Coal to chemicals gains upper hand

05 November 2010 00:06  [Source: ICB]

China's coal-to-chemical industry is set to enjoy massive growth over the next few years

Rex Features

All indications are pointing to a booming coal-to-chemicals industry in China. Domestic shortages and the rising price of crude oil have rendered coal a favourite alternative. In a country that needs to import one-third of its crude consumption, oil is a strategic resource and is something that money cannot always guarantee to buy.

From the perspective of cost, coal to chemicals enjoys an obvious advantage as oil is four times as expensive as coal. Developing coal to chemicals is an inevitable choice in China, a nation characterized by the real nature of "insufficient oil, little gas and ample coal".

China has experienced the world's fastest growth in recent years as a producing and consuming country of polyolefins. Output, consumption and import volumes of polyethylene (PE) and polypropylene (PP) are all seeing significant increases. The development of coal-methanol-ethylene-PE units is getting much attention because the domestic PE market is in short supply.

CTO projects enjoy considerable economical efficiency when international oil prices stand above $80/bbl. China uses coal or natural gas as a feedstock to produce methanol. Methanol units that consume coal as the raw material occupied 66.6% in the total output in 2009 (see graph on next page).

Ethylene is conventionally produced via naphtha cracking, while MTO/P is the emerging technology; it substitutes oil with coal to produce ethylene and propylene. The technology uses coal-based or natural gas-based methanol as the raw material. Products of MTO are mainly ethylene and propylene. The leading MTO technology was jointly developed byUOP of the US and Norway's Hydro. The Dalian Institute of Chemistry & Physics under the Chinese Academy of Sciences (CAS) developed the DMTO technology. MTP produces mainly propylene, with Germany's Lurgi as the major technology provider.

"The development of the coal-to-chemicals industry is of great significance," says senior olefins analyst Rainy Ma at information provider CBI. "We aim at replacing crude oil with coal in the long term, thus enhancing our independence on raw material resources. In the short term, the time is not right for the government to lend strong support to coal to chemicals because China is still confronting issues of excess capacities of chemicals and challenges in the area of clean technologies."

Senior methanol analyst Ken Yin at CBI added: "We are seeing a lot of coal-to-­chemical projects, but we should bear in mind two key points. The first is environmental friendliness and whether it conforms to the national standard of energy saving and emission reduction. The second is the risk factor. Projects such as these are big investments that used to be monopolized by state-owned enterprises. Now the sector is involving private investors and we will see a structural breakthrough in interest if the projects run well."

China was supportive of these huge coal-to-chemical investments in earlier days. However, some of the projects did not bear fruit and were considered as wasting the country's financial resources. Consequently, policies were tightened. We should also be aware of the fact that coal resources are not infinite.

STIMULUS PLAN
In the petrochemical stimulus plan that was announced at the end of February 2009, the section on coal to chemicals mandated "controlling the total volume, phasing out laggard capacities, stopping approvals on coking and carbide expansions, and firmly containing pell-mell [unplanned] developments."

In the middle of 2010, the National Development and Reform Commission issued the Notice on Rationalised Development of Coal-to-Natural Gas Sector. The country now strictly limits the development of coal-to-chemicals in the consuming regions that are short of resources but encourages such development in the producing, resource-rich regions in western China.

The twelfth Five-Year Plan (2011-2015) stresses that mergers and restructuring in the coal industry is an important mandate, aiming to reduce the number of coal enterprises to 4,000 from the existing 11,000. At the end of the forthcoming Five-Year period, there will remain only six to eight coal groups in China, further concentrating coal resources.

"The coal-to-chemicals industry is expected to see rapid development in the next decade," a government official says. "The state policies of pushing forward industry integration, supporting industrial leaders, limiting small producers, and promoting scale of economy provide a good opportunity for the big players to consider further development."

An analyst from a securities firm said: "The industry is capital-intensive, with high asset-depreciation rates. The recent move of the People's Bank of China to raise benchmark interest rates would increase debt-to-equity ratios and add to financial costs, thus having a negative effect."

A leading domestic MTO/P enterprise is Shenhua Group, owner of the world's first CTO line, which was commissioned on August 8 this year. The project consists of a 1.8m tonne/year coal-based methanol unit, a 600,000 tonne/year MTO facility, a 300,000 tonne/year PE unit and a 300,000 tonne/year PP plant. The MTO reaction part was domestically developed, while the separation part was of foreign technology.

Wison Group independently researches and develops separation technology for CTO, which is already applied in the MTO plant of Pucheng Clean Energy Chemical (PCEC). The plant, which has a capacity of 680,000 tonnes/year of PE and PP, adopts DMTO-II ­technology,

International petrochemical giants are also eyeing the Chinese market because of China's abundant coal resources. France's Total plans to build a million-tonne scale CTO project in Inner Mongolia. The project has kicked off its formal feasibility study and project application, and is expected to be completed in 2015. The core of the production unit will adopt MTO/OCP integration techniques, with nearly 90% low-carbon olefins from methanol. Meanwhile, it also plans to build an integrated carbon dioxide capture and storage project to decrease carbon dioxide emissions. Compared with the existing chemical technology at home and abroad, the project shines in its advanced technology, reliable performance, low energy consumption and environmental standards.

The prospects for China's coal-to-chemicals industry are good in the long term. The key is how to manage the correlations between the present conditions and long-term development. The coal-to-chemicals industry must be in control of the scale, resources and environmental capacity while complying with ecological requirements, as well as the status of water and coal resources.

Production methods: Coal-to-chemicals terminology explained
Coal to chemicals uses coal as a raw material, and uses chemical processes to turn it into gas, liquids, solid fuels and other chemical products. The latest developments have seen coal chemicals moving into coal-to-liquids (CTL), coal-to-dimethyl ether (coal-to-DME), coal-to-olefins (CTO), coal-based synthetic gas (coal-based SNG) and coal-to-glycol (CTG).

Coal to liquids (CTL): Coal-to-liquids comprises three different modes, namely direct CTL (DCTL), indirect CTL (ICTL) and coal-based methanol-to-­gasoline (MTG). Coal and ­water resources, environment tolerability and engineering reliability are the main factors impacting on the development of coal-to-liquids.

Coal to DME: Domestic producers have limited interest in methanol-to-DME because of overcapacity. Investors are reluctant to venture into the one-step production process because there are no precedents to follow in China, and market acceptance of the resulting products is still unknown.

Methanol to olefins/­propylene (MTO/P): The MTO sector is still in its infancy, with high entry requirements. Massive investments, high technology requirements, substantial risks, strict operating conditions and uncertain economical efficiency restrict the development of MTO.

Coal-to-synthetic natural gas (SNG): The process sees higher emissions to the environment compared with liquefied natural gas and pipeline gas. Having a low endurance to volatile feedstock cost, its economical efficiency also faces challenges from rising coal prices.

Coal to glycol (CTG): Tongliao Gold Coal started up a 150,000 tonne/year glycol plant at the end of 2009. The sector has yet to be industrialized, with issues in core catalyst technology and key technical cell integration.

By: Amanda Zhang
+65 67804359

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