Modern Coal Chemical Industry

Coal-to-liquids (CTL)

CTL technology

CTL is a process to convert solid coal into liquid oil products and chemical products through chemical reactions. It is an abbreviation of coal chemical technology that uses coal as feedstock to produce liquid fuels and chemical raw materials. Quite a few CTL technology routes such as DCTL, ICTL, MTG and the process of coal tar hydrogenation for the production of fuel oils are available now. The Y-CCO process independently developed by Shaanxi Yanchang Petroleum has also been commercialized.  However, MTG projects are often small in scale and coal tar hydrogenation and Y-CCO are restricted by factors such as feedstock availability, CTL usually refers to DCTL and ICTL.

The development of CTL technology has a history of nearly a hundred years. Germany is the country that first developed CTL technology. The world’s first CTL plant was constructed in Germany during the Second World War. The CTL plant that only served military needs suspended production after the war due to falling oil prices. At the end of the war, capitalists from South Africa managed to acquire the American version of coal liquefaction technology from Americans.

One of the typical modern coal chemical projects, a hot spot for investment in coal chemical industry

In the world today, South Africa and China with rich coal resources own ICTL commercial units, but only China has commercial DCTL units.

On December 30, 2008, Shenhua Group’s 1.08 million t/a DCTL commercial unit, the first of its kind in the world, started commissioning. Two 160kt/a ICTL commercial units, one in Inner Mongolia Yitai Group and one in Shanxi Lu’an Coal Industry, were put on stream in 2009. New breakthroughs were made in the operation of CTL demonstrative units in 2012. Erdos-based DCTL unit in Shenhua and ICTL demonstrative units in Lu’an and Yitai all realized long-term stable operation.

By the end of 2015, China had constructed 14 CTL projects with a total capacity of 4.26 million t/a. The 1.08 million t/a DCTL project constructed by Shenhua with independent intellectual property is also the only operational DCTL unit in the world today. Four ICTL-FT projects were constructed and the total capacity was 1.59 million t/a. Yanchang Petroleum Group constructed one Y-CCO project with a capacity of 450kt/a. Eight MTG projects were constructed, with a total capacity of 1.14 million t/a.

In 2012, relevant competent departments of the state restarted examination and approval to CTL projects. CTL industry in China has therefore entered into the stage of commercial development. CTL demonstrative units have achieved long-term stable operation. The technical viability of CTL has also been verified. To achieve economies of scale and gain competitive edge in oil product market, several large CTL enterprises started to make expansion plans one after another, which resulted in numerous CTL projects being constructed or planned for construction in China. More than 40 CTL projects are under construction or planned for construction in China and the total scale is nearly 48.95 million t/a. The stringent examination and approval process and plummeting crude oil prices have already slowed down the development of CTL in China. Quite a few CTL projects planned for construction have been shelved, However, projects already under construction are making steady headway.

Relevant CTL policies

According to requirements in the Catalogue of Investment Projects Subject to Governmental Approval (2016 Edition) issued by the State Council, the construction of CTL projects with a capacity of 1.00 million t/a and below should be prohibited, while CTL projects with over 1.00 million t/a capacity should be submitted to the National Development and Reform Commission for approval.

EIA reports of coal chemical projects have to pass the examination and approval by the Ministry of Environmental Protection.

Future opportunities in CTL development

（1）China’s energy structure featuring “being rich in coal and lean in oil and gas” determines that the sustainable development of the national economy has to rely on the readjustment and upgrading of the energy structure so as to reduce the country’s dependence on oil imports and take full advantage of the rich coal resources. Out of strategic consideration for energy security, China started to approve the construction of CTL demonstrative projects in 2005. CTL as an effective supplement to oil resources is in line with features of the energy structure in China.

（2）Oil products produced in DCTL and ICTL-FT have low contents of sulfur, nitrogen and aromatics. They are highly clean fuels and can help protect the environment.

（3）Owing to advances in technology, the coal consumption, water consumption and consumption of other materials in CTL have already dropped sharply and the production cost is down.

（4）Crude oil is a non-renewable energy. The price of crude oil in the international market will not always be kept at a low level. Prices of CTL products will hopefully increase with the price rise of crude oil.

（5）To enhance economy of projects, relevant departments are conducting R&D on second-generation CTL processes to increase economic benefits of CTL when the price of crude oil is low.

Major problems in CTL

（1）As the capacity of CTL in China is small, there is no separate pricing system for CTL products. Their prices are set by using prices of oil refining products as reference.

The prices of crude oil in China are basically identical to the price trend of crude oil in the international market. The price of crude oil in the international market was the highest in June 2014 and the average price in the month was $105.2/barrel. With impact from various factors such as the massive production of shale gas in the United States, the price of crude oil in the international market started to drop drastically from July 2014. Prices of CTL products such as gasoline, diesel and LPG have all decreased. It is difficult for CTL to earn profits when the price of crude oil is as low as $40-50/barrel.

（2）Compared with oil refining, CTL projects are regarded as a symbol of high pollution and high emission and have always been a controversial topic.

（3）Due to the high consumption tax, the production of diesel and naphtha induces loss.

（4）Risks of low oil prices still exist today. According to the latest forecasts made by quite a few institutions such as Goldman Sachs, Fitch, Bernstein and Qatar National Bank, the international oil prices will still float in a fixed range of low level for a considerable period of time in the future. Price fluctuations in a range of $40-65/barrel will at least last up to 2019.

Coal-to-olefin (CTO)

One of the typical modern coal chemical projects, a hot spot for investment in coal chemical industry

Since Shenhua Baotou Coal Chemical’s CTO commercial demonstrative unit was put into operation in August 2010, enthusiasm for investing in CTO projects has been quite high and frequent breakthroughs have been made in commercial operation.

2010 was the year that the global CTO/MTO industry made breakthroughs. China constructed three CTO demonstrative projects that year, including Shenhua Baotou Coal Chemical’s 600kt/a CTO project (completed in May 2010 and commercial operation started in January 2011), Shenhua Ningxia Coal Chemical Industry’s 500kt/a CTP project and Datang Duolun Coal Chemical’s 460kt/a CTP project. The total capacity reached 1.56 million t/a. There were no commercial CTO/MTO units in the world before. 21 CTO projects started production in China in 2015 and the capacity of olefins was 8.10 million t/a. Nine of them were projects using outsourced methanol and the total capacity was 2.295 million t/a.

The operation of CTO projects has brought sound economic benefits to enterprises. The price of crude oil in the international market was at a high level of USD85-110/barrel during 2013-2014. The production of olefins using the oil route suffered losses, whereas most of CTO projects earned profits and brought satisfactory economic benefits to enterprises. The price of crude oil in the international market dropped drastically during 2015-2016 and basically floated at a level of below USD55/barrel. Although the price drop of olefins led to a reduction of economic benefits in enterprises, the 600kt/a MTO project in Shenhua Baotou Coal Chemical Co., Ltd., the 600kt/a CTO project in Yanchang China Coal Yulin Jingbian Energy & Chemical Co., Ltd. and the 600kt/a DMTO project in China Coal Yuheng Coal Chemical Co., Ltd. were still profitable. The production of olefins from coal via methanol still displayed quite strong profit-earning ability. Sound economic benefits in enterprises have stimulated enthusiasm in making investments in CTO. Lots of CTO projects are being constructed or planned for construction in China today. The growth of the olefin capacity will mainly come from the production of olefins form coal via methanol in future.

Sound economic benefits in CTO have attracted great amounts of investments. Lots of CTO projects are being constructed or planned for construction in China today. Based on the progress and the construction cycle of these projects, the capacity of CTO in China is expected to reach 18.00 million t/a in 2020.

CTO technology

CTO refers to the production of olefins from coal via methanol. Coal is used as feedstock to synthesize methanol and olefins are then produced from methanol.  CTO (coal to olefins) technology mainly produces mixed olefins. CTP (coal to propylene) technology mainly produces propylene. Some enterprises in eastern coastal areas of China have also constructed MTO (methanol to olefins) and MTP (methanol to propylene) units using methanol purchased from outside sources (mainly imported from abroad). CTO includes 4 core steps, namely coal gasification, syngas purification, methanol synthesis and olefin production. See the diagram below for CTO process route.

Coal   gasification   Syngas   purification   Purified syngas   Methanol synthesis   Methanol   MTO   ethylene + propylene   MTP  propylene

CTO Process Route

The ethylene/propylene output ratio in MTO technology is around 1:1. In case the recycling of byproduct C4 is not included, producing 1t of olefins consumes around 3t of methanol.

The company that first proposed MTO process was Mobil. BASF, Exxon, UOP and Hydro also got involved in this afterwards and greatly promoted the development of MTO. Satisfactory processes developed in foreign countries today include Exxon MTO process, UOP/Hydro MTO process and Lurgi MTP process. BASF also once owned such technology.

In China, ethylene and propylene are mainly produced through the petrochemical route. The shortage of crude oil resources in China has, however, restricted the development of ethylene and propylene to a certain extent. Moderately developing the production of olefins from coal via methanol to achieve feedstock diversification in the ethylene and propylene production has great significance to the reduction of crude oil supply pressure and the safeguarding of energy security. DMTO technology developed by CAS Dalian Institute of Chemical Physics through long years’ research uses coal or natural gas as feedstock to replace crude oil and produce low-carbon olefins such as ethylene and propylene. The institute has complete independent intellectual property over the DMTO technology, a leading technology in the world. Well-developed CTO processes in China also include SMTO technology of Sinopec and FMTP technology of Tsinghua University.

China is a world leader in MTO technology development. On August 8, 2010, Shenhua Baotou Coal Chemical Co., Ltd. launched the commissioning of a 600,000 t/a coal-based MTO unit, the first of its kind in the world. Commercial operation stared in January 2011. CAS Dalian Institute of Chemical Physics’ DMTO technology was used in the unit. 9 commercial units have successfully started production by now and the capacity of olefins reaches 5.20 million t/a. After the successful development of MTO commercial technology, CAS Dalian Institute of Chemical Physics has launched the research and development of the new generation technology for the production of low-carbon olefins from methanol (DMTO-II) in collaboration with cooperation partners. In DMTO-II technology, C4+ fractions in olefins produced from methanol using DMTO technology are recycled. In this way the yield of ethylene and propylene increased by over 10% and a new-generation process technology for the high production of olefins is developed. As a user of the technology, Pucheng Clean Energy Chemical Co., Ltd. has constructed the first DMTO-II commercial unit in the world. The unit produces 670kt of olefins from 1.80 million tons of methanol a year. Commercial units using SMTO technology from Sinopec include the 200kt/a unit in Zhongyuan Petrochemical Co., Ltd. and the 1.37 million t/a unit in Zhongtian Hechuang Energy Co., Ltd. The 500kt/a unit in Shenhua Ningxia Coal Chemical Industry Co., Ltd. and the 460kt/a unit in Datang Duolun Coal Chemical Co., Ltd. use Lurgi MTP technology. The 300kt/a unit in Nanjing Chengzhi (Nanjing Wilson ) Clean Energy Co., Ltd. uses UOP/Hydro technology.

Future development opportunities of CTO

CTO technology is already quite well developed today. The maturity and the reliability of the technology in commercial production are also verified. The economics of the technology is verified as well. The energy structure in China has the feature of “being rich in coal and lean in oil and gas”. The import dependence of crude oil exceeded 60% in 2016. The proportion of the coal-based ethylene capacity in the total olefin capacity will increase to around 30% in the future and a greater role will be played in safeguarding energy security in China.

In accordance with the Circular on the Implementation of the Scheme for the Planning and Layout of Petrochemical Industry (FaGaiChanYe[2015]1047) issued in the website of the National Development and Reform Commission on May 29, 2015, the power for the examination and approval of new CTO projects has been delegated to provincial development and reform departments.

Major problems in CTO

（1）CTO projects have long construction cycle and require quite high investment. Judging from the status of a 600kt/a CTO project in commercial operation in China, the construction cycle is around 4 years and the investment is RMB20.0 billion.

（2）CTO projects have high coal and water consumption. The 600kt/ CTO project in Shenhua Baotou Coal Chemical Co., Ltd. consumes 5.00 million tons of coal and nearly 18.00 million tons of water a year. Coal resources in China are mainly distributed in regions with fragile ecological environment.

（3）Atmospheric pollutants discharged by CTO projects are mainly classified into two categories, process waste gases and boiler coal combustion waste gases. Major waste gases include SO2, NOx, smog, CO2 and small amounts of H2S. All large coal chemical projects such as CTO projects are faced with environmental compliance pressure and have always been major targets for supervision by environment competent departments.

CTO can be one of the important channels for China to achieve the energy strategy of “replacing coal with oil” and guarantee energy security. Enterprises can consider to engage in CTO projects after giving full consideration to coal resources, water resources and environment carrying capacities.  

Coal-to-gas (CTG)

One of the typical modern coal chemical projects, a hot spot for investment in coal chemical industry

Natural gas is an important component of the clean energy strategy in China. As great amounts of natural gas need to be imported in China, natural gas produced from coal, shale gas and coal-bed methane will become important supplements to the supply of natural gas in China. CTG is an abbreviated name of the production of synthetic natural gas from coal. It can also be called coal-based SNG. Coal is used as feedstock. After pressurized gasification, desulfurization and purification are conducted to get gases containing inflammable components. CTG has already become a hot spot in coal chemical industry today.

Pushed by the sustained price rise of crude oil and natural gas, some countries such as the United States and Britain accelerated the research and development of CTG technology in early 1970s. Some foreign companies have made pilot tests on CTG. Germany, South Africa and the United States have constructed pilot plants and gained gratifying results. The first CTG commercial unit in the world was the Great Plains project located in North Dakota of the United States. The unit uses Lurgi CTG technology.

The National Development and Reform Commission issued the Circular on Some Matters for Standardizing the Development of CTG Industry on June 18, 2010. It is pointed out in the document that CTG projects must be submitted to the National Development and Reform Commission for approval. They should be linked to natural gas pipeline plans. Outward transmission channels and sales markets should be guaranteed. 3 CTG projects were already included in the Plan for the Readjustment and Rehabilitation of Petrochemical Industry and approved by the National Development and Reform Commission before. They were the 4.0 billion m3/a project of China Datang Corporation in Chifeng of Inner Mongolia, the 4.0 billion m3/a project of China Datang Corporation in Fuxin of Liaoning and the 1.6 billion m3/a project of Huineng Group in Erdos of Inner Mongolia.

After the National Development and Reform Commission tightened its approval of CTG projects, the first CTG project approved was the 5.5 billion m3/a project of China Kingho Energy Group in Yili of Xinjiang. By the end of 2015, the total capacity of CTG projects approved by the National Development and Reform Commission reached 15.1 billion m3/a. China has already constructed 3 coal-based SNG projects, including the phase I project of China Datang Corporation in Keshiketeng Banner of Inner Mongolia, the phase I project of China Kingho Energy Group in Yili of Xinjiang and the phase I project of Huineng Group in Erdos of Inner Mongolia. The total capacity is 3.1 billion m3/a.

In 2016, the CTG industry in China continued to push forward with the preliminary work of CTG projects. EIA reports of four CTG projects were approved in succession, hitting a historical high.

12 CTG projects have already got the “pass” for launching the early stage work. The total capacity is 103.5 billion m3/a and the phase I capacity is 47.0 billion m3/a. A number of projects are still waiting to be approved. There are even some projects that have started construction before approval. CTG projects are mainly concentrated in Xinjiang, Inner Mongolia and Shanxi.

CTG technology

The front section of the process flow for the production of natural gas from coal is basically the same as the process for the production of methanol from coal and the process for the production of ammonia from coal. Syngas is produced from coal and then goes through purification in all the three processes. What is different is that in latter two processes purified syngas is used to synthesize methanol or ammonia, and the less the content of methane the better, whereas in the process for the production of natural gas from coal purified syngas undergoes methanation, and the higher the content of methane the better.

In CTG process route, crushed coal goes through pressurized gasification to get syngas and natural gas is produced through crude syngas shift and cooling, low-temperature methanol purification, absorption and refrigeration, methanation and drying. The production subline includes the recovery of phenol, ammonia and sulfur and the treatment of residual waste water. The main process flow: coal is gasified to get syngas and syngas has methanation after CO shift and purification to produce natural gas. See the diagram below for detail.

Coal   gasification    Syngas   CO shift   Purification   Purified syngas   Methanation   Natural gas

CTG Process Flow

Policies for CTG

According to requirements in the Circular on the Catalogue of Government-Approved Investment Projects (2016 Edition)” (GuoFa〔2016〕72) issued by the State Council, CTG projects with a capacity over 2.0 billion m3/a should be submitted to National Development and Reform Commission for approval. The construction of CTG projects with a capacity of 2.0 billion m3/a and below should be prohibited.

EIA reports of coal chemical projects have to pass the examination and approval by the Ministry of Environmental Protection.

The Coal-Based Synthetic Natural Gas (GB/T33445-2016) got the approval of the Standardization Administration on December 30, 2016. The standard has bridged a world gap in this field.

It can be seen from above that China still supports the moderate development of CTG. Strict control on environmental protection and water resources as two key preconditions of CTG projects is still exercised by the state.

Future development opportunities of CTG

For years the natural gas market in China has always been in short supply. Supply shortage is the typical feature of the natural gas market. A strict rationing system is implemented to regions along long-distance gas transmission pipelines. To promote the vigorous development of the natural gas market, it is essential to solve the problem of resource supply.

The price of crude oil in the international market will not be kept at a low level for long. The prices of energy in the international market will rise sooner or later due to the supply shortage caused by the reduction of investments in prospecting and development. CTG projects in China produce clean natural gas at an anticipatable cost on the basis of rich coal resources in regions with inconvenient transportation. CTG still has a strategic value to China that needs to import great amounts of natural gas. The development of a considerable CTG capacity can help control the import price of natural gas.

Since the drastic price drop of crude oil in the international market in the second half of 2014, the development of CTG industry in China has been unsmooth. Due to the price drop of crude oil in the international market and strict standards for environmental protection in China, CTG projects are faced with dual challenges in economics and environmental protection. Even so, CTG still has a strategic value in promoting coal clean utilization and safeguarding energy security.

According to requirements in the Some Opinions on Establishing Long-Acting Mechanisms to Safeguard the Stable Supply of Natural Gas, the Work Scheme for Strengthening the Prevention and Control of Atmospheric Pollution in Energy Industry and the Strategic Action Plan for Energy Development (2014-2020) issued by the State Council and the National Development and Reform Commission in 2014, China’s supply ability of natural gas shall reach 400.0 billion m3 by 2020, or 420.0 billion m3 at best. It is proposed in the Thirteenth Five-Year Plan for the Demonstration of Coal Intensive Processing Industry issued in 2017 that the expected goal for the CTG capacity in 2020 is 17.0 billion m3/a (the capacity was 3.1 billion m3/a at the end of the Twelfth Five-Year Plan period). The newly added capacity will therefore be 13.9 billion m3/a, 4.5 times the capacity during the Twelfth Five-Year Plan period.

Major problems in CTG

After explorations for over a decade, CTG projects in China are still at the stage of pilot demonstration. A few projects that have already started production have frequent malfunctions due to problems in equipment and process and the mismatching of coal quality. The normal production in enterprises and the progress of phase II and phase III projects are affected. Most of projects under construction are also postponed due to problems in technology.

Risks of low oil prices still exist today. According to the latest forecasts made by quite a few agencies such as Goldman Sachs, Fitch, Bernstein and Qatar National Bank, the price of crude oil in the international market will still float in a fixed range of low level for a considerable period of time in the future. Price fluctuations in a range of USD40-65/barrel will at least last up to 2019.