The country’s largest coal-to-oil project via indirect liquefaction was successfully commissioned

I’m quite concerned about this production cost. . . . With international oil prices currently low, what level of competitiveness does it have?

At present, it can be said that there is no competitiveness; one can only wait for oil prices to rise. This is also a long-term investment – one cannot focus solely on the present situation. In the long run, oil prices will not remain as low as they are now, but who knows what the future holds?

Strictly speaking, it cannot be called coal-derived oil; it should rather be referred to as the indirect liquefaction of coal or coal-based co-production. The goal should not be to replace oil, but rather to use technological advancements to produce high-value products such as paraffin and lubricants. Sasol’s profitability shows that it is the other high-value products, other than oils, that generate profits

Amid low oil prices, China’s coal-to-oil and coal chemical industries are facing dual pressures regarding cost-effectiveness and environmental protection. The performance and coping strategies of South Africa’s SASOL company in the face of low oil prices are worth learning from by its Chinese counterparts. SASOL of South Africa is a global leader in the large-scale coal-to-oil (CTL) and coal chemical industries, having built a series of coal-to-oil plants in Secunda and Sasolburg in South Africa (which rely primarily on gasification to produce syngas) ； The Natref refinery was jointly built in Sasolburg and Total ； The ORYX GTL project was jointly developed with Qatar Gas Company in Qatar, and came online in 2007 ； A joint venture with Chevron and NNPC was established to build the Escravos GTL project in Nigeria, which came online in 2013. In early September 2015, Sacyr published its financial report for the year 2015 (the reporting period covering July 1, 2014, to June 30, 2015). The financial report indicates that the average Brent crude oil price during the reporting period was $73.46 per barrel, a 33% decrease compared to $109.4 per barrel in the previous fiscal year (hereinafter referred to as “the prior year”). In fiscal year 2015, SABIC achieved sales of 18,5266 million South African rand (ZAR)* (a 8.6% decrease compared to the previous year), as well as operating profits of 4,6549 million rand (an 1.6% increase compared to the previous year), resulting in a profit margin of 25.1%. *The South African rand (ZAR) is the currency of South Africa. As of September 11, 2015, 1 US dollar was equivalent to 13.66 South African rand. As a leading research institution in China’s coal chemical and petrochemical industries, Yaha Consulting will analyze Sinopec’s financial reports for 2015, examine its financial performance and strategies in the face of low oil prices, and explore the relevance of Sinopec’s experiences for China’s coal-to-oil industry. According to the 2015 financial reports, Sinopec’s business is primarily divided into operating business units (including the mining business and international exploration and production activities) and strategic business units (including energy, basic chemicals, and functional chemicals). The proportion of each segment to the company’s sales and profits is shown in the figure below. http://umail3.cn4e.com/mail/servlet/DownloadAttachmentServlet?user=masq@ky-process.com&mailId=MTQ0MjIwNTU2OC5NMzQwMDMyUDMyMzQyVjAwMDAwMDAwMDAwMDA4MTFJMDAwMDAwMDAyMDBFMDA3Rl8wLnVtYWlsMy5jbjRlLmNvbSxTPTE0NDI3MjI6MixT&name=X0ZveG1haWwuMEA4OEJCQjQ1OC0xMTdFLTQwNzktQTZBNC1DOTBGOEU4ODIwOTA=&type=1&checksum=http://umail3.cn4e.com/mail/servlet/DownloadAttachmentServlet?user=masq@ky-process.com&mailId=MTQ0MjIwNTU2OC5NMzQwMDMyUDMyMzQyVjAwMDAwMDAwMDAwMDA4MTFJMDAwMDAwMDAyMDBFMDA3Rl8wLnVtYWlsMy5jbjRlLmNvbSxTPTE0NDI3MjI6MixT&name=X0ZveG1haWwuMUA2REYyNzdGOS1EQzJDLTQxQjgtQjU4QS1EMkUxM0QyNUMyNjA=&type=1&checksum= The energy business: Financial reports show that in fiscal year 2015, Sasol’s energy business operated steadily, with profits amounting to 22,526 million rand, a 28% decrease compared to the previous year. The production volumes of the Secunda synthetic fuel plant and the Natref refinery increased by 2% and 6%, respectively, compared to the previous fiscal year. In South Africa, thanks to a 5% increase in the sales volume of liquid fuels compared to the previous year and better profit margins resulting from a product differentiation strategy, the profitability of Sinopec’s energy business remained stable even despite a 33% drop in oil prices; the gross margin declined by only 19%. Through Sasso’s “Business Performance Enhancement Program,” it was possible to keep the regular cash cost growth rate below South Africa’s Producer Price Index (PPI). Gas sales increased by 1% compared to the previous year, with power generation reaching 206,452 megawatt-hours. The profit share of the energy business from the equity account of the joint venture decreased from 3710 million rand in the previous year to 1941 million rand. The main reasons are the decline in oil prices, as well as the earlier shutdown of Qatar’s ORYX GTL plant than planned; this plant has achieved an operation rate of 90% while maintaining world-class safety performance. In Nigeria, the Escravos GTL plant is continuously increasing its production capacity toward its designed level, and it is now operating at a profitable level. Basic Chemicals Business: The basic chemicals business performed well, with sales volume increasing by 2% compared to the previous year, and operating profit rising by 51% to reach 1,0208 million rand. Due to exchange rate fluctuations, the sales price denominated in dollars has decreased by 13%. However, compared to crude oil prices during the same period, the selling prices of chemicals remained relatively strong. Operating profit also benefited from reduced depreciation expenses on operating assets in South Africa due to extended useful lives. Functional Chemicals Business: The Functional Chemicals business continued to perform steadily, with operating profits increasing by 7% compared to the previous year to reach 12,714 million rand. The strong financial performance was largely due to an increase in production, favorable demand, solid gross margins, and a 2% rise in sales volume resulting from a weaker rand/dollar exchange rate. Although a 33% drop in oil prices had a negative impact on SABIC’s ethylene value chain, its U.S. operations still achieved satisfactory profits, while production in Europe increased by 3%. The above operational data are based on an average Brent oil price of $73.46 per barrel from July 1, 2014, to June 30, 2015. It is generally believed that from the second half of 2015 through 2016, the average international oil price is likely to remain below $60 per barrel. Yahua Consulting believes that both Sasol and China’s coal-to-oil companies will face greater pressure. However, for China’s coal-to-oil and coal chemical industries, they can still draw the following lessons from SASOL in order to improve their operational performance amid low oil prices. 1. Develop a chemical production business based on Fischer-Tropsch synthesis. For Sasol, although its main facilities are CTL or GTL plants based on the F-T synthesis process, in addition to producing synthetic fuels, SASOL also manufactures a large amount of basic and specialty chemicals; in fiscal year 2015, its chemicals business accounted for 53.5% of the company’s total sales. Synthetic fuels are vulnerable to fluctuations in international oil prices, whereas chemicals, especially functional chemicals, not only have a high added value but are also less affected by oil price changes. In fiscal year 2015, the profit from the Solutia chemicals business accounted for 49.2% of the total profit, compared to 40.6% in fiscal year 2014. 2. While ensuring safe production, increase the operational rate of the plant and extend its service life in order to reduce the depreciation cost per unit of product. SASO’s \"Business Performance Improvement Plan\" also aims to control costs as much as possible while ensuring safe and stable production, a approach that is worth emulating by Chinese counterparts. 3. On the premise of successfully developing Fischer-Tropsch synthetic chemical products, take advantage of the weakening RMB exchange rate and the opportunities offered by the **Belt and Road Initiative** to actively explore international markets. The 10th China Frontiers Forum on Coal-to-Oil and Coal Chemicals, jointly organized by Yahuazhengxun and the Coal Chemicals Subcommittee of the Chinese Chemical Society, will be held in Yulin, Shaanxi from September 23 to 25, 2015.

The comprehensive energy utilization efficiency of the project is 45.9%; the coal consumption per ton of oil products is 3.441 tons of standard coal, while the water consumption per ton of standard coal is 2.68 tons. The reuse rate of water reaches 98.26%, and the carbon dioxide emissions per ton of oil products are 4.93 tons, which is at a world-leading level. According to the latest Guidelines for the Development of Coal-to-Fuel Demonstration Projects, the comprehensive energy efficiency for coal-to-oil projects should be ≥42%, with coal consumption ≤3.7 tons and water consumption ≤7 tons; it seems that the water consumption for this project is slightly high!