: Source: NRELC, China Coal Research Institute, HSBC estimates
By John Richardson
THERE has been a lot of interest in China’s coals-to-olefins (CTO) industry, with arguments that it is a very economically viable method of production.
On paper, there is even more capacity due on-stream than in the US as it forges ahead with its shale gas-based expansions.
But, according to new study by HSBC, of the 6m tonnes/year of ethylene capacity scheduled to be added through the coal-to-methanol and then on to olefins process in China over the 2013-17 timeframe, less than 20% – 1.2m tonnes/year – is viable.
As a result, HSBC hasn’t even included the capacities in its supply and demand balances.
Reasons given include logistics.
“The logic of having projects in these regions, instead of in Eastern China (where the bulk of the plastics producers are located) is fairly straight forward, and stems from the advantage achieved by locating CTO projects close to coal-producing regions, namely better access to coal and lower coal prices,” writes HSBC.
“However, the location of projects in Central-to-Western China, leads to its own set of challenges and constraints. The Chinese plastic converters are concentrated in Eastern China, with the top four provinces (Guangdong, Zhejiang, Guangxi, Shandong) accounting for c50% of the production of plastic products in China, while c85% of the existing Chinese ethylene capacity, for example, is located in the Eastern region.
“The mismatch between the plastic producing regions of Eastern China and the CTO projects in Central-to-Western China leads to the issue of transporting the CTO-produced olefins/polyolefins and co-products to Eastern China.
“Although the transportation cost of polymers is high, it is still less than the cost of transporting the equivalent amount of coal in the opposite direction, given that it takes c6.2 tonnes of coal to make one tonne of olefins.
“The co-products, on the other hand, are a different story. The main co-products include fuel gas, heavier olefins and gasoline, and are produced in much smaller in quantities than the olefins – total co-product yields for the MTO/MTP processes are only 7% and 11% while olefins yields are 33% and 28%, respectively.
“The smaller quantities of the co-products produced, coupled with the far-off location of the coal-to-chemicals plants, makes it difficult for these products to be sold at their normal market prices.
“The co-products, as a result, are either sold at a discount to market prices or are consumed internally as fuel, realising their fuel-linked value only.”
HSBC says that Eastern coastal MTO projects, which would be based on imported methanol, are unviable because of the amount of methanol that would have to be acquired.
“A 600,000 tonnes/year MTO/methanol to-propylene (MTO) project requires 1.8m-2.16m tonnes/year of methanol, respectively, which is significant in size compared to average annual Chinese methanol imports of c5.3m tonnes/;year since 2009,” the study adds.
Well-documented environmental challenges are also a major barrier to investment.
For instance, 15-20 tonnes of fresh water is required to produce each tonne of olefins.
“Per capita water resources and water resources per sq m in China’s key coal producing provinces, such as Inner Mongolia, Shanxi and Shaanxi [where many of the CTO projects are located], is only 1/10th of the national average, according to research published by Greenpeace and the Institute of Geographical Sciences and Natural Resources under the Chinese Academy of Sciences in August 2012.
“To put this in perspective, refining uses 0.80 to 2.17 tonnes of water for each tonne of crude oil processed.
“High carbon dioxide emissions are another concern (see above chart).
“While the Chinese Government is supportive of the move towards greater self sufficiency in polymer production, it is also keen to avoid a repeat of the excessive investment in subscale capacity as witnessed earlier within the coal to basic chemicals space,” says HSBC.
“To this end, the National Development and Reform Commission (NDRC) has oversight of all project approvals and has set minimum scale guidelines in order to ensure viability.
“Under the new rules announced in the 12th Five Year Plan for coal to chemicals in 2012, a coal-based olefins plant must have a minimum capacity of 500,000 tonnes/year while 1m tonnes/year has been set as the bar for coal-to-methanol and coal-to-liquids facilities.”
Only three of the 23 CTO projects listed have won approval from the NDRC, says the study, supporting the notion that all the fuss about the industry, might, in the immediate term at least, turn out to be a storm in a teacup.
“We see projects that do not have NDRC approvals as running the risks of closure – similar to what happened with the teapot refiners or small-sized coal mines in China,” adds HSBC (apologies for the pun).