Beijing (Reuters) – In a large industrial complex in northwestern China inaugurated in March, Ningxia Baofeng Energy could convert millions of coal tons per year into chemicals to make plastics, part of a growing sector that is found nowhere else.
The installation of 48 billion yuns (US $ 6.7 billion) is the latest in a sector that performs a valuable alchemy for Beijing: transforming the country’s abundant coal into oil, gas and chemicals, reducing the need for energy imports that could be interrupted by a conflict.
Capacity is growing at the fastest pace of recent years, supported by cheap charcoal and state support.
Unique opportunity
Legacy Card: Far beyond a service
Last year, the sector turned 276 million tons of coal – the equivalent of almost a year of coal use in Europe – in chemicals, oil and gas, according to China National Petroleum and Chemical Planning Institute.
If all planned projects continue, the sector will virtually double over the next five years, according to Sinolink Securities, with most projects producing synthetic natural gas or liquid fuels.
The expansion meets two Beijing needs, according to Lauri Myllyvirta, co -founder of the Center for Research on Helsinki -based. It protects the risk of a maritime blockade of energy imports to the world’s largest importer of liquefied oil and natural gas, as well as attracting investments to less developed regions such as Xinjiang.
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“One thing that happens in China is that when you are politically favored, when you are a state -owned company with a clear and politically determined mission, capital costs become a much smaller problem,” said MyllyviTe. “This makes a huge difference.”
Fall of coal drives economy
The fact that the sector exists, being profitable and growing, reflects the lasting importance of energy security for Beijing. The unstable economy of the sector has made only globally isolated and coal -rich states such as Nazi Germany and Apartheid South Africa implant it on scale.
Other petroleum importers with large household coal reserves, including India and Indonesia, analyzed the technology, but had difficulty making it work, said Jianjun Tu, managing director of the consulting firm now Energy China.
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Even in China, industry growth has been intermittent. Profitability depends in part on high oil prices, and a first major expansion in the early 2010 decade was impaired by the collapse of oil prices after 2014, according to MyllyviTe.
In recent years, oil prices over $ 70 per barrel and cheap charcoal have improved the sector’s feasibility equation, he said. At the same time, conflicts with the US dating back to the first term of US President Donald Trump increased Beijing’s concern for the dependence on energy imports.
Analysts evaluate that the fastest expansion segment in the sector is coal for gas.
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Construction capacity is about four times larger than built in the last decade, according to Reuters analysis of Agora Energy China, China National Association and Guosen Securities.
This will more than double the annual capacity to 19.5 billion cubic meters (BCM), the equivalent of about one fifth of China’s LNG imports last year.
Most of the new plants are scheduled for northwestern China, rich in coal, where 12 billion cubic meters per year of gas capacity for gas are under construction, mainly for power, with another 10 billion cubic meters, according to Guosen Securities.
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Gas produced from coal is now almost a third cheaper than imported LNG, less than 2 yuns per cubic meter against 2.87 yuns, excluding the registration and transportation costs, although pipeline gas remains cheaper, according to Oilchem.
“In the future, the conversion of gas to gas is expected to replace even more part of the imported LNG,” said Sun Yang, Oilchem analyst.
With coal prices reaching the minimums of four years this year, the economy has also improved to transform coal into chemicals. In late July, coal -based olephins generated margins of 800 to 900 yuns per tonne compared to 200 yuns per toned for oil, oil, naphta or propane, according to Oilchem consultancy.
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In its Ordinary Installation, in the inner Mongolia, baofeng heats up carbon to about 1,300 degrees Celsius to produce synthetic gas, which is transformed into methanol and, finally, olephins, a basic component of plastics.
Baofeng did not want to make comments.
Growth Limits
Last year, the production capacity of coal for gas, liquids and chemicals reached 38 million tons of oil and gas equivalents, according to the China chemical and oil federation, or 6% of the 685 million tons of gas and gross oil imported last year.
However, the model is vulnerable. Projects are intensive in pollutant emissions and capital needs, while China’s demand for fuel is decreasing. Competition in the swollen petrochemical sector is already fierce.
If oil prices fall significantly next year, as many analysts predict, this may lead to the cancellation of projects.
In the long run, the biggest threat to the sector is Beijing’s climate schedule, analysts say. Sector growth and resulting emissions are one of the main reasons why China is late in the carbon emissions target to 2025, according to MyllyviTe.
Gas coal conversion projects emit almost three times more carbon dioxide during conversion of what is released when gas is burned, according to you.
If Beijing decides that sector emissions exceed their contribution to energy safety, their future will be seriously in doubt.
“The big question, of course, is the geopolitical calculation,” said MyllyviTe. “And the perspective on this changes every weekend based on what is happening in the US.”
