Yankuang poised to restart coal-to-oil project, facing high costs and environmental pressures

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This post was last edited by jordan569 on 2013-1-6 at 21:14. Yuncheng Coal Mine is set to restart coal-to-oil production, but it faces high investment costs and environmental pressures. China Business News, February 15, 2012. It takes 4.2 tons of coal and nearly 10 tons of water to produce 1 ton of coal-to-oil, with the cost of producing 1 ton of oil reaching around 100 million yuan, which poses significant challenges for the companies involved in this process. A senior official at Yankuang Group said that coal-to-oil production might once again become the focus of the company’s development during the 12th Five-Year Plan period, with capacity to be expanded to 10 million tons per year by 2020. However, the executive admitted that the \"return\" to coal-to-oil production would subject the group to internal and external pressures regarding funding and the environment. It is reported that Yankuang Group entered the coal-to-oil sector as early as 1998, and both in terms of research and development and investment, coal-to-oil represents a key focus for the group’s development. In 2004, Yankuang Group, thanks to its independently developed patented technologies, had the technical capabilities to carry out industrial demonstration studies on coal indirect liquefaction on a million-ton scale. In 2008, the group’s Yulin 1 million tons per year coal indirect liquefaction oil production pilot project passed the review and assessment by the **National Development and Reform Commission. However, the rush to launch projects across various regions has led to severe overheating in coal-to-oil production. In 2006, the National Development and Reform Commission issued two successive bans – “no approval shall be given for coal-to-oil projects with an annual production capacity of less than 3 million tons” and “the approval of coal liquefaction projects shall be suspended until the development plan for coal liquefaction is finalized”. On September 4, 2008, the National Development and Reform Commission issued another notice on issues related to strengthening the management of coal-to-oil projects, stating clearly that such projects carried high investment risks; with the exception of certain projects undertaken by Shenhua Group, all other coal-to-oil projects were to be halted. As a result, the approval for the Yulin project has been postponed time and again. It was not until the 12th Five-Year Plans for the petrochemical and coal chemical industries were finalized recently that Yankuang Group’s 1 million-ton coal-to-oil demonstration project resumed preliminary construction as a pilot project, thereby returning to the center of the group’s development efforts. The senior official mentioned above told our newspaper that, as planned, Yankuang Group will gradually expand its coal-to-oil production capacity to 10 million tons per year by 2020, and will also build a 1,200 MW gas power plant, thereby achieving the goal of establishing an industrial demonstration park for coal gasification and combined production systems. Under pressure from financial and environmental factors, Xing Lei, a professor at the China Coal Economy Research Center at Central University of Finance and Economics, says that from a purely economic perspective, the prospects for the coal-to-oil industry are indeed promising. Currently, the top four companies in the coal-to-oil sector all possess a considerable production capacity. Among them, Shenhua Group and Yankuang Group both have a production capacity of 3.2 million tons per year; Yitai Group has a capacity of over 100,000 tons per year, while Lu’an Group also has a capacity of over 200,000 tons per year. A person close to Yankuang Group told our newspaper that the cost per ton for Yankuang’s coal-to-oil process is roughly equivalent to the import price of crude oil at $50 per barrel; generally, when oil prices are above $40, the project becomes viable. At the current price of Brent crude oil above $100 per barrel, the profit margin for coal-to-oil production is close to 100%. This has also become the underlying motivation for various regions to rush into coal-to-oil projects. Since the 12th Five-Year Plan for the petrochemical industry explicitly states that, taking into account factors such as coal resources, water resources, the ecological environment, regional economic development, as well as the reduction of carbon dioxide and other pollutants, coal chemical industry policies will remain strict during the 12th Five-Year period, with strict control over project approvals. Xing Lei said that coal-to-oil production not only requires huge investment amounts but also incurs extremely high environmental costs. These are all things that the ambitious Yankuang Group in this industry cannot ignore. Under the current coal-to-oil production processes, 4.2 tons of coal and nearly 10 tons of water are required to produce 1 ton of coal-derived oil, and the cost of producing 1 ton of oil is around 100 million yuan, which poses considerable pressure on the companies involved in this development. The senior executives of Yankuang Group also admitted that the group’s total investment in coal-to-oil projects will exceed 100 billion yuan, which means the group will face pressure in terms of funding security in 2012. Meanwhile, there is still no update regarding the approval process for the group’s previous 10 million-ton coal-to-oil project. Xing Lei pointed out that the delay in policy approval for the industrialization of coal-to-oil production has added further uncertainty to the development of this industry. “According to the Medium- and Long-Term Development Plan for the Coal Chemical Industry, the planned annual production capacity for coal-to-oil production in 2015 was 10 million tons ； How companies such as Shenhua, Yankuang, and Yitai allocate their resources will determine the hierarchy of enterprises in this sector in the future,” he concluded. . Note # ) # # , . hcbbs