How can coal chemical enterprises get through the \"cold winter\"?

Here is an article to share with you: How can we overcome the challenges faced by modern coal chemical industry? Author/Source: Date: 2016-02-15 Clicks: 6 A famous quote from the novel \"Fortress Besieged\" is quite apt for describing modern coal chemical industry today: those inside want to get out, while those outside want to get in. On the one hand, under various pressures, some coal chemical projects either seek mergers and reorganizations through various parties or actively offer themselves for transfer ； On the other hand, some investors go to great lengths to secure the necessary approvals, or repeatedly apply for environmental impact assessments, striving desperately to get into the coal chemical industry. The author believes that at this current moment, whether it is ideas that come from within or forces trying to push in from outside, more rationality is needed. First and foremost, the sentiment \"inside\" is nothing but pessimism. The development of modern coal chemical industry in our country takes place against a specific historical backdrop. In 2005, power companies faced the issue of \"coal costing more than electricity.\" In order to obtain coal resources, they were required by areas rich in coal to set up coal chemical projects on-site; thus, pilot projects were initiated ； The rise of the coal chemical industry is attributed to the decline in domestic coal prices since 2011. Coal companies are facing increasingly severe losses, and the excess coal resources are being converted into coal chemical products; \"converting coal into chemicals wherever possible\" has become the only option for these companies. Under these circumstances, raw materials, capital, and technology flocked into the coal chemical industry, resulting in the accelerated industrialization of modern coal chemistry in our country before demonstration projects were completed. However, given the high international crude oil prices in previous years, it made sense to develop modern coal chemical industry. Yet today, the market environment for modern coal chemical industry is no longer what it used to be. Under the dual pressure of market and policy conditions, 2015 was the most difficult year for coal chemical enterprises. From a market perspective, the sharp drop in international crude oil prices has caused the prices of various bulk chemical products, including coal-based chemical products, to drop by half. In terms of environmental protection, with the introduction of the latest Environmental Protection Law, coal chemical industries are facing increasing pressure in this regard. The relevant agencies have reached a fairly consistent conclusion regarding the relationship between international oil prices and the profitability of coal chemical projects: the break-even point for coal-to-oil, coal-to-gas, and coal-to-olefins products is around $70 per barrel of oil. However, international crude oil prices have been hovering around $35 per barrel for some time now, with some institutions predicting that they will fall below $30 per barrel. As a result, coal chemical products will become unprofitable. Such low oil prices put coal chemical companies in a difficult position: continuing operations will undoubtedly result in losses ； If production stops, the company will have to bear high maintenance and financial costs, and the risk of default on loans will increase, which in turn will affect profits. A company executive revealed that many projects are actually being quietly put on hold. The current situation of modern coal chemical industry is clear: there is no way back for the projects that have already been built. But in the author’s view, there is no need to be overly pessimistic. As the saying goes: When things reach their extreme, they reverse; when adversity reaches its peak, prosperity follows. In fact, long-term energy price forecasts are never accurate. For example, in previous years when international oil prices rose, institutional forecasts for oil prices suggested that they would remain above $100 on a long-term basis. And currently, institutions’ predictions that oil prices will remain below $30 for a long time are also questionable. The domestic economy is likely to follow an L-shaped trajectory in the coming period, as it is also in the process of reaching a bottom. Even under such extreme conditions, some coal chemical projects in the country are still able to turn a profit or break even, while although other coal chemical projects incur losses, their operational conditions are improving. Regarding **industrial policy**, our country has specified that during the 13th Five-Year Plan period, modern coal chemical industries will continue to see active demonstration projects. In the just-passed year of 2015, the **National Development and Reform Commission approved a series of large-scale modern coal chemical projects, sending a positive signal for the coal chemical industry. Therefore, there is no need to be overly pessimistic. Secondly, the enterprises that want to break in from the \"outside\" are nothing but impulsive. Firstly, with the sharp drop in international crude oil prices, the cost advantage of the products that underpin the development of modern coal chemical industry has disappeared, and the market rationale for large-scale development of coal chemical industry is no longer valid ； Secondly, the problems encountered by the modern coal chemical projects that were piloted earlier, including those related to technology, environmental protection, and the market, have not been resolved ； Thirdly, as new coal chemical projects are launched and investment amounts increase, the phenomenon of project costs exceeding budget estimates is becoming more and more severe. Statistics show that in the past 10 years, about half of the coal chemical projects constructed had investment costs that exceeded the initial estimates. Such substantial investments are facing a tough market environment; over time, the profitability of coal chemical projects will decline, and they may even incur losses on a long-term basis. This could hinder regional economic development, increase bad debts for banks, and affect the health of the entire industry. Fourthly, the implementation of the new Environmental Protection Law has undoubtedly raised the entry barriers for coal chemical enterprises. Overall, the relevant policies in 2015 tended more toward environmental protection, which objectively placed pressure on industries such as modern coal chemical engineering. Since 2015, **the \"Action Plan for the Clean and Efficient Use of Coal in the Industrial Sector\", the \"Action Plan for the Clean and Efficient Use of Coal (2015–2020)\", and the \"Guiding Opinions on Regulating Demonstration Projects for Coal-Based Fuels\" (second draft for comments) have been successively issued. Without exception, emphasis is placed on environmentally friendly production, with guidelines such as \"acting in accordance with water availability\" and \"the strictest environmental standards\" being set as mandatory requirements. Since 2015, the environmental impact assessment reports for several coal chemical projects have been rejected by the **Ministry of Environmental Protection, which has led to the suspension of many modern coal chemical projects. All of this serves as a warning to those companies that have not yet entered the field of modern coal chemical industry; it is necessary to conduct more observations and remain cautious, and it is never too late to take action once the time is right.

Modern coal chemical industry faces four major issues that cannot be ignored. Font Size Comments Email Correction 2016-02-14 13:42:18 Source: Steel Home. During the 12th Five-Year Plan period, significant progress was made in China’s modern coal chemical industry, but there are still prominent problems and contradictions such as blind development, severe homogenization, and constraints related to water resources. Faced with the new normal of transformation and upgrading during the 13th Five-Year Plan period and the new requirements arising from the rapid development of the industry, the coal chemical sector should accelerate its transformation and pursue a path of green and sustainable development. 　　At present, China’s modern coal chemical industry is facing four major issues that cannot be ignored: the first is the problem of blind development. Many regions and enterprises are focusing their investments on modern coal chemical industry, resulting in very large-scale projects in this field. According to statistics, there are currently 53 new projects in the preliminary stage of development and planning, with a combined production capacity of around 33 million tons. 　　Second, there is a severe phenomenon of capacity homogenization. At present, most of the modern coal chemical projects that have been completed or are under construction focus on products such as methanol produced from coal, olefins produced from coal, and ethylene glycol produced from coal. Taking coal-to-olefins as an example, post-processing projects are mostly concentrated on a few common polymer grades such as polyethylene and polypropylene. 　　Third, water resources are severely constrained. At present, modern coal chemical projects in our country consume a large amount of water; 5.8–9 tons of water are required per ton of coal converted into oil, 8.1 tons for coal-to-natural gas conversion, 25 tons for coal-to-ethylene glycol conversion, and 22–32 tons for coal-to-olefins conversion. These projects are mainly located in central and western regions such as Ningxia, Shaanxi, and Inner Mongolia, where coal is abundant but water resources are scarce. 　　Fourth, there is significant pressure regarding environmental emissions. Among the emissions of the three types of waste, the disposal of solid waste and gaseous wastes such as sulfur dioxide in modern coal chemical projects is relatively easy; however, high-concentration saline wastewater and carbon dioxide emissions represent two major challenges in pollution control. 　　Li Shousheng put forward three suggestions regarding the macro policies for the development of modern coal chemical industry. First and foremost, strict controls must be applied to project approval in order to prevent a situation of reckless and unstructured implementation. Secondly, it is necessary to strengthen innovation organization work and foster a number of international projects that leverage strengths in industry, academia, research, and application. Third, it is necessary to implement preferential policies and establish a standard system. 　　The main tasks in the current development of the coal chemical industry are to continue to carry out demonstration projects, promote integrated industrial development, advance efforts to prevent and control air pollution, enhance technical and equipment capabilities, plan and establish six major bases for the coal chemical industry, steadily foster international cooperation, and actively explore ways to reduce carbon dioxide emissions.

Reading this article, it seems that the coal chemical industry is facing tough challenges in recent years...