Modern Coal Chemical Industry: Understand Bottlenecks, Cope with Challenges

By Sang Jianxin, China National Chemical Information Centre

Development bottlenecks

(1) Lack of technical codes and standards
Most modern coal chemical projects constructed today are demonstration projects defined by the state. They are still at the pilot stage. There are no design codes yet for the modern coal chemical industry in China. Design codes for the petrochemical industry have therefore to be taken as reference.
There is also a shortage of standards for the quality and application of modern coal chemical products. The production, sales and use of coal chemical products are therefore affected.
(2) Lack of technical talent
The modern coal chemical industry is a technology-intensive sector. The product chain can be extended very long. In theory, all products that can be produced in the petrochemical industry can be produced in the coal chemical industry. The key is technical backing. Not only is R&D and design talent lacking, but high-quality talent in operations and management, as well as skilled workers, are also too rare.
(3) Prominent product homogeneity
The modern coal chemical industry in China has seen explosive development in recent years. Some process routes have a short R&D period, investment is inadequate and development capabilities are weak, so the only technologies that can be commercialized today are those for a few products such as coal-based olefins, coal-based liquids, coal-based natural gas and coal-based ethylene glycol. This product homogeneity wastes resources and capital as well as threatening irreversible injury to the environment.
(4) Economic and technical risks
According to the “Guide for the Development of the Modern Coal Chemical Industry during the Thirteenth Five-Year Plan Period (2016-2020)” issued by China Petroleum and Chemical Industry Federation, utilization of coal-to-olefin capacity reached 81.8% in 2015, much higher than 47.5% for coal-to-liquids, 51.5% for coal-to-natural gas and 48.1% for coal-to-ethylene glycol. So, except for coal-to-olefins, other modern coal chemical sectors have already met with all sorts of problems. The low oil price and the high coal price today, in particular, are real challenges to the economics and technicality of the modern coal chemical industry.
(5) Constraints of resources and environmental concerns
Resources and environment directly influence the comprehensive competitiveness of enterprises. If the coal chemical industry is to develop long-term, it can in no way evade problems such as the sustainable supply of resources, the emission of carbon and the discharge of waste water.
Competition from low-cost foreign products should not be overlooked either. Middle Eastern countries rich with oil/gas resources persist in supplying China’s downstream petrochemical industrial chain. And the shale gas revolution in the United States has affected the global energy industrial structure and will undoubtedly continue to impact the coal chemical industry in China.

Performance of various coal chemical projects

1. Coal-to-olefins
In China’s modern coal chemical industry coal-to-olefin projects have the most mature technology and the most optimal economics. By the end of September 2017, 21 coal (methanol)-to-olefin units had already been constructed, together capable of producing 12.09 million t/a (Shandong MTP units not yet in operation not included).
The sound operating performance of coal-to-olefin units has triggered an investment upsurge. And nearly 30 coal (methanol)-to-olefin projects are being constructed or planned for construction in China today. Fifteen of them are located in the western region. Most of them are coal-to-olefin integrated projects.
2. Coal-to-liquids
By June 2017, China had constructed 15 coal-to-liquid projects with a combined capacity of 8.26 million t/a. The capacity of Shenhua’s direct coal-to-liquid project with independent intellectual property rights is 1.08 million t/a. There are 5 indirect coal-to-liquid (ICTL-FT) plants with a combined capacity of 5.59 million t/a. Yanchang Petroleum built a 450 kt/a coal/oil co-processing plant. 8 methanol-to-gasoline (MTG) plants were constructed together capable of providing 1.14 million t/a.
Direct coal-to-liquid and indirect coal-to-liquid plants Shenhua Erdos, indirect coal-to-liquid demonstrative units of Luan, Yitai and Yankuang, the MTG unit of Jincheng Anthracite Coal Mining Group and the coal/oil co-processing unit of Yanchang Petroleum are all in long-term stable operation with operating rates of 80-110%. In a time of high oil prices, coal-to-liquid plants can be profitable.
The drastic drop of crude oil prices in the second half of 2014 led directly to an abrupt downturn of oil product prices. The excise tax for oil products was increased three times, greatly affecting the profitability of coal-to-liquid plants. The coal-to-liquid sector suffered losses overall in 2016. Inner Mongolia Yitai Coal Co., Ltd. produced 97.6 kt of various oil products and chemical products in the first half of 2017, but there were no reports on profit earnings. It is expected that oil prices will still be low and coal prices will climb further in 2017, so coal-to-liquid enterprises will still have to struggle without profits.
Seeking economies of scale, coal-to-liquid enterprises such as Shenhua, Luan, Yitai and Yankuang all have projects under construction or planned for construction. Take Yitai for instance. The company has launched a plan for constructing four coal chemical projects in Inner Mongolia and Xinjiang and the total capacity is 6.20 million t/a. 16 coal-to-liquid projects are being constructed or planned for construction in China today. The combined capacity is 48.95 million t/a and the first-phase capacity is 25.25 million t/a.
3. Coal-to-natural gas
By the first half of 2017, China had constructed 3 coal-to-natural gas projects including a 1.35 billion m3/t first-phase project in Datang, a 0.4 billion m3/a first-phase project of Inner Mongolia Huineng and a 1.35 billion m3/a first-phase project of Xinjiang Qinghua. The total capacity was 3.1 billion m3/a. However, the development of the coal-to-natural gas sector is affected by gas transmission pipelines and natural gas supply, so the average operating rate has always been kept around 50% – much lower than expected. The cost is therefore high, and no profits have yet been earned in demonstration projects.
The coal-to-natural gas sector is also an investment hot spot. The first four coal-to-natural gas projects were approved to start construction, and 17 more projects have already got the “pass” for early-stage work. The total capacity is 121.5 billion m3/a, and the first-phase capacity is 65.0 billion m3/a. In 2016, the Ministry of Environmental Protection finally “opened the gate” for the environmental impact assessment of coal chemical projects. Environmental impact assessment results of four coal-to-natural gas projects were approved in that year, and the total capacity is 14.0 billion m3/a. They include a 4.0 billion m3/a project of CNOOC, located in Datong of Shanxi, a 4.0 billion m3/a project by Inner Mongolia North Control Jingtai Energy Development Co., Ltd., a 4.0 billion m3/a project by Suxin Energy Hefeng Co., Ltd., and a 2.0 billion m3/a project by Yili Xintian Coal Chemical Co., Ltd.
4. Coal-to-ethylene glycol
In sharp contrast to the investment of tens of billions of RMB required for one coal-to-liquid, coal-to-natural gas or coal-to-olefin project, the investment needed for a 200 kt/a coal-to-ethylene glycol project is around RMB3.0 billion. Coal-to-ethylene glycol projects have therefore spread quickly all over China. There are at least 20 coal-to-ethylene glycol projects in China today, and those 20 have a combined capacity of 8.60 million t/a. Coal-to-ethylene glycol projects will obviously be a major force in the growth of ethylene glycol capacity.
Compared with ethylene glycol produced from oil, the composition of coal-based ethylene glycol is quite complicated. So property indexes of downstream polyester fiber such as shade and color fastness can hardly be guaranteed. A few polyester enterprises purchase coal-based ethylene glycol for 20%-30% mixed used with oil-based ethylene glycol so as to reduce production costs. Due to problems in product quality and process, profitability of coal-to-ethylene glycol plants completed today differs. Some of them are still in a state of loss and some have already turned from deficits to profits.

Forecast

The situation of low oil price and high coal price in 2016 further proved the profit-earning ability of coal-olefin projects. Coal-to-olefin plants in China today, however, mainly produce PE and PP with high consumption. Product homogeneity is serious. Coal-to-olefin decision makers must consider producing differential products.
Coal-to-liquid projects not only have to face low oil prices and high taxes, but also have to deal with the emergence of non oil-fueled vehicles. It is clearly defined in “Made in China 2025”, issued by the State Council that energy-saving and new-energy vehicles will be given development priority. Electric vehicles and fuel cell vehicles are the development orientation. The oil-fueled vehicle sector is already targeted for capacity reduction. Replacement of oil-fueled vehicles will put coal-to-liquid projects into fierce market competition. Some products of coal-to-liquid enterprises should therefore be targeted for use in making downstream chemicals with high added value. Some products that are not suitable for use in making chemicals should be targeted for use in making downstream oil products with high added value.
China’s natural gas resources are already insufficient. To support its civil use, the Chinese Government restricts the use of natural gas in industry. The average annual growth of natural gas consumption during 2010-2016 was 12.0%, whereas the average annual growth of output in the same period was only 6.3%. Since output growth fails to keep up with demand growth, import dependence keeps growing – it reached 35% in 2016. Demand will keep increasing rapidly during the Thirteenth Five-Year Plan period, and the supply gap will be huge. An encouraging market opportunity is thus provided to the coal-to-natural gas sector. Nevertheless, coal-to-natural gas plants in China today are still unable to achieve long-term stable operation. The primary task is therefore to improve technology further. The insufficiency of gas transmission pipelines should also be resolved.
China’s ethylene glycol supply depends heavily on imports – an encouraging opportunity for the coal-to-ethylene glycol sector. Coal-based ethylene glycol is however not as good as oil-based ethylene glycol, so its downstream applications are restricted. The sector’s primary task today is therefore to improve technology and product quality.