The growth of Lu’an coal-to-oil production

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The Growth of Lu’an’s Coal-to-Oil Business Source: Lu’an Group website Date: 2016-04-28 In the field of coal-to-oil production, Shenhua enjoys a high reputation, while Yankuang and Yitai are also well-known; it seems that Lu’an has been staying relatively under the radar. In March this year, the environmental impact assessment for Shanxi Lu’an Group’s 1.8 million tons per year integrated project for the clean and efficient utilization of high-sulfur coal for oil, chemical, power, and heating production (referred to as the 180 Project) was approved by the **Ministry of Environmental Protection. This holds extraordinary significance for Lu’an Group, as a crucial door to modern coal chemical industry has opened up for them. As a result, Luan coal-to-oil production has received more attention. Starting from a 160,000-ton coal-based synthetic oil demonstration plant – achieving operation that is safe, stable, long-lasting, efficient, and of high quality. Lu’an coal-to-oil production began not late; ten years have now passed since its inception. In 2006, Lu’an Group won a bid for a **-level project and began constructing the country’s first demonstration plant for the indirect liquefaction of coal-based synthetic oil – the Lu’an Group 160,000-tonne coal-based synthetic oil demonstration plant. This is the first project in China to industrialize independent technology for the indirect liquefaction of coal; it has been included by the **National Development and Reform Commission** in the medium- to long-term development plan for coal chemical industry as well as in the “863” high-tech program. Luan Group is a veteran coal enterprise with a history of over 50 years; it is one of the five major coal enterprise groups under the jurisdiction of Shanxi Province, and serves as an **important production base for high-quality thermal coal and injection coal. The core products of Lu’an Group feature low sulfur, low phosphorus, low ash content, and high calorific value, making them high-quality environmentally friendly thermal coal in China. Its injection coal products have been recognized as high-tech products and serve as the benchmark for establishing national standards. The advantages of the product are obvious; then why is Lu’an Group pursuing coal-to-oil production? The reasons are simple: one is practical interests, and the other is a vision for development. Coal mining is not like harvesting crops repeatedly; once the coal is extracted, the coal mine has to be shut down and discontinued. As early as during the \"Golden Decade,\" Shanxi Province recognized the drawbacks of relying solely on coal, and proposed extending and strengthening the coal industry chain as well as developing a circular economy. To find a way out for coal, Lu’an Group began to build a coal-electricity-oil circular economy park. Initially, Lu’an Group established the coal-electricity-oil circular economy park with the aim of converting low-quality, high-sulfur coal that is no longer suitable for mining into clean diesel, gasoline, and other products, thereby reducing overall costs. It is understood that Lu’an Group produces 1.75 million tons of high-sulfur coal each year, which can be transformed into high-quality synthetic oil through processes such as gasification, purification, and FTO liquefaction. By December 2008, Lu’an Group had produced the first barrel of cobalt-based coal-derived synthetic oil in the country. In October 2009, Luan Group’s iron-based catalyst produced oil. Thus, Lu’an became the only company in China to use both iron-based and cobalt-based processes for coal-based synthetic oil production. After a decade of development, the demonstration plant with an annual production capacity of 160,000 tons of coal-based synthetic oil has achieved stable, safe, long-term and efficient operation. It has become a base for Lu’an Group to develop high-end products in the field of coal-based fine chemicals as well as to train high-quality talent, laying a solid foundation for the further development of the group’s coal-to-oil industry. Not long ago, 180 projects were approved by the Ministry of Environmental Protection for environmental impact assessment; these are integrated projects for the clean utilization of high-sulfur coal for oil production, electricity generation, and heat production, with an annual capacity of 1.8 million tons. They represent key projects for transformation in Shanxi Province, and they are also among the projects that receive priority support from the National Energy Administration during the 12th Five-Year Plan period. At present, Lu’an Group is working tirelessly to integrate and \"clone\" the product concepts of the 160,000-ton-per-year coal-based synthetic oil demonstration plant with Project 180. Project 180 is located in the Lu’an Oil, Chemicals, Electricity, and Heating Integrated Comprehensive Demonstration Park in Changzhi City, Shanxi Province. The project will utilize local coal resources and employ technologies such as pressurized coal gasification and Fischer-Tropsch synthesis to produce 1.8 million tons per year of petroleum products and chemicals. Project 180 is the most representative project within Lu’an Group’s modern coal chemical industry segment. From Version 1.0 to Version 2.0 – a shift from petroleum-based products to the fields of polymer chemistry and biochemical engineering; from a pilot plant with a capacity of 160,000 tons to 180 projects for which environmental impact assessments have been approved. Why did Lu’an Group take such a long ten years to achieve this? It’s not due to permits, nor is it a funding issue. One of the key reasons is that Lu’an Group has carried out a \"version upgrade\" on coal-to-oil production. “Luan Group has made the development of a coal-based synthetic high-end fine chemicals industry a key strategic priority and direction for transformation, pushing forward from coal-based synthetic oil version 1.0 to coal-based fine chemicals version 2.0. ”Li Jinping, chairman of Lu’an Group, said. After Lu’an Group produced China’s first barrel of coal-based synthetic oil in December 2008, the situation in this industry also began to change. With international oil prices remaining low, petrochemical companies face significant competitive pressure and high production costs. Moreover, lacking the power to set oil prices, coal companies are unable to sell their oil products at high prices, even if the quality of those products is excellent, which results in chronic losses for them. At the same time, in recent years several domestic companies have successively developed the coal-to-oil industry, and in the future these companies involved in coal-to-oil production are likely to enter a new round of competition. Faced with this situation, the senior management of Lu’an Group reached a consensus: to succeed in the fierce market competition and avoid product homogenization, it is necessary to establish barriers, and the biggest of these barriers is core technology. Only technology leadership can foster core competitiveness. Luan An’s coal-to-oil industry must pursue a path focused on differentiated, high-end, and internationalized coal-based fine chemicals. Luan Group primarily uses coal-based Fischer-Tropsch synthesis technology to produce oils and chemicals. Compared to petrochemical enterprises, there are significant differences in terms of raw materials and process technology. Oil is formed from organisms in ancient oceans or lakes through natural decomposition and evolution over tens of thousands of years. It has a complex structure, containing varying proportions of naphthenes, normal alkanes, isomeric alkanes, polycyclic aromatic hydrocarbons, as well as various trace metals. Separating the different elemental components of oil is extremely difficult and costly; therefore, it is generally used in the production of fuel oil. High-end oils require high purity and a uniform microstructure, free from harmful substances such as aromatics and heavy metals. Abroad, they are generally produced through chemical synthesis, and the synthesis and separation technologies are not transferred, allowing companies to earn high profits through technical barriers. After years of exploration, Lu’an Group has successfully adopted chemical synthesis processes (Fischer-Tropsch method) for coal conversion, thereby meeting the prerequisites for producing high-quality oils. “In simple terms, this process involves gasifying coal to produce coal gas, then purifying it to remove impurities, and finally obtaining a pure liquid product through a synthesis reaction. Then, under appropriate temperature, pressure, and catalyst conditions, the liquid product is synthesized to yield a homogeneous mixture of straight-chain hydrocarbons. It is subjected to alkylation, carbonylation, and formylation, and the resulting products are further used to produce diesel, among other things. ”Engineers and technical staff from Lu’an Group said, “The mixture of alkanes and olefins produced by the FTO process is itself a product; converting it further into diesel, gasoline, or naphtha is just one of the possible approaches.” Li Jinping said that in the coal-to-oil industry chain, many additional chains and branches can be developed to produce various products. “If the traditional coal-to-oil industry, which is focused on using gas, coal, and diesel as raw materials and aims to replace petroleum-based fuel products, can be considered version 1.0, then the shift from replacing petroleum-based products to areas such as polymer chemistry and biochemistry represents version 2.0 of this industry.” To drive the \"upgrade\" of coal-to-oil technology, Lu’an Group has successively established wholly-owned subsidiaries such as the Coal-Based Clean Energy Company (responsible for Project 180), the Coal-Based Synthetic Oil Company (operating a 160,000-ton capacity demonstration plant for coal-based synthetic oil), and the Taihang Lubricants Company. At the same time, Lu’an Group has innovated its industrial operation mechanisms, advanced the reform of diversified equity structures, and established an operational framework for diversified equity that enables shared benefits and shared risks. Through methods such as EPC/BOO, over 4 billion yuan in investment was brought in for the 180 project ； Form a joint venture company in collaboration with Nanjing Tianshi, Li Zhenshan’s team, and others ； Coal-based synthetic oil companies have established companies such as Lu’an Nake Carbon-1 Chemicals Co., Ltd., Lu’an Tianshi Synthetic Waxes Co., Ltd., and Lu’an Refined Wax Chemicals Co., Ltd., to jointly develop high-end FTO wax products including oxidized waxes, micro-powdered waxes, and chlorinated paraffins ； Jointly with the Shanxi Institute of Coal Chemistry, we are promoting the market-oriented operation of cobalt-based Fischer-Tropsch synthesis technology with independent intellectual property rights. Since 2012, Lu’an Group has successively cooperated with institutions such as the Shanghai Institute of Advanced Research of the Chinese Academy of Sciences, the Institute of Coal Chemistry of the Chinese Academy of Sciences in Shanxi, and Tianjin University. Utilizing its existing demonstration plant capable of producing 160,000 tons of coal-based synthetic oil per year as a test base, the group has embarked on this industrial upgrading process. After more than four years of efforts, Lu’an Group has now identified five conversion pathways: the high-end wax industry, hydrocarbon-based eco-friendly solvents, premium lubricating oils, special fuel oils, specialty chemicals, and biochemicals. “We have produced 49 types of high-value coal chemical products, with sales revenue amounting to nearly five times that of direct coal sales. ”Li Jinping said. Industrial upgrading drives technological advancement – standing side by side with Sasol and Shell. In daily life, people often use disposable paper cups. It has a layer of wax coating on it. This wax coating must be made of a special wax with a high melting point, to ensure that it does not melt when exposed to boiling water and thus cause harm to the human body. In the past, such food-grade waxes had to be imported. Today, Lu’an Group has independently developed such high-end refined wax. On September 20, 2015, the FTO wax refining unit of the coal-based synthetic oil company came online, with all product specifications meeting the standards of imported waxes from abroad. Lu’an Group has become the third company in the world, after South Africa’s Sasol and the Dutch Royal Shell Group, to be capable of producing high-melting-point specialty waxes. At present, China’s annual demand for high-end refined wax is 200,000 tons, with a profit margin of nearly 600 million yuan. High-end refined wax is just one of the achievements resulting from Lu’an Group’s own research and development efforts and technological breakthroughs. For the 2.0 version of the upgrade of the coal-to-oil industry, the most critical factor is technological barriers. The path to upgrading coal-to-oil production at Lu’an Group is not easy. “The R&D process is full of pressure, and tolerating R&D failures is a truly insurmountable hurdle for technical personnel. ”said Liu Junyi, executive director of Lu’an Taihang Lubricants Company. When developing aromatic-free solvent oils, the laboratory-scale samples turned out to be very good, and orders were received shortly after those samples were sent out. However, after the 20,000-ton-per-year industrial plant was put into operation in September 2014, the product always had a residual odor. On one hand, clients keep pressing for deliveries; on the other hand, there are insurmountable technical hurdles. “We once considered giving up the fragrance-free solvent oil product and switching to produce D-series solvent oils of lower quality. However, the product price will drop by 30%, and it will have a certain impact on the reputation of Lu’an Group. ”Liu Junyi said. To prevent production shutdowns due to unsold products, the technical staff at Lu’an Coal-based Synthetic Oil Company began to investigate the causes in areas such as the manufacturing process, production conditions, and operational parameters. In this process, they actually developed a completely new low-energy technique for removing aromatics, reducing their content to 0 ppm. This aromatic hydrocarbon can not only be used as a base oil in cosmetics, but also meets food additive standards. Once the product was released on the market in bulk, it led to a significant reduction in the amount of imported products available in the country, causing quite a stir. Subsequently, a patent was applied for this technology. Luan An Group’s 30,000-ton Luan An Refined Wax Chemicals Co., Ltd. is the first enterprise in China and the third in the world to produce refined wax on an independent basis. In the early stages of production, the product had a yellow color and an excessively high oil content; it differed significantly in quality from Sasol’s products, so it could only be sold at a low price as low-grade PE wax. Nearly 10,000 tons of this product accumulated. The sales staff of Lu’an Coal-based Synthetic Oil Company racked their brains and tried every means possible to sell 30 tons to a customer in Hubei. As a result, due to the failed tests, the Hubei customer opted for a full refund. “I can’t accept it! Why can’t good products be made from such excellent raw materials? ”said Pei Huixia, a technician at the Technology Center of Lu’an Coal-based Synthetic Oil Company. The technicians began conducting numerous tests on the refined wax production process and its operating parameters. Keep trying despite repeated failures. They work with professors from research institutions to optimize operating parameters, and discuss the possibility of equipment upgrades with the equipment manufacturers. After more than half a year of technical research and development, the technicians finally managed to produce high-quality Fischer-Tropsch wax products that can fully replace imported ones, and these products are comparable to those produced by Sasol and Shell. The vast potential of Version 2.0 – numerous stories related to wax and Taihang-brand lubricants. The diversity of products in the Version 2.0 of the coal-to-oil industry determines the immense scope for its development. Just one wax product, and it’s said to be able to baffle those who know nothing about it. Technicians from coal-based synthetic oil companies told the author that crude wax obtained through Fischer-Tropsch synthesis can be finely divided into various series of refined waxes with different melting points, such as grade 60, 70, 80, 90, 97, 105, and 115. Depending on specific application requirements, these refined waxes are used to produce micro-powder waxes, oxidized waxes, chlorinated waxes, polishing waxes, etc. Oxidized waxes are further used to create emulsified waxes, while polishing waxes are used to manufacture car waxes, shoe polish, floor waxes, and similar products. On the production line of the FTO synthesis wax refining facility, Zhao Yuezhan, chairman of Tianshi Synthetic Wax Co., Ltd., said that they have produced products such as high-melting-point FTO wax, oxidized wax, and micro-powdered wax. At the production site, the author saw that the ultra-fine wax was very white and very fine, resembling flour. These fine wax particles have a diameter of 5 microns and are evenly dispersed; when used in waterproof paints, floor polishes, car waxes, etc., they not only provide a good feel but also offer excellent brightness. The oxidized wax they produce has already obtained FDA and NSF food-grade certifications in the United States. “This wax is mainly used for preserving fruits. ”The technician told the author that “to transport specialty fruits from the United States to China, it is necessary to spray an oxidizing wax on the surface of the fruits; this helps to retain moisture while also ensuring that the wax dissolves in water.” ” Heteroalkane solvent oil is another flagship product manufactured by Lu’an Group using its proprietary technology. The heteroalkane solvent oil project came online on May 20, 2014, producing four grades of heteroalkane solvents, and the demand for these products in the market far exceeds supply. These types of solvent oils have moderate volatility; when used in perfumes, they help maintain moisture for a long time, and when used as insecticides, they help prolong their effectiveness. This project not only broke the monopoly of foreign technologies and products but also turned a profit in the very month it began operations. Currently, Lu’an Group is actively expanding into markets in areas such as cosmetics, metal cleaning, and pesticides. In November 2015, the world’s first project to produce synthetic lubricants from coal was put into operation. Taihang brand lubricants have enabled Lu’an Group to become the third lubricant manufacturer in China to produce, formulate, and operate its products independently, following Kunlun Lubricants and Great Wall Lubricants. “Lubricating oil is produced through upgrades based on the original coal-based Fischer-Tropsch products; therefore, the investment required for its production is less than that for the traditional methods, resulting in better efficiency. ”Liu Junyi said. Currently, Taihang brand lubricants have been tested on some domestic transport vehicles with good results, allowing them to easily reach distances of over 60,000 kilometers. An interesting thing also happened during the promotion of Taihang lubricant. The selling price of Taihang lubricants is 10% to 15% higher than that of petroleum-based products, while their oil change interval is more than three times longer. Assuming a truck driver drives 240,000 kilometers per year, or 20,000 kilometers per month, and consumes 30 liters of fuel per 100 kilometers, with diesel costing 5 yuan per liter, the annual cost amounts to 360,000 yuan. Maintenance for the engine oil, oil filter, and air filter is required once a month, costing 6,000 yuan per year. If Taihang brand lubricant is used, maintenance is only required once every 3 months. In other words, while oil used to need to be changed every 20,000 kilometers, it now only needs to be changed every 60,000 kilometers. But most people in the country cannot accept changing the oil after 60,000 kilometers. To this end, the sales team of Lu’an Coal-based Synthetic Oil Company set their sights on a boss of a Hebei-based transportation fleet who was in charge of logistics at Lu’an. He owns over 20 heavy trucks, and the annual maintenance costs amount to millions of yuan. The sales staff tried to persuade him to use Taihang brand lubricant, but he remained resistant. By chance, the salesperson \"forced\" him to accept 50 barrels of T6 diesel engine oil by using it as a settlement for the debt. Two months later, he made a special trip to Lu’an Group to discuss the possibility of acting as an agent for Taihang-brand lubricants. It turns out that the vehicles in his fleet that use this type of lubricant have all reached a mileage of over 50,000 kilometers since their last oil change, without any warning lights coming on. The cold-start performance, climbing ability, and engine noise control are all **beyond his expectations**. In this way, Lu’an Group’s Taihang brand of lubricants found a market in Hebei, and the first regional agency agreement was signed. Establishing industrial bases – 6 million tons of petroleum products and over 200 types of high-value chemicals. It is understood that the modern coal chemical industry plays a significant role in Lu’an Group’s 13th Five-Year Development Plan. Luan Group will rely on the \"one center, six platforms, and five bases\" to develop its modern coal chemical industry. One center: **Coal-based Synthetic Engineering Technology Research Center.** Six platforms: Institute of Coal Chemistry, Chinese Academy of Sciences; Low-Carbon Center, Shanghai Advanced Research Institute, Chinese Academy of Sciences; Joint Laboratory on Advanced Lubrication Materials, Shanghai Advanced Research Institute, Chinese Academy of Sciences; Sinopec Synfuels Company; Tianjin University; and Shanghai Synbio Technology Co., Ltd. Five demonstration bases: a 160,000-ton/year coal-based synthetic oil industrial demonstration base, an 1.8 million tons/year integrated oil, chemical, and thermal power generation demonstration base, a 120,000-ton/year coke oven gas-to-oil production demonstration base, a 2 million tons/year nitrochemicals production demonstration base, and a Gaohe waste wind oxidation power generation demonstration base. “‘During the 13th Five-Year Plan period, Lu’an Group will establish a high-end fine coal chemical industry base with a total production capacity of nearly 6 million tons of oil products and over 200 kinds of high-value-added chemicals. ”Li Jinping said. Production and construction can be controlled, but the market takes time to develop. At a time when Lu’an Group is urgently seeking transformation, in Li Jinping’s words, “there isn’t much time left for everyone.” At present, Lu’an Group’s coal-based fine chemicals have entered the international market, but there are still issues to be resolved in the process of industrial upgrading. What problem is the most troublesome? One is the long talent development cycle. The next 3 to 5 years will see a boom in China’s coal-to-oil industry, with competition over technology and talent reaching an intense level. As a state-owned enterprise, Lu’an Group has a relatively fixed compensation system. Thus, how to prevent talent attrition and attract high-caliber professionals is an urgent issue that needs to be addressed. The technical barriers to industrial upgrading are high; many technologies are held by multinational companies and not transferred to China. It is therefore very important to assemble a team with strong R&D capabilities, innovative thinking, and a willingness to work hard. Furthermore, the market size for coal-based refined products is small, and these products are used across various fields and industries; therefore, having thorough market information and an accurate product positioning is also crucial. This also requires talent. Another issue is that the new product has low market awareness. At present, Lu’an Group’s coal-based fine chemicals are still relatively unknown; their brand promotion and marketing are far from satisfactory.