08 February 2007 16:23 [Source: ICIS news]
By John Richardson
SINGAPORE (ICIS news)--The debate about whether or not ?xml:namespace>
There are 88 coal-to-liquids (CTL) projects that have gained approval and a further 20-30 where approvals are pending. The projects involve either indirect or direct liquefaction of coal (indirect involves a gasification step first), followed by in some cases integration through to methanol to olefins and olefins to polymers production.
This is reminiscent of the investment splurge in
Investors, many of whom had no experience in the polyester sector, didn’t bother to properly assess the risks because of cheap or even free capital. The end result was a long period of low operating rates, shuttered plants and abysmal profitability.
But one could argue that there are major differences between the polyester and CTL sectors.
Firstly, Shell, Dow Chemical and Sasol are involved in this investment wave. Proper due diligence should therefore have been conducted on at least their projects.
But secondly, and more importantly, the processes could enjoy a huge feedstock advantage because of
Nevertheless, the three overseas majors are only involved in a small number of the projects. This means that most of the cash pouring into the sector is local, low cost and as a result highly speculative.
And what kind of advantage will cheap coal deliver to final margins when logistics have been taken into account?
Most of the projects are located in western
Another key component of the sector’s competitiveness will be the oil price. CTL production costs of plants close to coal mines are estimated at equivalent to $27-35/bbl, rising to $45-50/bbl when distribution costs and taxes are included.
Some consultants believe that freight costs will prohibit commodity grade production, forcing a focus on speciality grades and lower-volume plants.
Other consultants, however, point to the successful economics of moving coal-to-acetylene based vinyl chloride monomer (VCM) to make polyvinyl chloride (PVC) on the eastern coast. Much of this PVC is then being exported at highly competitive prices. Acetylene-based capacity increases are so big that China is expected to become a net PVC exporter by 2011-12.
This is certainly not the case with linear-low density polyethylene (PE) and high-density PE. Huge quantities of both the polymers are already produced in the
This leaves low-density PE (LDPE) as an opportunity because the
In addition, and perhaps most fundamentally, doubts are still being expressed over the commercial viability of methanol to olefins technologies. And you cannot assume that the crackdown on investments in this emerging sector will prove effective. Implementing central government legislation is always a challenge in China.
In the end, though, whoever is right, fuel markets may consume most of the methanol – the intermediate product in these processes. The main reason for the investments in coal technology is greater energy security through substituting oil-based fuels.
But what if
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