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Will China’s coal chemical industry face a two-year ‘freeze period’? Author/Source: Date: 2016-07-15 Clicks: 10 After several rounds of feedback collection, the energy plan for the 13th Five-Year Plan period is about to be released. Reporters from the Economic Reference News have learned that during the 13th Five-Year Plan period, China plans to keep its total energy consumption within 5 billion tons of standard coal. Coal consumption is expected to reach its peak, with the total amount kept at less than 4.1 billion tons, accounting for less than 58% of the total energy consumption; meanwhile, the share of non-fossil energy sources is set to rise to over 15%. Unlike the 12th Five-Year Plan, the primary policy focus for energy development in the next five years is to adjust existing capacity and improve new additions, while actively addressing overcapacity. “In principle, no new coal or refining projects should be launched during the first three years of the 13th Five-Year Plan period, while a \"freeze\" on approvals for coal-fired power and coal chemical projects applied to the first two years. 【Note that, despite this, this year the Ministry of Environmental Protection has approved a number of coal-to-oil and gas as well as coal-to-olefins projects owned by companies such as CNOOC, Lu’an, China Power Investment, Suxin Feng, and Yitai.】 At the same time, it has explicitly called for slowing down the development of wind and solar power, with the goal of bringing the rates of unused wind and solar capacity under control within two years. Under these circumstances, hydropower and nuclear power have become new areas of focus to address structural weaknesses, with advance planning and a modest increase in construction volume. In the south at the beginning of July, rainfall continued non-stop. A large coal-fired power plant equipped with four million, ten million, and ultra-supercritical units had only half of its units in operation, and their output was severely insufficient; its overall load for the entire year of 2015 was only 61%. The open space next to it was originally planned for the second phase of construction, but it is rarely mentioned these days. Behind all this is the increasing pressure of overcapacity in coal-fired power generation. The \"Summary of the Operation of the Power Industry from January to May 2016\" released by the China Electricity Council shows that during these five months, thermal power generation by power plants above a certain scale across the country amounted to 1,712.2 billion kWh, a 3.6% decline compared to the previous year, with the drop being 0.5 percentage points higher than in the same period the previous year. The average operating hours of the equipment were 1,635 hours, a decrease of 178 hours compared to the previous year, representing the lowest level recorded in the past decade for the same period. What’s more serious is that there are still a large number of coal-fired power projects under construction or planned. In the first five months, the new installed capacity of thermal power plants reached 24.25 million kilowatts, setting a new record high. Coal chemical industry has the same risks. The \"2016 Petrochemical Industry Capacity Warning Report\" issued by the China Petroleum and Chemical Industry Federation shows that, due to low oil prices, the average capacity utilization rate of coal-to-oil production in 2015 dropped by 26% compared to 2014; some companies faced severe losses. The market prices of ethylene glycol and polyolefins fell by around 40% and 30% respectively, resulting in a significant reduction in the profitability of coal-to-ethylene glycol and coal-to-polyolefin production. Overcapacity will become more pronounced in 2016. Under these guidelines, the energy plan for the 13th Five-Year Plan proposes to suspend the approval of new coal-fired power projects in the first two years, and to take effective measures to increase the utilization rate of existing power units so as to bring the average operating hours of coal-fired power units across the country back to a reasonable level. In the subsequent three years, the scale of new coal-fired power capacity to be added in various provinces will be determined in accordance with **total volume control requirements; over the next five years, the installed capacity of coal-fired power plants is expected to remain around 1.05 billion kWh. As for coal chemical industries, in the first two years efforts will focus on advancing the construction of those demonstration projects that have already been approved. During the 13th Five-Year Plan period, the production capacity for coal-to-oil and coal-to-natural gas is intended to be around 13 million tons and 18 billion cubic meters respectively. “For industries such as coal and oil refining where there is severe overcapacity, the policies are more stringent; in principle, the approval of new projects is suspended for the first three years, while in the following two years, new projects are approved on a case-by-case basis in accordance with the principle of reducing capacity, taking into account the progress made in addressing overcapacity and market conditions. ”Those involved in the planning process said that currently, the utilization rate of domestic oil refining capacity is less than 70%, 15 percentage points lower than the world average, while the capacity to produce high-quality, clean petroleum products is insufficient. According to the plan, during the 13th Five-Year Plan period, about 500 million tons of coal production capacity will be phased out, and another 500 million tons will be reduced through restructuring; thus, the total coal production capacity will be kept below 4 billion tons. The production capacity of 14 large-scale coal production bases will account for 95% of the country’s total production capacity. This campaign has now been fully launched; this year, the task of reducing production capacity accounts for about half of the total target, and the relevant provinces, municipalities, and regions have all committed to it. The State Council has made the implementation of measures to reduce excess production capacity a key aspect of the supervision and inspection of major central government decisions and policies. Since June, the National Development and Reform Commission has carried out multiple on-site inspections to assess the effectiveness of these efforts to cut production capacity.