rate, emissions, and energy consumption are also key concerns regarding coal-to-oil production. To this end, in September 2008, the **National Development and Reform Commission decided to suspend all coal-to-oil projects, with the exception of the direct liquefaction project carried out by China Shenhua Group. At the end of 2008, the million-ton-scale coal direct liquefaction demonstration project of Shenhua Group completed its first trial run successfully, and has been operating steadily ever since, with a total operational time of 6,000 hours to date. According to Shenhua Group, the Shenhua coal-to-oil project has achieved three world records: First, it boasts the largest processing capacity per production line. Each line can process 6,000 tons of dry coal per day, enabling an annual output of 1.08 million tons of oil products and chemical materials ； Second, it has the highest oil yield. This process features high catalyst activity and low addition amounts, resulting in less liquefied oil carried over in the residues and a higher yield of distilled oil compared to other coal direct liquefaction processes under the same conditions ； Third, it has the best stability. This process uses a hydrogenated, hydrogen-supplying cyclic solvent; the solvent has stable properties, the slurry exhibits good characteristics, and the process is highly stable. At the same time, this process employs an upflow hydrogenation process with catalysts that can be updated online for the hydrogenation of recycled solvents, which enables the overall stability of Shenhua’s coal direct liquefaction technology to be **superior to that of other coal direct liquefaction processes; 6,000 hours of continuous stable operation serves as strong evidence of this. “Judging from the results of Shenhua’s 6,000-hour continuous and stable operation, we have cleared the technological threshold. ”Zhang Yuzhuo, general manager of Shenhua Coal-to-Oil Company, told reporters with confidence in an interview. The success of the Shenhua coal-to-oil project demonstrates that China has basically mastered coal-to-oil technology. So, can we then apply this principle to three, four, and five as well? Economics is no longer an issue; aside from technology, the controversy surrounding coal-to-oil projects centers on whether their economic viability is feasible. High investment costs and unpredictable market prospects are the biggest challenges faced in developing coal-to-oil projects. This was also another important reason why the National Development and Reform Commission immediately halted coal-to-oil projects when international crude oil prices started plummeting in 2008. The reporter learned that there are two main factors that have a significant impact on the economic viability of coal-to-oil production: one is crude oil prices, and the other is the cost of raw materials. If crude oil prices are too low, or coal prices are too high, coal-to-oil projects will end up in a loss-making situation. Zhang Yuzhuo is not worried about this. On November 19, 2010, Zhang Yuzhuo stated with confidence during the *First China Academy of Engineering and **Energy Bureau Energy Forum that, based on the current economic viability of coal-to-oil conversion, it is more cost-effective to import coal for this purpose rather than importing crude oil directly. Zhang Yuzhuo told reporters that the Shenhua coal-to-oil project in Ordos is now operating normally, and experience has shown that it generates certain economic benefits. Even if oil prices drop by another $30 per barrel from their current level, coal-to-oil remains profitable. Currently, although international oil prices fluctuate, they remain above $90 per barrel. The calculations provided by relevant personnel from Shenhua Coal-to-Oil Co., Ltd. are more detailed. Using the direct liquefaction process, 3.5 tons of coal can be used to produce 1 ton of oil. Considering the direct costs involved in the process—such as hydrogen, catalysts, water, and electricity—the production cost for 1 ton of coal-derived oil is approximately 2,000 yuan. Currently, the market price of crude oil is around 4,500 yuan per ton. In other words, according to this conversion, the international crude oil price corresponding to the marginal profit of coal-to-oil production is $35 per barrel. In other words, as long as international crude oil prices remain above $35 per barrel, coal-to-oil production will generate marginal profits and be profitable. And now international crude oil prices have long been hovering around $90 per barrel, and this huge price difference is the source of profits. Therefore, Zhang Yuzhuo said, “If international oil prices remain around the current level of $90 per barrel, coal-to-oil production is definitely profitable; it is economically viable.” Conversely, if the price falls below $35 per barrel, then it depends on factors such as investments in coal-to-oil projects, raw material costs, coal, and human resources. We believe that if coal-to-oil projects adopt cost-reducing technologies such as carbon dioxide capture and storage, they can become competitive with oil costs. ” The performance of Shenhua’s coal-to-liquid project demonstrates that, given the upward trend in international oil prices, the coal-to-liquid industry, as an alternative fuel to petroleum, has great prospects. There is the capability to break the monopoly structure. The oil shortage that erupted again last winter made people give up entirely on the existing monopoly in the domestic oil sector. More people firmly believe that in order to break the existing domestic monopoly on oil products, it is necessary to find alternative channels to bring in “oil supplies”. Reporters learned that the so-called oil shortage actually refers to a shortage of diesel supply during each winter, when its consumption surges. The reason for the shortage of diesel supply is that, in the eyes of the two major oil companies, diesel is a minor product; its annual production accounts for less than 5% of the total output of these two companies, and reserves are severely insufficient. Any slight fluctuation in diesel consumption can cause intense market turmoil. Coal-to-oil production mainly yields diesel, which can precisely meet market demand. According to journalists, currently there are four main coal-to-oil enterprises in China: China Shenhua Group, Shandong Yankuang Group, Shanxi Lu’an Group, and Inner Mongolia Yitai Group. Among them, Shenhua Group, Lu’an Group, and Yitai Group have successfully commenced oil production. These four major coal-to-oil bases are concentrated in Inner Mongolia, Shanxi, Shandong, and other regions. This area was artificially assigned to CNPC’s sphere of influence when CNPC and Sinopec were established. Once coal-to-liquid technology becomes an established industry and is put into large-scale production, vast quantities of oil products will be supplied in regions such as the Northwest and Northeast. This will inevitably undermine PetroChina’s monopoly in this area. The reporter learned that the three domestic projects that are already producing oil all have plans to expand their production in order to achieve greater economies of scale. Among them, after the first direct liquefaction production line begins operating on an industrial scale, Shenhua Group will replicate the other two production lines from the first phase, ultimately achieving an annual production capacity of 3.2 million tons of various products. After the successful operation of its 160,000-ton indirect liquefaction project, Lu’an Group plans to further expand its coal-to-oil production capacity by 3 million tons, aiming to establish a coal-to-oil facility with an annual production capacity of 15 million tons by around 2020. Yitai Group aims to build a coal-to-oil facility with an annual production capacity of 5 million tons by around 2015. It is understood that even before the coal-to-oil project was launched, CNPC and Sinopec were already wary of this \"new phenomenon\". Currently, the sales companies under CNPC are actively in contact with relevant coal-to-oil enterprises, hoping to sign long-term supply contracts for refined oil in order to take over the sales rights and sell the products on behalf of those coal-to-oil enterprises. However, coal-to-oil companies are naturally not grateful. After Shenhua Group obtained the qualification for wholesale of refined oil from coal processing, Yitai Group and Lu’an Group are also actively applying to the National Development and Reform Commission for such a qualification, in order to gain the right to sell products independently and compete with these two major groups. According to the preliminary plans outlined in the **National Development and Reform Commission’s Medium- and Long-Term Development Plan for the Coal Chemical Industry**, by 2020, the production capacity of coal-to-oil processes is expected to reach 30 million tons per year. According to incomplete statistics, the total scale of coal-to-oil projects reported to the **National Development and Reform Commission across various regions has now exceeded 40 million tons. This total amount is equivalent to one-third of Sinopec’s retail sales of refined oil products. If this goal is achieved, the dominance of these two companies in the end-market landscape will be broken. It can lead the local economy. In the locations where coal-to-oil projects are situated, there is an abundance of coal resources. Local authorities **all regard coal-to-oil production as an important driver for industrial structure adjustment, and will provide greater support in the future. In accordance with the plans of the Inner Mongolia Autonomous Region, Inner Mongolia regards new coal chemical projects, including those involving coal-to-oil conversion, as a new direction for the development of traditional industries. It will further extend the coal industry chain and establish large-scale coal chemical industry bases. The \"Guiding Principles for the Adjustment and Revitalization of China’s Coal Chemical Industry in Shandong Province,\" prepared by the Shandong Provincial Economic and Trade Commission and the Provincial Coal Bureau, indicate that thanks to its abundant coal resources, by the end of 2011, the coal chemical industry in Shandong Province will achieve sales revenue of 136 billion yuan, tax revenues of 13 billion yuan, and profits of 7 billion yuan. According to information obtained by reporters from the Chemical Industry Management Office of Shanxi Province, Shanxi will leverage its abundant coal and water resources, as well as the 33 research and development enterprises and over 20 research centers within the coal chemical technology R&D base with a total investment of 4 billion yuan, to vigorously develop coal-to-oil production. “On one hand, there is abundant resource support; on the other hand, there are local development plans. As a result, the scale and pace of development of coal-to-oil projects will accelerate. ”Tang Hongqing, a professor-level senior engineer at Zhongke Synthetic Oil Engineering Co., Ltd., said this in an interview. Obviously, if there is an industry that can drive the scientific and rapid development of China’s economy, particularly that in the western regions, one that possesses strong influence and enables China’s industrial sector to stand among the best in the world, as well as allows China to take control of its own energy supply, then it should be coal-based industries. For more information, please visit the China Chemical Industry News digital edition at http://ipaper.ccin.com.cn. Note: $ # $ $