01 August 2011 00:00 [Source: ICB]
Despite its youth, coal-to-olefins technology holds promise for capacity, and the government will ensure sufficient scale
The coal-to-olefins (CTO) sector in China has made significant gains, with several projects under construction offering tremendous promise. But, at least during the government's 12th five-year plan (2011-2015), traditional oil-based olefins production will remain dominant.
China is already the number-one energy consumer in the world and its hunger for oil will only grow. So coal-to-chemical projects in which coal is gasified into methanol, transformed into olefins and polymerized into polyethylene and polypropylene make a lot of sense.
But, at the moment, China's CTO industry is still working through its development phase and requires evolution and sophistication, according to Wang Junshi, director at the coal department of the National Energy Administration (NEA).
The CTO sector faces huge challenges to become economically and financially viable on a large commercial scale.
First, it requires a huge amount of water, which is already a precious resource in China. Second, the technology is still nascent and offers only low coal conversion yields.
Third, it faces stiff competition from low-priced cargoes from the Middle East.
So the Chinese government is expected to regulate and monitor the industry's development, keeping in view various environmental aspects.
Just this year, China implemented stricter controls on coal-to-chemical projects because of the technology's nascent character. In April, the National Development and Reform Commission (NDRC), China's top economic planner, set the minimum scale for coal-to-chemical projects to gain approval and stripped local governments of their ability to make such approvals.
Under the new rules, a coal-based olefins plant must have a minimum capacity of 500,000 tonnes/year, while a 1m tonne/year bar has been set for coal-to-methanol, coal-to-methyl tertiary butyl ether (MTBE) and coal-to-liquids facilities.
For coal-to-natural gas projects, the capacity must be at least 2bn cubic meters/year, while a coal-to-monoethylene glycol (MEG) plant must have a minimum 200,000 tonne/year capacity, according to NDRC.
The stricter rules are aimed at ensuring efficient use of China's coal resources, as well as curbing methanol overcapacy. Total coal reserves in China at the end of 2009 stood at 5.57 trillion tonnes.
At present, there are three methanol-to-olefins (MTO) demonstration projects, with a total capacity of 1.56m tonnes/year. They include Ningxia Coal Industry's 500,000 tonne/year methanol-to-propylene (MTP) unit, which started up in October 2010; Shenhua Group's 600,000 tonne/year MTO unit, launched in August 2010; and Datang International's 460,000 tonne/year MTO unit, which was expected to start up by the end of July 2011.
The total capacity of approved and proposed MTO projects is more than 18m tonne/year, of which more than 1m tonnes/year are foreign-funded
Some 30% of the total is owned by local energy giants Sinopec and PetroChina, as assessed by Chemease, an ICIS service in China.
For the most part, the nation's CTO projects are located in the provinces of Henan, Zhejiang, Shanxi, Inner Mongolia, Ningxia, Guizhou, Heilongjiang, Shaanxi, Hebei and Anhui.
About six confirmed projects launched by various local companies are expected to come on stream by 2016.
Another 13 other coal-to-chemical projects are at various stages of planning.
Additional reporting by Tahir Ikram in Singapore and Fanny Zhang in Guangzhou
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