Forget Shale Gas, Coal Is China’s Chemical Feedstock Choice

Sinopec Engineering, a subsidiary of China’s state-owned oil conglomerate Sinopec, signed a $3 billion contract last December to build what it bills as the world’s largest complex using coal to produce chemicals and plastics. Scheduled to open in late 2015 in Inner Mongolia, China, the project will implement several unique technologies developed in the country.

China has become the world leader in the use of coal to produce chemicals and liquid fuels. While the U.S. chemical industry experiences a rebirth with the help of natural gas extracted from shale, China is building large-scale facilities based on coal, which it has in abundance.

Although unconventional, the coal-based technologies appear to be competitive with traditional routes to petrochemicals. And the Chinese government supports them as a means of reducing the country’s dependence on imported oil and gas. But coal is an environmentally challenging raw material for chemicals, just as it is for electric power, and China faces calls to dial back its use.

China already uses coal on a large scale to produce several important industrial chemicals, but it is now expanding into materials that aren’t traditionally made from coal. The country is heavily investing in projects that gasify coal into methanol and then on to ethylene and propylene, two olefins that are usually made from oil or gas. China is also commercially implementing an indigenous process to produce ethylene glycol from coal.

According to the consulting firm IHS Chemical, more than 50 coal-based chemical projects are being considered across China. The company forecasts that the share of olefins produced from coal or methanol in the country will rise from essentially zero in 2009 to 30% by 2017. Coal-based ethylene glycol will capture close to 40% of the Chinese ethylene glycol market, IHS expects.

At least 10 coal-to-olefin complexes are now under construction in China, according to Yansheng Li, a senior engineer who is assistant to the president of Wison Engineering, a Shanghai-based engineering firm.

Wison has tied its fate to China’s coal conversion industry. One of the largest oil and chemical engineering contractors in China, the company has in recent years derived most of its sales from the coal chemicals sector, Li says. So far, Wison has built five methanol-to-olefins facilities in China.

Working on its own or in collaboration with others, Wison has developed several processes related to coal chemicals, including some for reducing water and energy consumption during the production of methanol, Li claims. Last November, it opened a demonstration coal gasification plant in Nanjing that implements a pilot Shell technology.

Shell is one of several foreign firms seeking to sell coal conversion technology in China. General Electric is another. Last November, Jiutai Group selected GE’s gasification technology to expand its output of methanol as a raw material for dimethyl ether, a cooking and heating fuel. Using GE’s technology will reduce operational costs while producing methanol in a more environmentally friendly manner, Jiutai said.

Coal has been part of the global chemical industry since its earliest days. Calcium carbide, for instance, is made by reacting lime with coke, a coal derivative. Acetylene derived from calcium carbide yields a range of materials including vinyl chloride and butanediol. Although the rest of the world has largely switched to petrochemical-based vinyls, to this day a major portion of China’s polyvinyl chloride is made from acetylene, particularly in the Chinese hinterland where coal mines are located.

Food supply security has been a historic driver of the use of coal by China’s chemical industry, says David S. Jiang, president of Sinodata Consulting, a Beijing-based chemical market research firm that is an alliance partner of IHS Chemical. Coal can be gasified into synthesis gas, a mixture of carbon monoxide and hydrogen that is the starting material for producing ammonia. Ammonia, in turn, is converted into urea, the main source of nitrogen fertilizer for China’s agricultural sector.

“When you’re talking about urea use in China, you’re talking about 70 million tons per year,” Jiang says. “The government supports coal-based production of urea because it doesn’t want to have the country depending on imports in a large proportion.”

Synthesis gas is also the key starting material for methanol. Methanol has long been used to produce single-carbon chemicals such as formaldehyde and acetic acid, but Chinese firms have started using it to make two- and three-carbon chemicals via methanol-to-olefins technology. Sinopec, for example, says its Inner Mongolia project will use an in-house-developed silicoaluminophosphate catalyst that converts methanol into ethylene and propylene with improved carbon selectivity.

Many of China’s current methanol facilities are economically uncompetitive. Average operating rate of the industry is below 50%, according to Sinodata, because first-generation fixed-bed coal gasification plants are small and work only with lump anthracite, a premium grade of coal. The newest coal gasification technologies have much more flexibility in the type of coal they use, he notes. “If your plant is based on these gasifiers, you are more competitive,” Jiang says.

Synthesis Energy Systems (SES) wants to help China make its coal-based methanol production both economically competitive and environmentally friendly. The U.S. firm is offering a coal gasification process licensed from the Gas Technology Institute, based in Des Plaines, Ill. The process can use any grade of coal as feedstock. It consumes little water and has low emissions, the firm says.

“China has huge reserves of low-quality coal,” says Robert W. Rigdon, chief executive officer of SES. “We allow coal converters to operate in a cleaner manner.”

Rigdon, a former GE executive who spends about half of his time in China, says the country offers vast opportunities for SES. The company already operates two methanol plants in the country through joint ventures, and earlier this month it formed a venture with Zhangjiagang Chemical Machinery, a Chinese manufacturer of pressure vessels for the coal and chemical sectors. The partnership is intended to help SES reach potential customers throughout the country.

Foreign companies active in China’s coal conversion sector all stress the environmental attributes of their technologies, no doubt aware that China’s increasing use of coal to make fuels and chemicals is controversial.

Last July, the environmental group Greenpeace issued a field report showing how a coal-to-liquid fuels project implemented by Shenhua Group in Ordos, Inner Mongolia, was creating pollution and contributing to desertification by consuming large quantities of water. State-owned Shenhua is China’s largest coal producer. In an update last month, Greenpeace reported that Shenhua had pledged to process its wastewater and reduce its water usage.

Carbon dioxide emissions are another issue that could threaten the growth of the coal conversion sector, according to Sinodata’s Jiang. Producing energy from coal generates twice as much carbon dioxide as producing it from natural gas, according to the U.S. Environmental Protection Agency, and a similar problem clouds coal-based chemical production.

“Some investors are so concerned about carbon emissions that they don’t want to put money in that sector,” Jiang says. It’s even possible that, in response to international pressure, the Chinese government would impose a tax on carbon dioxide generation, although Jiang considers the risk small. “I don’t think they can suddenly charge a high tax, because it could force some very capital-intensive plants to shut down,” he says.

Ultimately, China’s desire to reduce its reliance on imported oil and gas means coal-based chemicals will endure, provided that the environmental impact can be mitigated. In fact, China is implementing new regulations mandating that coal-to-chemicals plants be both larger in scale and environmentally less harmful, SES’s Rigdon reports. “Demand for these chemicals will grow,” he says. “We don’t see China backing off.”