“The Puzzle of the Coal Chemical Industry during the 13th Five-Year Plan Period

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“The “13th Five-Year Plan” for the coal chemical industry – Author/Source: Date: 2015-10-26; Clicks: 6. It is reported that a draft of the much-anticipated “13th Five-Year Plan” for the coal chemical industry has been prepared. The plan specifies that efforts will be made to improve the energy efficiency of coal use in order to control production in this sector and alleviate supply-demand imbalances. Additionally, initiatives for upgrading and innovating through five different models will be carried out. At the same time, efforts will be made to further develop related industries such as petrochemicals and oil and gas, as well as to establish standards for these industries. Some analyses suggest that with the introduction of the 13th Five-Year Plan for the coal chemical industry, there will be pressure to drive transformation and upgrading within this sector, toward a model focused on quality and efficiency. By relying on technological innovation, the industry can pursue a new path of development characterized by low resource consumption, high technical content, good quality and efficiency, as well as sustainability. After a decade of effort, the coal chemical industry chain has taken initial shape. China is a country with abundant coal resources but limited oil and gas reserves; it holds about 11.67% of the world’s total coal reserves, ranking third in the world in this regard. It is worth noting, however, that in China’s current coal production and utilization processes, issues such as outdated technology and severe pollution are particularly prominent; not only is the efficiency of use low, but it also has an adverse impact on the environment. Coal chemical engineering refers to the process of using coal as a raw material and undergoing chemical processing to convert it into gaseous, liquid, and solid fuels as well as chemicals. The coal chemical industry not only enables the efficient utilization of coal resources but also can partially replace petrochemical products, holding significant strategic importance for ensuring **energy security. Looking at the development history of the chemical industry over the past century, every change in the composition of raw materials has been accompanied by significant transformations within the industry. In 1984, of the world’s proven reserves of fossil fuels, coal accounted for about 74%, oil about 12%, and natural gas about 10%. From a resource perspective, coal will remain a potential key raw material for the chemical industry for a long time to come. Industry experts point out that the areas in which coal chemical industry will develop in the future, and at what pace, will depend on the advancements in coal chemical technology itself, as well as changes in oil supply and demand and the prices of related raw materials. http://img.yf116.cn/image/img/20151026/914543329449.jpg Products and main industrial processes in the coal chemical industry http://img.yf116.cn/image/img/20151026/917193343920.jpg Comparison and relationships among different coal conversion processes. Data shows that, in the near term, coke used in metallurgical industries such as steel production will continue to rely on coal coking; meanwhile, coking chemicals such as naphthalene and anthracene, which are polycyclic compounds, remain organic chemical raw materials that are difficult to replace in the petrochemical industry. Public data shows that during the 11th Five-Year Plan period, the new coal chemical industry experienced rapid growth driven by rising oil prices. The coal chemical industry chain, including coal-to-methanol, coal-to-dimethyl ether, coal-to-olefins, coal-to-oil, coal-to-natural gas, and coal-to-ethylene glycol, has taken initial shape. It is reported that China has currently approved a total of 27 modern coal chemical industry demonstration projects; among these, there are 13 projects for producing natural gas from coal, and once fully operational, their production capacity will amount to 61.1 billion cubic meters per year ； There are 8 coal-to-oil projects, with a production capacity of 11.08 million tons per year ； There are 6 coal-to-olefins projects, with a production capacity of 5.1 million tons per year. There are 26 coal-to-oil projects, 58 coal (methanol)-to-olefins projects, and 67 coal-to-natural gas projects that are in the stages of operational testing, construction, and preliminary work. If all are put into operation, it is estimated that by 2020 there will be a production capacity of 40 million tons of coal-to-oil products, 41 million tons of coal-to-olefins products, and 280 billion cubic meters of coal-to-natural gas products. According to predictions by the Petroleum and Chemical Industry Planning Institute, by the end of the 13th Five-Year Plan period, the substitution rate of China’s coal chemical industry for oil and natural gas is expected to reach 12.5%. http://img.yf116.cn/image/img/20151026/918513353169.jpg Hu Qianlin, secretary-general of the Coal Chemicals Committee of the China Petroleum and Chemical Industry Federation, believes that the rapid development of China’s national economy, along with the acceleration of industrialization and urbanization, requires large amounts of energy and raw materials to support these processes. In the coming years, there will still be a significant shortage of basic raw materials such as olefins and ethylene glycol in China, which presents good opportunities for the development of the coal chemical industry. Meanwhile, with the stricter enforcement of relevant environmental regulations, regions will gradually phase out the previous extensive use of coal; coal chemical industry represents an important way to achieve clean and efficient utilization of coal. “During the 13th Five-Year Plan period, there was a new overall planning for coal chemical industry; although it is regarded as an effective way for the coal industry to optimize its internal energy structure. It should be noted, however, that China’s coal chemical industry as a whole still faces issues such as uncontrolled development, severe product homogenization, and heavy pressures on water resources and the environment. In particular, the sharp drop in international oil prices in recent years has led to a situation where the prices of coal chemical products are lower than those of oil, causing serious impacts on the industry. It is reported that with the successive completion and commissioning of a series of **pilot projects, China’s indigenous coal chemical technology has entered the commercialization phase, and the scale of this industry has expanded rapidly. For some time, in order to take advantage of their coal resources and boost local economies, local **governments and enterprises showed great enthusiasm for investing in the coal chemical sector, leading to the launch of numerous such projects. It is reported that by the first half of 2015, as many as 104 coal chemical projects had been submitted to the Development and Reform Commission in various regions seeking approval, with a total investment amount estimated at around 2 trillion yuan. “These projects are extremely large and impossible to implement; moreover, there is severe homogenization of products, with most of them being low-end products. If a path toward differentiation is not pursued, it will lead to another round of overcapacity. ”Hu Qianlin, secretary-general of the Coal Chemicals Committee of the China Petroleum and Chemical Industry Federation, said that at present, most coal chemical projects suffer from insufficient levels of processing and conversion, with downstream products mostly being low-value primary products; as a result, they have little impact on local economies. Experts point out that a rational layout of coal chemical projects and industrial upgrading through structural adjustments are the most effective ways for these regions to transform their resource advantages into economic advantages. http://img.yf116.cn/image/img/20151026/92043336436.jpg China’s coal chemical industry production targets for 2020. It is understood that, in light of the above circumstances, the 13th Five-Year Plan for the coal chemical industry focuses on product differentiation, high-end development, and higher added value as key directions for growth, with an emphasis on extending the industrial chain, expanding the range of products, and developing new coal-based chemicals. According to Li Ye, the chief economist of the **Energy Bureau**, the bureau has proposed five models for demonstration purposes in terms of upgrading technologies: the production of ultra-clean petroleum products from coal, the graded and selective utilization of low-grade coal, the production of natural gas from coal, the integrated utilization of coal and oil, and the production of important chemicals from coal. At the same time, it is necessary to adhere to a scientific and rational layout. The placement of coal chemical projects should take into account factors such as financial capacity, technological strength, talent availability, and environmental carrying capacity, while emphasizing industrial park development, large-scale operations, flexibility in production, and product differentiation as key characteristics. http://img.yf116.cn/image/img/20151026/921443370439.jpg Map of coal chemical industry bases in China. “The plan is to focus on developing six such bases over the next five years: two in Inner Mongolia, two in Xinjiang, as well as ones in Northern Shaanxi and Ningdong. **The National Development and Reform Commission is currently seeking opinions on this matter.” ”Gu Zongqin said. Industry experts say that these high-value-added projects play a significant role in extending the coal chemical industry chain, optimizing the structure of coal chemical products, and improving the quality of development, thereby providing stronger support for the transformation and upgrading of the coal chemical industry. Support policies for the coal chemical industry are on the way. Starting in the second half of 2014, international oil prices dropped sharply, which had a significant impact on China’s coal chemical industry; in particular, the coal-to-oil projects that were already in operation suffered losses across the board. http://img.yf116.cn/image/img/20151026/923133379315.jpg More than 70% of China’s coal companies are losing money. As of August 26, among the 17 listed coal companies that had released their semi-annual reports for 2015, 6 of them reported losses for their shareholders. China’s second-largest coal company, China National Coal Energy, incurred a loss of 965 million yuan, a decrease of 240.7% compared to the previous year; this was the first time it has experienced a semi-annual loss since it went public in 2008. It is also the coal company with the largest loss amount reported so far. China Shenhua, the largest coal company, did not incur losses in the first half of the year, but its net profit still declined by 45.6% on a year-on-year basis; it is expected that the decline in net profit for the first three quarters could reach or even exceed 50%. Among the coal companies that have released their semi-annual reports so far, Pingmei Co., Ltd. experienced the largest decline in performance on a year-on-year basis; it incurred a loss of 697.9234 million yuan in the first half of the year, with a decline rate of 1153.06%. A source from the Petroleum and Chemical Industry Planning Institute said that the chemical industry achieves its best profitability levels when international oil prices are between $70 and $90. With current low oil prices, the coal chemical industry, as a branch of the chemical industry, is also unable to escape the impact. Currently, some agencies predict that during the 13th Five-Year Plan period, international oil prices will remain at a low level, possibly staying between $50 and $90 per barrel. In addition, many officials from coal chemical enterprises have also called for **reductions or exemptions from value-added tax and consumption tax. Sun Qiwen, general manager of Shaanxi Future Energy Chemical Co., Ltd., said that according to calculations, the consumption tax on diesel produced by the company’s coal-to-oil project is 1,411 yuan per ton, while the consumption tax on naphtha is 2,105 yuan per ton. In addition to the consumption tax, coal-to-oil enterprises are also required to pay various other taxes such as value-added tax and urban construction tax. At present, the price of each ton of diesel and naphtha is only 4,000 to 5,000 yuan, with half of the price of these fuels going towards taxes. Sun Qiwen said that the main purpose of imposing a consumption tax on oil products is to curb excessive oil consumption. However, coal-to-oil production uses coal as raw material, involves complex processes, and has high production costs; therefore, it is unreasonable to impose a consumption tax on it using the same standards as those applied to oil refining companies. It is understood that relevant departments are currently studying tax incentive measures for the coal chemical industry, and the consumption tax might be reduced by 30% based on the current rate.