By John Richardson
THE economics of China's coal-based olefins industry are favourable when measured on a cash cost basis in a high oil-price environment, as the slide above from the Singapore-based consultancy Methanol Market Services Asia (MMSA) illustrates.
But even when oil prices decline, which occurred in May this year, swinging cash costs back in favour of the naphtha-based producers, there are other factors which underpin the economic strength of the coal-based industry, said Mark Berggren, managing director of MMSA.
"One of the advantages from a coal producer's perspective is that you are taking coal, which sells at around $100/tonne and converting it into polyolefins that sell at well over a $1,000/tonne," said Berggren.
(The industry involves firstly gasifying coal into synthesis gas (syngas), which is then turned into methanol, next olefins and then polyethylene (PE) and polypropylene (PP). The methanol-to-olefins (MTO) process produces both ethylene and propylene. There is also a separate propylene-only process - methanol-to-propylene (MTP). )
"China's railways also have limited bandwidth. It therefore makes much more sense, from a national perspective, to transport plastic pellets rather than coal, as the pellets deliver greater economic and energy value per railcar-load than coal."
Berggren believes that a considerable amount of planned new MTO capacity will go ahead because of sound economics, and for strategic and political reasons.
"By 2030, our base case, to which we attach a 65% probability, is that 28m tonnes/year of methanol will be converted into olefins in China. This will yield around 10m tonnes/year of olefins," he said.
Other estimates are that this amount of capacity will be on-stream by 2020, but Berggren argues that there are insufficient engineering and procurement contractors in China for this to happen.
"China was supposed to have 100m tonnes/year of methanol on-stream by now, but only 42m tonnes/year has so far been commissioned because of a lack of engineering resources," he added.
But he stresses that the government is committed to MTO because it represents a demonstration of national pride, and is part of the drive to raise self-sufficiency in basic raw materials.
Under China's 12th Five-Year-Plan (2011-105), for example, Beijing wants to raise ethylene self-sufficiency to 64% in 2015 from 48% in 2010. The target for propylene is an increase to 77% from 63%.
"Coal-to-olefins projects are also big in scale which fits in with another government objective - improving the economies of scale of its industries," Berggren said.
"In addition, realising MTO projects will involve the successful implementation of technologies that have ostensibly been developed domestically."
But he said that environmental issues would remain a background concern for MTO. Question marks have been raised over the sustainability of the industry as a result of high levels of carbon dioxide (CO2) emissions and heavy water consumption. Existing and proposed plants are located in Western China, where water is in short supply.
"The coal gasification step is where large amounts of water are consumed," he added.
"But this water can be recycled following treatment. And when you make olefins, which involves converting methanol via dimethyl ether over catalysts, water is left over from the process which again can be treated and re-used.
"On the issue of CO2 emissions, which are again high during the gasification step, the coal companies argue that you need to compare life-cycle emissions between coal and oil.
"More energy is required to get oil out of the ground than is the case with coal, especially in the case of deep-sea oil drilling, the companies point out.
"You can also sequester the CO2, and, if it has the right purity, it has a commercial value for re-injecting into oil wells to advance oil recovery."
Berggren said that not all MTO projects are based on domestically-produced methanol, via coal. Some project proponents are instead planning to import methanol.
This latter category includes Skyford Chemical. The company is due to start-up 600,000 tonne/year of MTO capacity (200,000 tonnes/year of ethylene and 400,000 tonnes/year of propylene) at Zhenhai, Zhejiang province, in Q4 this year (see the table below for a full list of projects).
"The problem with this approach is that the gas resources, for the moment at least, are under separate ownership to that of the MTO players in China," said Berggren.
"As a result, there is an issue for MTO players in that the owners of the gas reserves often see a stronger value into other uses for their hydrocarbons, such as liquefied natural gas.
"But I wouldn't be surprised that at some point, the Chinese go overseas and acquire their own natural gas reserves to make methanol in, say, the Middle East to ship the methanol back to China to make olefins."