Five \"key words\" of coal-to-oil production in China in 2015”

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2015: Five “Key Words” Regarding Coal-to-Oil Production in China Author/Source: Date: 2015-12-23 Clicks: 14 Since the successful operation of Shenhua Group’s first coal direct liquefaction plant in 2008, coal-to-oil production has gained increasing recognition as a strategic alternative energy source. Over the past three years, the coal industry has been weak, with coal enterprises in various provinces facing the need for transformation, while coal-to-oil conversion has attracted attention from the oil market. Currently, coal-to-oil processes in China are mainly divided into three categories: indirect liquefaction, direct liquefaction, and co-processing with kerosene. There is 1 indirect liquefaction unit in total, with a total production capacity of 1.08 million tons per year; there are 4 direct liquefaction units, with a total production capacity of 1.53 million tons per year; and there is 1 kerosene co-processing unit, with a total production capacity of 450,000 tons per year. Currently, coal-to-oil projects are mainly concentrated in Shaanxi, Shanxi, and Inner Mongolia, with a total production capacity of 3.11 million tons per year. In the next 15 years, coal-to-oil projects in China are set to expand at a rapid pace, with Shenhua Group and Yitai Group already establishing operations in Xinjiang. It is estimated that by 2020, the annual production capacity of coal-to-oil projects in China will reach 17.91 million tons, with indirect coal liquefaction being the main technology used. Table of coal-to-oil projects in operation in China (unit: 10,000 tons/year) http://img.yf116.cn/image/img/20151223/929493418974.jpg Profits: In 2015, the price of diesel produced from coal at Inner Mongolia’s Yitai plant first dropped before stabilizing; due to the sharp drop in crude oil prices, there was little fluctuation in diesel prices during the second half of the year. From January to June, the safety production situation at Inner Mongolia Yitai Coal-to-Oil Co., Ltd. remained stable, with no safety or environmental incidents occurring. The coal-to-oil unit operated safely and stably for 180.6 days, with 0.4 days of unplanned shutdowns. According to the official website of the Ordos Bureau of Statistics, from January to August 2015, the Ordos branch of Shenhua Coal-to-Oil Corporation generated revenue of 1.56 billion yuan, which was 1.81 billion yuan less than in the same period previous year, representing a year-on-year decline of 53.7% ； The cumulative loss amount reached 970 million yuan. Inner Mongolia Yitai Coal-to-Oil Co., Ltd. achieved revenue of 610 million yuan, which was 140 million yuan less than in the same period, representing a year-on-year decline of 19.1% ； Profits amounted to 20 million yuan, a decrease of 120 million yuan compared to the same period, representing a year-on-year decline of 85.3%. Oil prices remained low throughout 2015 due to an oversupply in the crude oil market. Currently, the cost threshold for coal-to-oil production in China is around $65–$75 per barrel. During the period from January to December 2015, international crude oil prices were below this threshold for most of the time; the average price during January to November was only $50 per barrel, which meant that losses in coal-to-oil production were inevitable. It is understood that in order to avoid taxes reasonably and achieve profits, coal-to-oil manufacturers are currently shifting to the production of high-end coal-based fractionated oils (liquid paraffin), with these products being targeted at customers who use them in the formulation of high-quality diesel. By the end of late November, Yitai in Inner Mongolia had produced approximately 143,000 tons of petroleum products, of which liquid paraffin accounted for 61.5%. The imposition of a consumption tax on coal-based petroleum products at the same rate as that applied to oil-based refined products is very likely to be the final straw that crushes the coal-to-oil industry. Following three increases in the consumption tax on refined oil products on November 28, 2014, December 12, 2014, and January 12, 2015, the consumption tax on gasoline, naphtha, solvents, and lubricants in China rose to 1.52 yuan per liter ； The consumption tax on diesel, aviation kerosene, and fuel oil has also been raised to 1.2 yuan per liter. In accordance with the relevant guidelines issued by the State Taxation Administration, as of January 1, 2013, China expanded the scope of the consumption tax on refined oil products. Key raw materials used in the production of gasoline, such as methyl tert-butyl ether, aromatics, and mixed aromatics, were included within the scope of this tax, and they are taxed at the same rate as naphtha. In other words, as of January 1, 2013, oil products produced through all coal-to-oil technologies are subject to the same consumption tax as those derived from petroleum refining. Owners of coal-to-oil projects said that following three successive increases in the consumption tax on refined oil products, the tax on gasoline (naphtha, blended aromatics) has reached 2,100 yuan per ton, while the tax on diesel has risen to 1,430 yuan per ton. With oil prices continuing to fall and the profits of coal-to-oil companies shrinking drastically, these companies can no longer make a profit after having to pay high consumption taxes based on the volume of production. Environmental protection: Throughout its development, coal-based oils have been subject to criticism due to their high energy consumption and high emission levels. In July 2015, the Ministry of Environmental Protection officially posted on its official website a notice stating that the environmental impact assessment for the \"Shanxi Lu’an Coal-to-Oil Project\" had not been approved. In mid-December, the **Ministry of Environmental Protection officially accepted the application submitted by Shanxi Lu’an Mining (Group) Co., Ltd. for approval of the second environmental impact assessment report for its integrated demonstration project aimed at the clean utilization of high-sulfur coal for oil production, power generation, and heating. Meanwhile, the Ministry of Environmental Protection issued the \"Letter on the Approval of the Environmental Protection Inspection for the Completion of the First Phase of Shenhua Group Co., Ltd.’s Direct Coal Liquefaction Project\" (Huan Yan 226), approving the environmental protection inspection for the Shenhua coal-to-oil demonstration project. This shows that the Ministry of Environmental Protection does not hold a completely negative attitude toward the environmental aspects of coal-to-oil production. Technology: In 2015, China made considerable progress in innovation within the field of coal-to-oil technology. At the beginning of 2015, the world’s first pilot plant for the co-processing of kerosene with a capacity of 450,000 tons per year, built by Yanchang Group, was also successfully put into operation for trial runs, with the entire production process operational ； On September 18, 2015, the **pilot project – Shaanxi Future Energy Chemical Co., Ltd.’s 1 million tons per year coal-to-oil plant – completed its first-time feed trial successfully, becoming China’s first million-ton-scale coal indirect liquefaction project with independent intellectual property rights ； In early September, the F-T synthesis unit, which is part of the main plant in Yulin’s coal-to-oil project operated by Yanchang Petroleum, also produced qualified heavy and light distillates, marking the successful one-time commissioning of China’s first cobalt-based slurry-bed Fischer-Tropsch synthesis unit. With the rapid expansion of the refined oil market over the past 5 years, there is currently a certain degree of overcapacity in the gasoline and diesel markets. Additionally, factors such as the high investment costs and long construction periods associated with coal-to-oil projects mean that their strategic advantages are not fully evident. In China, the attitude toward coal chemical industry has shifted from encouraging its development to adopting a more cautious approach toward it; it is conceivable that the path forward for coal-to-oil production in China will not be smooth either. Furthermore, the continuous decline in crude oil prices has placed significant cost pressures on the coal-to-oil industry. At the same time, the increase in taxes on gasoline and diesel in recent years has further reduced the profits generated by coal-to-oil production. The coal-to-oil market is bound to face even greater challenges in 2016. http://www.nmtech.com.cn/*nwen_mhg_xx.asp?id=174313