Why can coal-based olefins maintain strong production and sales despite low oil prices?

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Why can coal-based olefins maintain strong production and sales despite low oil prices? Date: 2016-10-7 In the modern coal chemical industry chain, the conversion of coal (via methanol, the same hereafter) into olefins has been very popular. By the end of the 12th Five-Year Plan period, China had established 20 demonstration and industrialization projects for coal-based olefins. In 2015, China’s coal-based olefin production capacity reached 7.92 million tons, with output amounting to 6.48 million tons. According to the \"13th Five-Year Development Guidelines for Modern Coal Chemical Industry\" issued by the China Petroleum and Chemical Industry Federation this year, in 2015, the capacity utilization rate of coal-based olefins reached 81.8%, which is significantly higher than that of coal-based oil at 47.5%, coal-based gas at 51.5%, and coal-based ethylene glycol at 48.1%. However, since 2014, global oil prices have continued to fall and remain low to this day. Low oil prices have placed tremendous pressure on various coal chemical industry chains. Under these circumstances, how do coal-based olefins perform? Do they still remain competitive? Reporters conducted an investigation into this. 　　Full capacity operation with profitability Reporters have learned that, as of now, among the several major coal-to-olefins plants in China, the Shenhua Baotou coal-to-olefins project has been operating steadily for 5 years, with an average annual capacity utilization rate of over 90%. The 600,000 tons per year methanol-to-olefins plant and the 300,000 tons per year polypropylene plant owned by Shaanxi Yanchang China Coal Yulin Energy Chemical Co., Ltd. have been operating continuously without interruptions for 365 days since their first scheduled maintenance in July 2015, both running at full capacity. In particular, the methanol-to-olefins plant achieved a maximum capacity utilization rate of 107%, with an average rate of 105.5%. The methanol-to-olefins project operated by Ningbo Fude Energy Co., Ltd. (formerly Ningbo Heyuan Chemical Co., Ltd.) had a capacity utilization rate of 103.2% in 2014 and 97.1% in 2015. The Yulin coal-to-olefins project owned by China Coal Shaanxi Yulin Energy Chemical Co., Ltd. operated at full capacity in 2015, with the methanol plant reaching 109% of its designed capacity and the olefins plant reaching 106% of its designed capacity... It is understood that most of the other coal-to-olefins projects in China are also operating very well. 　　Starting from mid-2014, international oil prices began to decline steadily, and in 2015 they even dropped to levels below $30 per barrel. At the same time, rising upstream costs have been passed on to the entire supply chain, resulting in a decline in the prices of various chemical products; the market for coal-based olefins has also undergone significant changes. According to China Shenhua Energy Co., Ltd.’s 2015 annual report, the selling price of polyethylene dropped from 8,871.8 yuan per ton in 2014 to 7,431.5 yuan per ton in 2015, a decrease of 16.2%; the selling price of polypropylene fell from 8,628.9 yuan per ton in 2014 to 6,507.7 yuan per ton in 2015, a decrease of 24.6%. However, according to investigations by reporters, almost all coal-based olefin plants that came online in 2015 continued to enjoy strong sales and production performance. The Shenhua Baotou coal-to-olefins project has produced a total of 623,800 tons of plastic in its primary form, with sales volume increasing by 18.5% on a year-on-year basis, generating revenue of 5.55 billion yuan. The Yulin coal-to-olefins project operated by China Coal Shaanxi Yulin Energy Chemical Co., Ltd., which began production at the beginning of 2015, produced 683,000 tons of polyolefins and sold 676,000 tons of them, resulting in revenue of 4.926 billion yuan. The methanol-to-olefins project of Ningbo Fude Energy Co., Ltd. produced 374,000 tons of polyethylene and 394,000 tons of polypropylene, yielding revenue of 5.3 billion yuan. The coal-to-olefins project of Shandong Shenda Chemical Co., Ltd. produced 145,000 tons of ethylene, 148,000 tons of propylene, and 220,500 tons of polypropylene, generating revenue of 3.8 billion yuan. A company in the western region’s 600,000-ton coal-to-olefins project (1.2 million tons of coal-to-methanol + feedstock for 600,000 tons of methanol produced from coke oven gas) achieved a net profit of 620 million yuan in the first half of 2015. Data from Dalian Xinxing New Energy Technology Co., Ltd. show that the coal-to-olefins project of China Coal Shaanxi Yulin Energy Chemical Co., Ltd. generated a profit of 1.24 billion yuan in 2015, with an average monthly profit of over 100 million yuan. 　　This year, both production and sales have remained strong. Based on the sales performance in 2016, the economic viability of coal-based olefin production remains intact. In March of this year, the coal-based olefin production facility of Shandong Shenda Chemical Co., Ltd. operated for 31 days: the methanol-to-olefins unit had an average load of 107%, the polypropylene unit had an average load of 99%, and the ethylene-vinyl acetate copolymerization unit had an average load of 124%. The company generated revenue of 362 million yuan, with a profit from its core business amounting to 59 million yuan; the total operating profit was 248 million yuan. 　　Liu Peirong, Party secretary and chairman of Shaanxi Pucheng Clean Energy Chemical Co., Ltd., told reporters that as of the end of April, the coal-to-olefins project, which came online for full production this year, had produced a total of 184,900 tons of polyolefin products, generating profits of over 60 million yuan in the first four months of this year. 　　In May, the integrated energy and chemical processing project at Shaanxi Yanchang China Coal Yulin Energy Chemical Co., Ltd., which has a production capacity of 600,000 tons per year of polyethylene and 600,000 tons per year of polypropylene, saw its product sales exceed 100,000 tons for that single month. A total of 100,900 tons of polyolefin products were sold, generating revenue of 952 million yuan. In the first half of the year, the project achieved a total profit of 526 million yuan. 　　According to the 2016 semi-annual report recently released by China National Coal Energy Group Co., Ltd., during the first half of the year, the Yulin coal-to-olefins project produced a total of 354,000 tons of polyolefins, representing a 2.3% increase on a year-on-year basis; 361,000 tons were sold, marking an 8.7% increase compared to the previous year. The revenue generated from olefins amounted to 2.419 billion yuan, with a decrease of 147 million yuan compared to the previous year. Meanwhile, its Montada engineering plastics project began trial production at the end of April and has been operating stably; during the reporting period, a total of 120,000 tons of polyolefins were produced, and the products were successfully launched onto the market. 　　Clearly, coal-based olefins managed to withstand low oil prices; even when the international average oil price was between $40 and $50 per barrel in the first half of 2016, these processes remained profitable. 　　Liu Zhongmin, an academician of the Chinese Academy of Engineering and deputy director of the Dalian Institute of Chemical Physics under the Chinese Academy of Sciences, told reporters that based on production experience, at the current levels of coal and electricity prices, coal-based olefin production becomes economically competitive with naphtha-based olefin production when oil prices are at $30 per barrel; methanol-based olefin production becomes competitive with naphtha-based olefin production when oil prices reach $40 per barrel. Based on this calculation, coal-based olefins can achieve substantial profits when oil prices are 50 dollars per barrel or higher; in other words, at the current international oil prices, coal-based olefins will not incur losses under any circumstances. 　　Industry experts generally believe that, in the long term, excluding factors such as geopolitics, climate conditions, and special financial factors that cause sharp fluctuations, the reasonable range for international oil prices should be around 65–85 dollars per barrel. In other words, coal-based olefins have passed through their toughest times. 　　Optimal timing, favorable conditions, and technological innovation. So why can coal-based olefins withstand low oil prices? Industry experts analyze that, on the one hand, the market is large enough. “China has a significant shortage of olefins, and demand for them is set to continue growing steadily, which provides ample opportunities for the development of coal-based olefins. ”Liu Zhongmin said. In 2015, domestic consumption of ethylene equivalent reached 40.3 million tons, with an equity self-sufficiency rate of only 49.6%; 11.38 million tons of ethylene and polyethylene were imported. Domestic consumption of propylene equivalent was around 31.8 million tons, giving a self-sufficiency rate of 72.6%, while 6.17 million tons of propylene and polypropylene were imported. Zhao Wenming, a senior engineer at the Petroleum and Chemical Industry Planning Institute, predicts that by 2025, China’s ethylene production capacity will reach 40 million tons. At that time, the domestic demand for ethylene equivalent will rise to around 54.3 million tons, with the self-sufficiency rate reaching 70%. However, there will still be a market gap of 16.3 million tons, with polyethylene (including ethylene-vinyl acetate copolymers) and ethylene glycol being the main products in short supply. During the same period, China’s propylene production capacity will reach 50 million tons, and the domestic demand for propylene equivalent will increase to around 46.5 million tons, resulting in a self-sufficiency rate of 91.4%. Yet, there will still be a market gap of around 4 million tons, with polypropylene and acrylonitrile being the main products in short supply. Given such strong demand, the decline in polyolefin prices does not occur in sync with falling oil prices; oil prices drop significantly while polyolefin prices fall less, and this is one of the factors that enables the vast majority of coal-based olefin projects to withstand low oil prices. 　　On the other hand, the technology is mature. The core technology for coal-based olefins – the technology for producing low-carbon olefins from methanol – was developed over more than 30 years of dedicated research efforts by technical R&D institutions such as the Dalian Institute of Chemical Physics, which brought together excellent scientific resources and substantial financial investment. It has successively overcome the synthesis technology for small-pore phosphorus-alumino-silica molecular sieves, developed catalysts specifically for fluidized reactions, and invented a dense-phase circulating fluidized bed reaction process; its superiority and reliability were verified using the world’s first 10,000-ton-scale industrial test facility. Together with the large-scale reaction-regeneration systems and process control methods developed later, a complete set of technologies was formed, providing a technical foundation for the construction of million-ton-class industrial demonstration plants. Starting with the construction of the world’s first 10,000-ton industrial test facility in 2005, and then the development of the world’s first industrial-scale facility in 2010, continuous advancements and improvements led to the creation of a reliable industrial production process. To date, more than 10 large-scale coal-to-olefins plants have been built or are under construction in China. Extensive experience has been gained in terms of stable operation, safety and reliability, as well as advanced technical performance, enabling continuous achievement of new levels of low cost and economic efficiency. 　　As the pioneer in the technology for producing low-carbon olefins from methanol, Liu Zhongmin said that the most important aspect is that coal-based olefin production enables the conversion of low-value coal into high-value olefin products. This appreciation is the competitiveness of coal-based olefins. It now seems that as long as the projects are managed properly and oil and coal prices remain within a reasonable range, the competitiveness of existing and under-construction coal-to-olefins facilities is reliable and worth looking forward to. 　　Regarding the future competitiveness of coal-based olefins, Liu Zhongmin said, “At first, due to strong market demand, most companies chose to produce low-end products that are easy to scale up.” With the flexible supply of basic raw materials available today, all regions have the opportunity to develop downstream fine chemical industries. To better compete in the market in the future, it is still necessary to rely on technological progress and develop both high-end and low-end products together. ” 　　It is understood that with the significant increase in China’s polyolefin production during the 13th Five-Year Plan period, the supply-demand gap in the market for bulk, general-purpose materials will shrink considerably; however, there is still substantial potential in the market for high-end, specialty materials. Products such as specialized materials for polypropylene pipes, materials for capacitor films, specialized materials for polyethylene used in car fuel tanks, materials for gas pipelines, materials for car bumpers, high-performance metallocene-based polyolefin elastomers, highly rigid and impact-resistant copolypropylene, and a variety of modified resins still rely largely on imports at present. This is precisely the main direction of innovation in coal-to-olefins technology at present.