With oil prices plummeting, does coal-based hydrogen production in refineries still have a cost advantage?

Thread Content

The main raw materials for hydrogen production in refineries include refinery dry gas, natural gas, coal, naphtha, and heavy oil. The choice of raw material route for hydrogen production depends primarily on the availability and cost of these materials. In an era of high oil prices, hydrogen production from refinery naphtha and heavy oil is not economical and has been gradually phased out; hydrogen production from natural gas and coal has become the main options for supplying hydrogen to newly built refineries in China. At the beginning of 2015, Yahuazhengxun published an article stating that coal-based hydrogen production is becoming an important direction for hydrogen production in Chinese refineries, for the following main reasons: 1. Compared to hydrogen produced from oil and natural gas, coal-based hydrogen production has lower costs. 2. The large amount of steam generated as a by-product in the gasification unit (waste heat boiler process) can help save fuel oil in refineries. The saved fuel oil can be used as a raw material to increase the production of refined products. 3. Cheap coal-based hydrogen can replace dry gas-based hydrogen. The saved dry gas can be used to extract chemical raw materials such as ethylene, thereby increasing economic benefits. 4. The raw materials for hydrogen production via water-coal slurry gasification are flexible; petroleum coke and coal can be fed together in a wide range of proportions, with the feeding ratio determined based on market conditions. However, international crude oil prices began to decline from nearly $100 per barrel in the second half of 2014, and by early 2016 they had dropped below $30 per barrel. With the current prices of oil, gas, and coal, does coal-based hydrogen still have a cost advantage? Due to China’s unique refined oil pricing mechanism, as well as the high added value of olefin and aromatic products, it remains highly risky to plan large-scale oil-to-hydrogen production facilities in new refineries even when oil prices are low; this would put them in a very vulnerable position should oil prices rise again. Therefore, this article primarily examines the cost comparison between hydrogen production from coal and hydrogen production from natural gas under low oil prices. Based on its unique cost model, Yajia Consulting has plotted the costs of hydrogen production from coal and natural gas at different raw material prices, as shown in the figure below. Taking Qinhuangdao in Hebei as an example, in the second half of 2015, the average price of high-quality coal with 5,800 kcal per unit in Qinhuangdao was 379 yuan per ton (excluding VAT), while the total cost of hydrogen production was 0.507 yuan per cubic meter. In November 2015, the **National Development and Reform Commission reduced the maximum gate price for gas used by non-residential customers by 0.7 yuan per cubic meter. The management approach was changed from one based on the maximum gate price to one based on a benchmark gate price. After this adjustment, the benchmark gate price for natural gas in Hebei, excluding VAT, was 1.75 yuan per cubic meter, while the total cost of producing hydrogen was 0.874 yuan per cubic meter; this figure was still 72% higher than that of hydrogen produced from coal. Yahua Consulting believes that although natural gas prices have dropped significantly amid low oil prices, coal prices have fallen even more, so hydrogen produced from coal still has a cost advantage over hydrogen produced from natural gas. Large-scale gasification for hydrogen production not only offers cost advantages but also enables the optimization of the material balance in refineries; it will continue to be the main approach for Chinese refineries to obtain hydrogen sources.