A thorough analysis of China’s methanol industry chain: on the brink of collapse!

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This post was last edited by yinkuilin6868 on 2015-11-18 10:20. A thorough analysis of China’s methanol industry chain: It’s on the brink! Introduction: Often, market supply and demand signals can mislead the market. The concept of cost is relative and subject to change. Given this, let’s take a look at what role methanol plays in China’s overall energy utilization system, whether that role is reasonable, and what direction its development will take There was a man who owned several mu of land. At first, he planted crops on all of it; each year, he harvested about a thousand catties. This amount not only satisfied his family’s food needs but also left some surplus. His life was self-sufficient and quite joyful. A friend noticed that he had more grain than he could consume, so he gave him some advice: he suggested using the grain to make alcohol. This drink is far superior to water; drinking it during meals makes one feel refreshed and even gives a sense of floating on clouds. The family was tempted, so they turned all the remaining grain at home into wine. Once they tried it, they became addicted to it. Thus, the following year they used even more grain to make wine, indulging in this delightful nectar of happiness. One day, the family realized that the stock of food they had accumulated in large quantities, enough to last a whole year, was no longer sufficient. They often had to drink alcohol on an empty stomach, and as a result, even the fine wine turned into something bitter. What caused this? Previously, no matter how many different ways we ate grains—such as rice, rice cakes, rice noodles, etc.—they were still just rice. But when it comes to fermenting rice into alcohol, it takes 3 pounds of grain to produce just 1 pound of liquor! Can you see what the problem is? This is where the simple law of conservation of energy comes into play; in chemical reactions, it manifests as compliance with the second law of thermodynamics. Any biochemical reaction is a form of energy transfer. Under natural conditions, energy conversion is directional; to reverse this process requires the expenditure of additional energy, more or less. Therefore, there is the question of which form of energy is the most suitable. Just like the food mentioned above, apart from being used for brewing, it can also be converted into biofuels or chemical intermediates. Biochemical processes generally require a large amount of electricity; not only is energy consumption high, but the economic viability of such processes is also a problem. Moreover, converting large quantities of this material to meet industrial needs threatens human food security. As a result, after the initial hype, this approach gradually disappeared. Is China’s methanol industry also experiencing similar recklessness, blindly developing certain industrial applications that it shouldn’t be involved in at all? What, then, is the optimal development path for methanol? Which of the current popular downstream applications for methanol will gradually be phased out over the years as they are replaced by other simpler and more economical chemical raw materials? Especially based on those non-renewable fossil fuels: oil, natural gas, or coal, which fuel is the most economical for producing methanol? Often, market supply and demand signals can mislead the market; the concept of cost is relative and subject to change. Especially as modern chemical plants become larger, efforts are made to increase production capacity on a scale large enough to reduce marginal costs and enhance competitiveness. When new, more competitive products emerge, existing markets are disrupted, and it is in this way that the chemical industry continues to evolve. Many industries that were once prosperous have now fallen into silence, yet there are still some sectors that remain vibrant despite having undergone changes over centuries. The underlying principle here is that only those processes that achieve the best energy efficiency are the most viable. There can be hundreds or even thousands of chemical reactions available for producing a given target product, and we can compare the current costs of various raw materials to assess the advantages and disadvantages of different reaction pathways. Ultimately, however, what matters most is the amount of energy consumed by each reaction pathway, as well as the energy density retained in the resulting product – these factors directly determine the efficiency with which that product can be used in subsequent applications. This is the fundamental logical principle at play. In Europe and the United States, the thermal energy unit MMBtu is generally used to measure the efficiency of utilizing a particular form of energy. This statement has great practical value, as the definition of MMBtu is: the amount of heat required to raise the temperature of 1 pound of pure water by 1°F ； There is a very interesting analogy in the energy sector: most of the energy humans use is obtained by \"boiling water.\" Most people may not believe this, but it is indeed the case. According to EIA data from 2012, 88% of crude oil is used as fuel, while only about 12% is utilized as raw material for the chemical industry, resulting in textiles, plastics, building materials, as well as skincare products, clothing, mobile phones, electrical appliances, pipes, furniture, and more. There is always some trace of petrochemical products in any common item around us. Yet even with such widespread use, it still constitutes only a small portion of the overall energy usage; a large majority of crude oil is used to \"heat water\" to produce steam, or to be converted into gas to power steam/turbines for electricity generation, or as fuel to drive vehicles. In short, these energies were initially utilized by human society in the form of heat energy. Forget renewable energy; its role will remain limited throughout our lifetimes. For example, coal still accounts for around 70% of electricity generation in our country, while in the United States, renewable energy made up only about 13% in 2013. Among global renewable energy sources, those such as solar, wind, and tidal energy that do not make use of steam/turbine power generation account for only a very small proportion. Back to the topic of this article — methanol. Following the logic outlined above, we choose methanol as a case study to analyze the energy efficiency of its downstream applications as well as the energy density of the end products, in order to determine what role methanol plays within China’s overall energy utilization system, whether this role is reasonable, and what direction its development will take 1. Options for downstream applications of methanol: By comparing the application patterns of methanol abroad with those in China, it is easy to see that the proportions of methanol converted into formaldehyde, acetic acid, methamine, etc., are roughly similar across different regions, and demand for these products remains relatively stable. The main differences lie in the demand for methanol as a fuel and dimethyl ether, as well as the growing demand related to MTO processes for various olefins – these factors are driving the explosive growth in methanol demand in China. But why is there such a difference? 1.1 Dimethyl ether: Also known as methyl ether, and abbreviated as DME, it is a colorless gas or compressed liquid at normal pressure, with a slight ether-like odor. Relative density (20°C): 0.666; melting point: -141.5°C; boiling point: -24.9°C. At room temperature, its vapor pressure is approximately 0.5 MPa, which is similar to that of liquefied petroleum gas (LPG). Soluble in water and various organic solvents such as alcohol, ether, acetone, and chloroform. Flammable; the flame emits a slight glow when burning, and its heat of combustion (in gaseous state) is 1455 kJ/mol. At room temperature, DME is inert and does not oxidize easily; it is non-corrosive and non-carcinogenic. However, under radiation or heating conditions, it can decompose into methane, ethane, formaldehyde, and other substances. As an emerging basic chemical raw material, dimethyl ether has many uses. Due to its excellent compressibility, condensability, and vaporization properties, dimethyl ether is widely used in various chemical industries such as pharmaceuticals and pesticides on an international scale. High-purity dimethyl ether can replace Freon as an aerosol propellant and refrigerant, thereby reducing pollution of the atmospheric environment and damage to the ozone layer. A major reason why China’s demand for dimethyl ether differs from that in other countries is the substitution of it as a domestic fuel gas. Due to the monopolistic regulation of domestic LPG, gasoline, and diesel prices, private enterprises place great hopes on dimethyl ether as a substitute for fuel gases. In fact, China has been blending dimethyl ether into diesel since a decade ago. Although there are no clear regulations or standards governing this practice, the historically high oil prices have made it financially worthwhile to use dimethyl ether as a replacement for LPG, gasoline, and diesel. Additionally, dimethyl ether can be utilized as a peak-shaving gas for urban piped natural gas systems and as an additive in liquefied petroleum gas. As a result, the demand for dimethyl ether in China is significantly higher than that in other countries. The problem at present is that dimethyl ether is mainly produced from natural gas, coal, or coke oven gas, and there are both a \"one-step method\" and a \"two-step method\" for this process; however, in practice the main reaction still requires the production of methanol first, which is then dehydrated and condensed to form dimethyl ether. The overall energy consumption for producing methanol from syngas in the initial stage is approximately 46 GJ/kg. The exothermic reaction resulting from the condensation of methanol to form dimethyl ether releases about 744 KJ/kg, while the heat of combustion of methanol itself is around 19,530 KJ/kg. It is thus clear that in order to obtain dimethyl ether with a heat of combustion of approximately 36,120 KJ/kg, as much as ~50 GJ/kg of energy is lost during the process of synthesizing it from two molecules of methanol. The bottom line is that the end result is not much different from using methanol directly as a fuel ； As dimethyl ether has a calorific value of only about 2/3 that of LPG, it is not advisable to use it as a substitute for LPG in gas distribution networks. LPG is an important chemical raw material; although its energy density is about 2.8 times higher than that of natural gas, natural gas is cleaner and more environmentally friendly, as well as more convenient to use. In the future, natural gas will remain the dominant fuel in the gas market, so dimethyl ether has little market potential in this area. If dimethyl ether fails to gain a foothold in the fuel substitution market, or even gets replaced by other raw materials, its overall share in terms of demand will actually diminish in importance within the downstream segments of methanol in the future. This is a trend that can be clearly anticipated. 1.2 Methanol fuel: In China, methanol can be used as a fuel in two ways. One is by mixing it with gasoline to create products such as M15, M30, M85, and M100, which are sold at regular gas stations. The other method is the MTG process, which involves using methanol directly to produce gasoline; this approach has gained increasing interest from the market amid the growth of the coal chemical industry. In fact, according to EIA data, the energy density of methanol is about half that of gasoline; it’s inferior to ethanol or natural gas. Its advantages include increased oxygen content and cleaner combustion; the drawbacks are high toxicity and corrosiveness. 1.2.1 Methanol-blended gasoline
Methanol-blended gasoline is currently classified as an alternative energy source in China. In 2012, the Ministry of Industry and Information Technology issued a directive to conduct pilot programs in Shanxi, Shaanxi, Shanghai, and other regions. However, it has so far met with little enthusiasm nationwide. From an economic standpoint, the higher the methanol blend ratio, the more attractive it becomes; ideally, it should be M100. The problem is that the biggest challenge in mixing methanol into gasoline is that formaldehyde, formic acid, and other substances produced during combustion cause severe corrosion and wear on the engine, and even the use of expensive corrosion inhibitors and other additives has little effect. Research conducted by the American company Ford found that when methanol-blended gasoline is used, the iron content in the engine lubricant is 5.2 times higher than when lead-free gasoline is used. The main forms of engine wear are wear and corrosion of the piston rings and cylinder walls. Additionally, methanol has a high latent heat of vaporization, which leads to poor vaporization; this results in the liquid methanol flowing onto the cylinder walls, thereby diluting the lubricant layer and causing severe emulsification, which in turn leads to frictional wear of the engine components. The results of the RIPP study also show that methanol gasoline is corrosive to the lead-tin plating on car fuel tanks; the hydrophilicity of methanol makes phase separation occur easily in the presence of even small amounts of moisture, thereby affecting storage and the proper operation of the vehicle. Moreover, methanol is a typical neurotoxin that can be absorbed through the respiratory tract, gastrointestinal tract, and skin; it damages the respiratory mucosa and vision, and has the greatest impact on the human nervous system and blood system. The development and application of methanol gasoline abroad began during the second oil crisis in the 1970s. From the perspective of alternative energy sources, countries such as Germany, the United States, and Japan have conducted research and development on methanol fuels and related technologies for methanol-powered vehicles. As early as the 1970s, the United States focused on developing dedicated methanol-fueled vehicles such as the M85 and M100. However, statistics show that after 1998, both methanol-fueled vehicles and methanol fuel consumption in the U.S. began to decline, for various reasons. The drawbacks of methanol as an automotive fuel—particularly its toxicity—make it unpopular in the U.S. market, where health, safety, and quality of life are highly valued. Meanwhile, alternative fuels such as LNG and electricity are safer and more environmentally friendly, leading to a gradual phasing out of methanol as a substitute fuel. Moreover, American and Japanese automakers insist on opposing the blending of methanol into gasoline; the U.S. standard for lead-free automotive gasoline, ASTM 4814, specifies that the methanol content must not exceed 0.3 Vol%. The \"World Fuel Specifications\" jointly issued by the World Automobile Manufacturers Organization in December 1998 stipulated that \"the use of methanol is not allowed.\" Even in Europe, although Regulation 85/536/EEC permits the inclusion of up to 3% methanol in gasoline, statistics show that in reality, less than 0.1–0.5% methanol is added to fuels. Since current technology is not yet able to effectively address the issue of metal corrosion caused by methanol-blended gasoline, automobile manufacturers such as General Motors and Ford in the United States state clearly in their user manuals that damage to vehicles using such gasoline is not covered under warranty. In some regions of China, experiments on methanol blending are being conducted. The main reason for this is the pressure exerted by high oil prices over the past few years; in particular, several coal-rich regions have abundant supplies of methanol, giving them an incentive to promote its use in the market. Given the analysis of these foreign experiences, it is unlikely that the Ministry of Industry and Information Technology will approve an expansion of the pilot program in the coming years. Moreover, the proportion of methanol used in mixtures is likely to remain within the current range of 15–85%. As a result, the total amount of methanol in the entire pilot market will not increase, and it is even likely to decline over time as natural gas becomes more widely used. 1.2.2 Methanol-to-gasoline (MTG): MTG has developed alongside the growth of coal chemical industry in recent years; from a technological perspective, it represents a relatively mature approach. Strictly speaking, in terms of coal classification, there are actually two categories. The first involves the direct liquefaction of coal to produce gasoline and diesel. This process relies on the Fischer-Tropsch synthesis using syngas. It requires coal of high quality: the ash content must generally be less than 5%, while the coal should also have good reactivity and grindability. The contents of impurity elements such as sulfur and nitrogen should be kept as low as possible. Additionally, this process is energy-intensive, which has limited its widespread application in China ； The other method is indirect liquefaction: coal or natural gas is first used to produce methanol, which is then used to make gasoline. This process does not require high-quality coal, and its scale can be adjusted flexibly; it is even possible to carry out this process in coastal areas far from coal-producing regions, as long as imported methanol is available. As a result, this method is very popular in China. The MTG reaction process involves methanol first dehydrating to form dimethyl ether; thereafter, methanol, dimethyl ether, and water are converted into light olefins (C2–C4) under the action of a catalyst. Further addition reactions then yield longer-chain olefins, n/isoparaffinic hydrocarbons, aromatics, and naphthenes. Generally, the raw material consumption is 2.5 methanol per ton of gasoline; the heat released during the process is 1.74 MJ/kg, and the external energy input is approximately 360 KJ/mol. In fact, given that methanol’s energy density is already half that of gasoline, the energy required to obtain gasoline in its final form is equivalent to 16 times the energy needed for methanol. If the high content of p-tertbutylbenzene in MTG gasoline is taken into account, reducing it requires hydrogenation to improve the quality of the oil, which further increases energy consumption. Therefore, in terms of energy efficiency, MTG remains uneconomical; theoretically, it should only be considered for conversion into gasoline fuel as a supplement when oil prices are high and there is an excess of methanol. 1.3 Methanol to Olefins (MTO): Like MTG, MTO also developed as a result of the growth of coal chemical industry in recent years. **Following the commissioning of projects such as Shenhua Baotou MTO, Ningxia Coal MTP, and Datang Dolun MTP, various regions were unable to resist the temptation of the huge profits associated with polyolefins in the face of high oil prices. Many places began to build similar facilities; even some areas that are not coal-producing regions imported methanol in order to set up MTO plants, all before the summary reports on those initial 3 pilot projects could be prepared. However, to date such a summary report has not been made public, but one thing is clear: **the requirements for entry have begun to be tightened, raising the barriers. For example, in accordance with the target requirements for modern coal chemical demonstration projects set out in the 12th Five-Year Plan, the energy conversion efficiency must be no less than 40%, the coal consumption per ton of olefins must not exceed 5.3 tons (converted to standard coal), and the fresh water consumption per ton of standard coal must not be more than 4 tons ； To reach an advanced level, the energy conversion efficiency must be no less than 44%, the coal consumption per ton of olefins must not exceed 5 tons (converted to standard coal), and the fresh water consumption per ton of standard coal must not be more than 3 tons. I’m not sure what level Shenhua is at; it probably hasn’t reached an advanced level, otherwise it would have been made clear. However, the conversion efficiency of modern coal-fired power generation is approximately 40–45%. It is said that IGCC can achieve an even higher efficiency of around 50%. Therefore, **the energy conversion efficiency of coal chemical processes must be at least comparable to that of thermal power generation. So, let’s see if this is indeed the case.** Taking the currently most popular CTO process analysis as an example, the entire process is divided into three stages: gasification to produce syngas, conversion of syngas into methanol, and conversion of methanol into olefins, namely MTO. Generally, with the current mainstream technology level, the ratio is around 2.7:1 for coal-to-methanol conversion, and then around 3:1 for methanol-to-olefins conversion. The calorific value of 1 kg of standard coal is 29,306 KJ; for methanol, it is 19,530 KJ/kg. For polyolefins, this value is nearly 40,000 KJ/kg, which is comparable to that of fuel oil. Taking a 600,000 tons per year olefin plant as an example, the energy conversion efficiency is around 45% in the first stage, and about 70–80% in the second stage; overall, it is roughly 30%. Therefore, in terms of efficiency alone, CTO/MTO is also a process with high energy consumption and low energy conversion rates. However, if the energy density of the final products is considered for comparison, differences can be seen. After all, polyolefins are not meant for burning to generate electricity, nor are they added to gasoline to power vehicles; their main purpose is to be used in various products that find application in all aspects of human life. One of the biggest differences between chemical production and energy production is that in energy production, the thermal entropy is ultimately burned to release energy, whereas in chemical production, most of the thermal entropy of the final products remains within those products. From this perspective, in chemical manufacturing, as long as recycling is practiced as much as possible, it is still possible to conserve energy, even though the energy conversion efficiency over the entire life cycle is not high. Although 20–30% of energy is still lost in each process, this is still better than burning the materials to produce CO2 and H2O, after which it becomes difficult to reverse the process and restore them to alkanes. Given that chemical products have a high energy density and a longer energy lifecycle compared to fuels such as gasoline, it doesn’t seem appropriate to outright reject the prospects of MTO. However, there are two key factors that hinder the development of this process: the competition from processes that convert natural gas into methanol and then into olefins, and the actual size of the domestic demand for polyolefins When it comes to the demand for polyolefins, it is primarily considered in light of China’s huge population base. Many industry insiders often cite the following table to demonstrate that there is still considerable room for growth in the domestic polyolefins market. But is this really the case? Per capita consumption of polyethylene and polypropylene (kg/person): Polyethylene, Polypropylene. World average: 85. North America: 3717. China: 54.5. After all, polyolefins are not yet strategic materials; therefore, there is no need for China to disregard energy realities and excessively expand its ethylene production capacity in order to achieve 100% self-sufficiency in polyolefins. Importing low-cost olefin products from abroad is also a viable option; it can help alleviate domestic energy supply pressures and reduce pollution ； Moreover, domestic polyolefin consumption has also approached the world average level. It is unrealistic to expect China’s per capita consumption of polyolefins to reach that of the United States. As can be seen from the two charts below, China may, for a long time to come, bring its energy consumption per unit of GDP in line with that of developed countries; however, the gap in per capita GDP will remain roughly the same. In other words, per capita demand for chemical products cannot reach the level of developed countries, but at most it will reach the world average. In other words, the growth potential of the polyolefin market is not as large as once thought! 2 Selection of upstream raw materials for methanol production. From the perspective of chemical reaction pathways, methanol is primarily produced from syngas (CO2, CO, and H2) or CH4. The former is mainly derived from coal processing, while the latter comes from natural gas or shale gas. Many articles have already reached conclusions on which option is superior from perspectives such as cost; here, the analysis is still conducted from the standpoint of energy usage efficiency. Coal-to-methanol production involves converting coal into water gas in a gasifier, adjusting the hydrogen-to-carbon ratio in a reformer, and then feeding the mixture into a synthesis reactor to produce methanol ； Methanol production from natural gas involves CH4 entering a conversion furnace to be converted into syngas, which is then fed into a synthesis tower to produce methanol. Therefore, whether it is coalbed methane, gasification of coal, coke oven gas, or natural gas, the process of producing methanol essentially involves using syngas containing CO2, H2O, CO, and H2. The difference lies only in the adjustment of the hydrogen-to-carbon ratio before the conversion reactor is used. Theoretically, approximately 23 GJ of energy is required to produce 1 ton of methanol; the energy consumption for producing methanol from traditional natural gas is 29–31 GJ. Since coal-based methanol production does not require frequent adjustments to the hydrogen-to-carbon ratio, its energy consumption is slightly lower than that of natural gas, at around 28–29 GJ. Thus, the difference between the two methods is not significant. Given the scarcity of natural gas resources in our country, which will require large-scale imports in the future, and considering that natural gas is a clean fuel primarily used for urban heating, in August 2007 the **National Development and Reform Commission issued the ‘Natural Gas Utilization Policy’, prohibiting the use of natural gas for the production of methanol, and restricting its use in the production of synthetic ammonia, acetylene, chloromethane, and other substances. The variables for natural gas come from abroad. Given the abundance of natural gas in the Middle East and North America, along with the difficulties associated with its transportation, it is logical to convert natural gas into other liquid or solid chemicals. This process requires little energy, and the resulting products have a high energy density, making them suitable for long-distance transportation. At the current level of technology, methanol is the most appropriate choice. Of course, the United States is still exploring this. If CH4 can bypass the step of decomposing into syngas and then forming methanol, and instead directly react to produce olefins, it would be yet another revolution in the chemical industry! Since reducing the number of reaction steps means lowering energy losses, and polyolefins have an energy density twice that of methanol plus they are solids making them more suitable for transportation, in the future it will not be methanol but various grades of polyolefins that will be imported from overseas by sea! Recent signs indicate that Siluria, a small American engineering and technology company, held a grand commissioning ceremony at its test plant in Texas, becoming the world’s first company to achieve large-scale industrial conversion of natural gas directly into ethylene. Executives from Siluria have been invited to discuss future energy policies in the United States with the U.S. Department of Energy. The U.S. has realized the strategic value of this new approach for its energy and manufacturing sectors, and is considering formulating policies to promote further development of this industry. According to IEA data from 2012, the main uses of natural gas in the United States are for power generation and heating; these applications account for 77% of total energy consumption, amounting to approximately 21,339,716 TJ. Industrial uses account for only 17%, and this includes needs such as heating in production processes; not all of this gas is used for chemical transformations to produce other chemicals. If an analysis is conducted of the changes in the usage of natural gas in the U.S. industry over the past few years, EIA data show that no clear trend can be observed, indicating that a cautious attitude persists toward the use of methane within the United States; it is primarily used for power generation and heating, rather than for producing methanol which could then be converted into polyolefins through MTO processes, despite the country’s significant advantages in terms of shale gas resources. 3 Conclusions In summary, most of the global demand for methanol in downstream applications remains relatively stable, with growth rates staying in the single digits; such rates are not sufficient to support rapid expansion of new methanol production capacity in the future ； It is neither realistic nor feasible to rely on methanol to achieve breakthroughs in fuel substitution and thereby change China’s energy landscape. It seems that only CTO/MTO still has some vitality at the moment, but it’s still not guaranteed. Ancient Chinese military treatises state: \"Encircle three and leave one.\" Before they can find better ways to utilize methane as an energy carrier, those countries need China’s vast market to absorb any excess natural gas. Exporting methanol represents that \"one\" left unencircled; moreover, they rarely build or expand MTO facilities of their own. It is clear that they are confident in being able to find better methods for exporting methane beyond LNG and methanol, with direct conversion of methane into ethylene being one such method in the future. By then, once methanol loses its status as a bridge between energy and the chemical industry, how much room for speculation remains? It remains uncertain whether the huge amounts of money invested in these \"largest ever\" projects can be recovered. Therefore, in this currently booming market for CTO/MTO projects, someone should surely step forward to pour cold water on things: China’s methanol industry is indeed on the brink of collapse!