Following the global financial crisis, China introduced a stimulus programme in the fourth quarter of 2008, which was implemented through 2009 and 2010, with a value of RMB 4 trillion (~US$586.9 billion). This massive injection of capital played a major role in the rapid growth of infrastructure projects, to the extent that the programme subsequently had to be shut down to avoid inflationary pressures. Nevertheless, it had a significant positive impact on building up the coal-to-chemicals sector.
In contrast, the 2014 global slump in oil prices from 100–110 US$/bbl to below 40 US$/bbl caused considerable difficulties. The crude oil price at which CTL and CTSNG are broadly in the breakeven range is 60–70 US$/bbl, the exact value being project specific depending on whether the company developing the project has access to its own coal supplies, and how it prices that coal for conversion purposes, the proportion of equipment made in China, the exact product slate and its value, and the end product transport costs. In all cases, there is minimal margin with the oil price below 40 US$/bbl. With the flow-through of project proposals not translating into actual new operational plants, the Chinese government is expected to lower its 2020 development target for all coal conversion projects.
There is also an indirect driver that could have an impact on the sustainable coal-to-chemicals sector (Institute of Energy Economics and Financial Analysis, 2016). Thus, China is starting to rebalance domestic coal production by reducing production capacity to bring it in to line with projected demand. In addition to closing a considerable quantity of production, the intention is to achieve economies of scale such that the minimum production quota for an ongoing coal mining company will be at least 3 Mt/y. The expectation is that the coal located in North and Northwest China will be relatively unaffected since government policies have already identified that future coal production will be focused on Xinjiang and Inner Mongolia. It remains to be seen whether such moves will result in coal prices in China rising from their current distressed levels, which will impact on coal conversion project profitability.
For CTL, the initial demonstration projects generally performed adequately after extensive commissioning and some design modifications. Anecdotal evidence from various trade bodies suggests that there are at least 16 CTL plants, with a cumulative annual production capacity of over 22 Mt either under construction or in advanced planning stages. However, as noted in Table 2, the number of projects that appear to have construction approval is far smaller. Thus, with the exceptions discussed in Section 3.3.3, it is questionable that preparations are significantly under way for other such projects, given the fall in oil prices and the consequent impact on the financial viability of such coal conversion products. That said, CTL products pricing is regulated by the NDRC, while the product distribution channels are also restricted, which suggests that the government has strong control over any policies to offset the profitability problems.
For CTSNG, while there is a long list of projects, the reality is that most of these are at a very early stage due to the problems that have occurred with the frontrunners. Much of the problem seems to be with the early choice of the fixed bed gasifier, which appears to have been selected because the syngas produced will contain some methane unlike rival designs. However, it is also problematical to deal with the waste water contamination, at least within the Chinese context, although waste water treatment techniques are being established. There is a wide range of alternative coal gasifiers available to Chinese companies, either from domestic or international sources (Minchener, 2013). As such, the core technology should not be a showstopper to sectoral deployment.
Initially, with a seemingly stable and high oil price making petroleum-based alternative manufacturing routes unattractive, together with cost reduction due to the technology localisation policies, as well as the strong government financial support, sector profitability was encouraging. However, the subsequent cut back in government support due to the ending of its stimulus programme and the plunge in global oil prices created major financial difficulties in this sector. Consequently, the economic basis for establishing the coal to future fuels technology is challenging.
For functioning units, the attitude seems to be that it is worthwhile to get some return on investment by continuing operation, as the alternative of closing down units would crystalise the potential losses, with associated unemployment consequences. For units at the design, FEED and construction phases, the preferred option is to slow down all preparatory work so that the plant is held back until the market recovers. Since oil prices traditionally rise and fall, the rationale for this approach is understandable.
The 10 largest coal producers and exporters in the Indonesia:
- Bumi Resouces
- Adaro Energy
- Indo Tambangraya Megah
- Berau Coal
- Bukit Asam
- Baramulti Sukses Sarana
- Harum Energy
- Mitrabara Adiperdana
- Samindo Resources
- United Tractors
Source: IEA Clean Coal Centre
