China coal-to-chems projects at risk amid pollution war

28 March 2018 17:20 Source:ICIS Chemical Business

China’s coal-to-chemical projects may be hit amid the government’s intensified campaign against pollution, possibly leading to increased imports amid strong domestic downstream demand, industry players said on the sidelines of the International Petrochemical Conference (IPC).

China has huge reserves of coal, which was a cheaper alternative feedstock for petrochemical production compared with naphtha. The government had started encouraging building of coal-to-olefins (CTO) and methanol-to-olefins (MTO) plants in 2013 amid high prices of oil, from which naphtha is derived.

OIL PRICES

But as coal lost its low-cost advantage when oil prices crashed in 2014, as well as its price spike following closures of small and inefficient coal mines, the country has been turning back to naphtha for new petrochemical capacity, according to David Hanna, ICIS north Asia business development director.

“Naphtha cracking is now more economical than CTO,” Hanna said.

As part of its antipollution drive, the Chinese government has required manufacturers to make the switch to using gas instead of coal, a highly polluting fossil fuel that China has in abundance, for power generation.

REDUCING COAL SHARE

By 2020, China is targeting a reduction in the share of coal in its energy mix by eight percentage points from 60%, while raising the share of clean energy by 6.3 percentage points from 21%.

A huge portion of the country’s petrochemical production is naphtha-based, while the share of coal-based output has gradually increased.

“Pollution has finally become a priority: China’s future economic growth and the survival of its government depend on fixing the environment,” Hanna said. This throws into question the future of China’s coal-based petrochemical projects, he said.

Hanna cited seven new chemical complexes located in the eastern coast of China that are all naphtha-based. The locations of the plants include Chang Xing Dao, Cao Fei Duan, Lian Yun Gang, Cao Jing, Ningbo, Gulei and Huizhou.

All these developments could translate to “benefit to foreign exporters of compliant products” and present new opportunities for adoption of less polluting feedstocks such as ethane and liquefied petroleum gas (LPG), he said.

OFF-SPEC MATERIAL

In the case of ethylene glycol (EG), coal-based output in China is usually off-specifications and needed to be mixed with high-purity material, according to EQUATE CEO and president Ramesh Ramachandran.

MEGlobal, which is a wholly owned subsidiary of Kuwait’s EQUATE, produces and markets more than 2m tonnes/year of ethane-based EG, about half of which is exported to China.

“We don’t see increased production of coal-based MEG. I think what has been built will continue to make some [products] but even they are obviously having problems making spec products,” Ramachandran said.

MEG IMPORTS

In 2017, China’s total MEG imports stood at 8.75m tonnes, representing a 15.7% increase from the previous year, despite a 1m-tonne expansion in domestic capacity due to strong demand from downstream polyester market. Imports have about a 60% share in China’s total MEG consumption last year.

But China’s domestic production capacity of coal-based MEG is still projected to more than double, with 2.75m tonnes/year of new capacity coming on stream in 2018, after growing by 66% last year, according to ICIS data.

Hosted by the American 
Fuel & Petrochemical Manufacturers (AFPM), the IPC took 
place on 25-27 March in San Antonio, Texas.

Additional reporting by Ivy Ruan

By Pearl Bantillo