Innovation + Integration Promote Sustainable Development of China’s Modern Coal Chemical Industry

By Ruan Lijun, China Coal Processing & Utilization Association

Risks & challenges

1. Policy changes
The modern coal chemical industry is an emerging industry related to energy demand and basic products. It is greatly influenced by policy guidance. Sometimes policies even play a decisive role. As things stand, the positioning and the basic tone for the development of China’s modern coal chemical industry have been broadly determined. With technical progress and the ongoing demonstration and upgrades, a number of problems have been solved gradually. Policies should no longer call for radical changes.
2. Sustained low price of crude oil
The development of the coal chemical industry cannot be divorced from the market for crude oil. Products of the modern coal chemical industry face competition from domestic oil-based products, imported oil-based products and products processed from imported crude oil. The subsistence and competiveness of the industry will undoubtedly become even tougher.
“Forewarning on the Capacity of the Petrochemical Industry in 2016” issued by China Petroleum and Chemical Industry Federation on April 8, 2016 forecasts impacts from the low price of crude oil on the coal chemical industry as follows. With impacts from the low price of crude oil and strict laws and regulations on environmental protection, the progress of coal chemical projects being constructed or planned for construction will be slowed down. Operation of some new capacity will likely be postponed. With the low price of crude oil, utilization of coal chemical capacity will decline further.
3. Constraints from water resources & environmental volumes
Most of China’s coal resources are located in the northwest. Both water resources and environmental volumes in the region are however extremely limited. These are problems the modern coal chemical industry has to solve.
Most modern coal chemical projects in China are situated in central and western regions that lack water resources. The western region with rich coal resources contributes over 2/3 of national coal output, but it has only 1/3 of the nation’s water resources. The proportions of national water resources in Shanxi, Shaanxi, Inner Mongolia, Ningxia, Xinjiang and Gansu are even smaller.
Wastewater treatment in modern coal chemical plants is quite complex. Organic wastewater with a high concentration of scarcely degradable tar, phenols and polyphenols, in particular, can hardly be treated with conventional biochemical processes. Very salty wastewater is treated mainly by industrial evaporation for crystallization after concentration or by natural evaporation. The industrial process is costly, and its operational stability is poor, so enterprises that select this route bear great pressures. On the other hand, the natural evaporation cannot gain approval of environmental protection authorities.
4. Serious homogeneity of products
China’s modern coal chemical industry does not have a broad product portfolio – only coal-to-olefin, coal-to-liquid and coal-to-ethylene glycol technologies are employed. Product strategies are mainly concentrated on gasoline, diesel, PE, PP, coal-based gas and ethylene glycol. Intensively processed products and extended products are generally neglected.
5. Pressure of carbon emission reduction
Modern coal chemical projects emit a considerable amount of CO2. Hence, CO2 treatment is an urgent need.
The relatively effective method for CO2 today is to inject and seal it underground. But carbon capture and sealing has quite high geological requirements for stable saline aquifers. Trees can also be used to absorb CO2. As a matter of fact, trees require little investment and should be quite practical.
With the development of the industry, the absolute amount of carbon discharged will increase further. On the other hand, great quantities of clean forms of energy generated in the industry will enter the economy and greatly reduce various current sources of pollutants. In this way the clean effective utilization of coal in the entire life cycle can be achieved.
6. Economics yet subject to long-term tests
Due to external factors, coal-to-liquid and coal-to-gas projects have unsatisfactory profitability. The economics of coal-to-olefin and coal-to-ethylene glycol projects are okay and can be said to have withstood the low price of crude oil.
Since the shale gas revolution in the United States, NGL output has increased sharply, and the cost keeps coming down. The Middle East is richly endowed with natural ethane resources. These two giant production regions pose huge competition for the coal-to-olefin sector in China.
The cost of coal-based ethylene glycol is highly related to the price of ethylene. The price of ethylene from the United States has declined considerably, due to the shale gas revolution. The low cost of ethylene from the Middle East is also quite evident. Coal-based ethylene glycol from China, however, has considerable advantages both in absolute profit rate and in relative cost.
It goes without saying that impacts on economics and competitiveness should not be analyzed only from the angle of price comparison. A number of other factors also must be considered.
7. Financial risks brought by huge investments
The investment required for a 5.5 billion m3/a coal-to-gas project is around RMB20.0 billion. The investment required for a 1.00 million t/a indirect liquefaction coal-to-liquid project is around RMB16.0 billion. The investment required for a 750 kt/a coal-to-olefin project is around RMB17.0 billion. The investment required for a 200 kt/a coal-to-ethylene glycol project is around RMB3.0 billion.
Roughly speaking, in coal chemical projects, expenses for equipment, installation, construction/other designs and construction period interest account respectively for 55%, 20%, 8% and 17% of the total investment. In the operating cost of coal-to-olefin plants, raw materials and power account for around 45%, interest accounts for 10-15% and depreciation accounts for around 25%. The financial cost is therefore a huge pressure.
8. Timetable for the exit of oil-fueled automobiles
Many countries and automobile manufacturers have recently issued timetables for the exit of oil-fueled automobiles. China has also started such work. It poses an extreme challenge for the coal-to-liquid sector and even the entire petroleum and chemical industry.
There is however still a complicated and long way to go before the exit. Problems such as the storage and charging of electric automobiles, the construction of matched basic facilities, the treatment of scrap cells and the dependence on imported resources such as lithium and cobalt also need to be solved first.
9. Breakthroughs in new energies such as combustible ice and dry hot rock
In the long term, the biggest threat to coal chemical makers will likely come from commercial utilization of new energy resources such as combustible ice, dry hot rock and controllable nuclear fusion. Breakthroughs have already been achieved in the initial development of these new sources. Although their commercialization still needs a long time, it should be considered.

Future & extended development

1. Reconsider the layout of the modern coal chemical industry
Coal-to-gas projects already completed or under construction in China are all located in the west. The long transmission distance of the natural gas produced has led to a high transport cost. At a time when prices of energies are quite low, the low coal price still fails to offset economic difficulties in coal-to-gas projects.
Some experts and enterprises have proposed to construct coal-to-gas projects in eastern and central regions, using west-east and north-south coal transport channels. The natural gas produced would enter local pipelines or be transformed into LNG for local absorption to replace dispersed coal combustion and to bridge local supply gaps. Such a move could help reduce smog in the east. Coal industry capacity in China is in serious surplus. Coal-to-gas projects in eastern and central regions can be of help to employ the existing capacity of coal and the carrying power of coal transport channels in central and western regions and promote related sectors of the national economy.
Based on economic analyses of several coal-to-gas projects, factors influencing the economics of coal-to-gas projects are as follows. The first is natural gas prices. It is the most sensitive factor to the internal rate of return. The second is initial capital investment. The third is coal prices. The price of natural gas in consumption areas of eastern and central regions is quite high. Under present conditions, therefore, the economics of coal-to-gas projects constructed in eastern and central regions are quite okay and even better than projects in the western region.
The challenge of combining the modern coal chemical industry with the comprehensive utilization of resources is closely related to the geographic distribution of the industry. For example, the main byproducts of coal-to-gas plants are sulfur (or sulfuric acid) generated in desulfurization and cinder generated in coal gasification. The population density in the western region is low, so the market volume of cinder-based construction materials is small. Byproduct sulfur (or sulfuric acid) must be carried far to market. In contrast, the population density in eastern and central regions is high and the economy is advanced. Cinder can be absorbed through comprehensive utilization approaches such as brick making, cement processing and road paving. Byproduct sulfur (or sulfuric acid) can also be easily used. Byproduct CO2 with high concentration can also be easily used in foods or sold as industrial gas.
The development of the modern coal chemical industry depends on coal resources, water resources and talent/technology. The situation differs by region. The coal chemical industry should adjust its concept of planning and shift from taking resources as the guide to taking markets as the guide.
2. Play a greater role in safeguarding national energy security
The coal-to-liquid capacity in China was 6.93 million t/a during January-June 2017 and the output was 1.55 million tons. It is expected that the output will reach 3.0-4.0 million tons in 2017. According to the “Thirteenth Five-Year Plan for the Demonstration of the Coal Intensive Processing Industry”, the coal-to-liquid capacity will be 13.0 million t/a in 2020.
The output of crude oil in China was 199.6 million tons in 2016, a drop of 15.0 million tons from 215 million tons in 2015. It was the first drop below 200 million tons since 2011. In the first half of 2017, 7.5 million tons of crude oil was imported from Russia through the first China-Russia crude oil pipeline. The construction of the second China-Russia crude oil pipeline is now in full swing, and the designed transmission capacity is 15.0 million t/a. China consumes 600 million tons of crude oil a year. Coal-to-liquid capacity and output are therefore still negligible. Nevertheless, the coal-to-liquid capacity planned for the end of the Thirteenth Five-Year Plan period can basically make up for the recent reduction of crude oil output. Scientific and orderly development of the modern coal chemical industry can therefore play a greater role in safeguarding the energy security of the state and the development of the national economy.
3. Achieve new technical breakthroughs in the industry
Technical innovation has always been the core driver for the development of the modern coal chemical industry. The capability for technical innovation in related sectors of industry has built up constantly during the Thirteenth Five-Year Plan period. Many new research findings such as efficient treatment of scarcely degradable wastewater, treatment of salty wastewater and comprehensive utilization of crystalline salts have emerged, both at home and abroad.
4. Comprehensive utilization of coal-associated resources
The development of the industry, with its inherent voracious appetite for water, has brought pressures on the natural environment. “Mine water” is a resource associated with the mining of coal resources. Due to a lack of uniform administration of utilization and drainage, great quantities of mine residual water is discharged without being used. Mine water in China mainly contains suspended matters and small amounts of oils. It is of good quality and usually contains no toxic substances. If modern coal chemical projects make a good use of mine water, the problem of water recycling in plants can be solved, and the waste of mine water discharge can be avoided. Sound economic and environmental benefits are obvious.
5. Develop the industry toward concentration and large-scale, encourage large enterprise groups to invest & operate
The modern coal chemical industry is a capital/technology-intensive sector. As entry thresholds with regard to technology, administration and economics are all quite high, increasing industrial concentration and shifting toward larger-scale development are essential. China should encourage large enterprises to enter the modern coal chemical industry and encourage various patterns of operation and various ownership.
The government and trade associations should urge large enterprises to leverage operational experience; upgrade comprehensive utilization of resources; increase yield; reduce energy consumption, water consumption and pollutant emission; upgrade/renovate; and promote the large-scale, high-end and refined development of the coal chemical industry.
6. Innovate in construction & operations
Coal chemical projects feature high investment, slow construction and complicated production processes. To successfully construct a coal chemical project, preliminary planning and risk control must be strengthened. The mode with the owner as the lead is the most common mode for construction of coal chemical projects today. There are also the modes with a project management company as the lead or the constructor as the lead in some major units. In many cases innovation to modes is as important as innovation to technologies. Experience shows that each construction mode has its own advantages and drawbacks. Owners should make rational choices on the basis of serious evaluation.
7. Use modern coal chemical technologies to renovate the traditional coal chemical industry
To develop the modern coal chemical industry, advanced technologies should be used. Renovating and upgrading the traditional coal chemical industry should be an important strategy. Market opportunities are huge in coking, ammonia, methanol and industrial fuel gas.
8. Transform & upgrade the coking sector
The utilization rate of coke oven gas in China is only around 70% today. Most uses are also low-end without intensive development. Nearly half of coke oven gas is recycled for combustion. Coke oven gas usually contains 5% carbon monoxide, 24-25% methane and 55-60% hydrogen, and is therefore a high-quality raw material for making LNG and other chemical products. The coal chemical industry and the petrochemical industry have a short supply of hydrogen, and in many cases hydrogen has to be isolated or carbon/hydrogen ratios have to be adjusted.
Syngas produced in entrained flow beds today has high heat value and low price. If it is used for combustion and heat supply to replace coke oven gas, opportunities will be made for high-quality coke oven gas to have further intensive processing and enrich downstream industrial chains.
9. Enter fuel gas application sectors
Syngas produced in entrained flow beds can be used as industrial fuel gas in the coking sector and in numerous other sectors that need industrial fuel gases.
No single gasification technology can treat all coal types and no one type of coal is suited to all gasification technologies. The matching of coal quality and coal type with gasification technology is therefore a focus in the technical progress and development of the modern coal chemical industry.
10. Use CO2 as a resource
Carbon dioxide as a byproduct of the modern coal chemical industry is highly concentrated and easily treated and used in a centralized fashion. The biggest problem is that consumption is quite low, regardless of application – too small in total to absorb such great quantities of CO2.
The main approaches for comprehensive utilization of CO2 in China today include chemical production, oil displacement, algae production and forest carbon sink. Capture and sealing can also be considered for disposal.
R&D for CO2 applications should be strengthened. CO2 should not be treated as a waste but should be used as a resource.
11. Promote integrated development with other sectors
Compared with other coal utilization approaches such as power generation, iron/steel smelting, construction materials and dispersed combustion, the modern coal chemical industry has advantages of high energy conversion rate, high coal utilization efficiency and low pollutant emission. It can also bring about the upgrading of related sectors. Through the integrated development of the modern coal chemical industry with related sectors, advantages of the modern coal chemical industry can be fully employed, weaknesses in the development of the modern coal chemical industry can be offset and multi-win development effects can be achieved.
The status of coal as the major energy in China will not be changed in near future. The core is the clean efficient utilization of coal and the modern coal chemical industry is one of the major approaches. The development of the modern coal chemical industry has already brought about all-directional advances in related sectors such as design, manufacturing, materials, additives and engineering. By integrated development with other sectors, the modern coal chemical industry will make greater contributions to the entire national economy and the technical progress of the coal chemical industry.