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Olefin production boosts demand for coal-based methanol in China

September 9, 2013 | —Deepti Ramesh

A wave of coal-based chemical investments in China has created a new phase of chemical production in the country, says a recent IHS Chemical report, China Coal Chemical Industry Analysis. China has the world’s third-largest coal reserves, behind the United States and Russia, and is the world’s largest consumer and producer of coal. China’s demand for coal is currently driven primarily by growth in the country’s power-generating sector, but persistently high crude oil prices and recent technological breakthroughs have focused China’s attention on utilizing its domestic coal reserves for chemical production.

China has a long history of using coal as a chemical feedstock, and more than 80% of the country’s existing methanol and polyvinyl chloride capacity is coal based, IHS Chemical says. Many additional coal-based chemical plants are under construction.

Worldwide methanol demand reached 61.1 million m.t. in 2012, and annual methanol demand, driven by new consumption for light olefin production and for fuel applications, is forecast to increase by more than 50 million m.t. over the next five years, IHS Chemical says. The global methanol industry, meanwhile, is coming to the end of a significant capacity expansion and, since 2007, capacity has been added at a rate of almost 15%/year in an industry where demand has been growing at about 8%/year, IHS Chemical says.

The vast majority of the new methanol capacity has been added in China, driven partly by emerging applications such as light olefins. Large methanol-to-olefins and methanol-to-propylene (MTO-MTP) and methanol-to-dimethyl ether (DME) integrated complexes have been and will continue to be built, consuming massive quantities of methanol, IHS Chemical says. Outside China, methanol capacity has recently been added in Brunei, Egypt, Libya, Iran, Oman, Saudi Arabia, Venezuela, and Russia—places where investment is driven by the desire to monetize stranded natural gas by exporting methanol rather than by domestic demand, IHS Chemical says.

China represented 52% of world methanol capacity and almost 43% of world methanol production in 2012. Capacity utilization, however, is just over 50%. China is the incremental supplier to the world and adjusts operating rates to balance world supply and demand, IHS Chemical says. Production in China is expected to increase, and operating rates recover from the current 53% to 62% by 2016, as methanol imports increase from the current level of about 5 million m.t./year to over 13 million m.t./year by the end of 2017, IHS Chemical says.

China has become the balance point for the global methanol industry, IHS Chemical adds. The country’s methanol capacity increased from about 13 million m.t./year in 2007 to almost 50 million m.t./year in 2012. Methanol production in China increased by more than 5 million m.t. in 2012 compared with 2011, to exceed 26 million m.t., IHS Chemical says. An additional 19.4 million m.t./year of methanol capacity integrated with MTO-MTP is scheduled to come online in China through 2016, IHS Chemical says.

China’s methanol consumption will grow from almost 30 million m.t. in 2012 to almost 76 million m.t. in 2017, IHS Chemical says. Even with China’s massive buildup of methanol capacity, demand growth in China is projected to be so rapid, at nearly 13%/year, that by 2017, if imports are unavailable, domestic capacity would need to operate at full capacity to meet demand in the county. But, without additional Chinese capacity, imports will not only be an economics-driven option to secure low-cost methanol; they will be a requirement to meet local demand, IHS Chemical says. There will, however, be sufficient methanol capacity globally to meet demand in China and the rest of the world.

Methanol demand growth in China has, in the past, been driven mainly by gasoline blending, DME, and traditional derivatives. Future demand will be driven largely by MTO-MTP production, IHS Chemical says. Light olefin production will by 2017 represent almost half of total methanol demand in China, IHS Chemical says.

Despite significant capacity additions, IHS Chemical forecasts that China will remain a large importer of methanol, taking advantage of availability of low-cost imported material.

China’s coal-based methanol industry is very fragmented, and there are currently almost 300 producers. A large majority of these are small and old factories. Almost all of them use outdated gasification processes and expensive anthracite as feedstock. These small companies are among the highest-cost producers in the world, and their plants are mostly idle today, IHS Chemical says. China has in the past five years, however, built numerous large and modern methanol plants deployed with coal gasification technologies. These plants are mostly located in the north and west of the country, near coal mines, and they use low-cost bituminous thermal coal rather than anthracite as feedstock. These modern plants represent the true competitiveness of the Chinese coal-based methanol industry, IHS Chemical says.

Meanwhile, Dow Chemical’s previously announced coal-to-chemicals jv with coal mining company Shenhua Group (Beijing) is still awaiting government approval. The $10-billion project is expected to convert coal to methanol to produce ethylene and propylene, and the complex is also expected to have a chlor-alkali unit and make a range of derivative products. “Dow and Shenhua jointly submitted the project application report [(PAR)] to China’s National Development and Reform Commission [(NDRC)] in late 2010. A revised PAR to address the initial issues from NDRC was resubmitted in March 2012, and expert panel reviews are in progress. We have undergone a series of successful project reviews over the past year. While we are awaiting government approval, we continue to work with Shenhua to fine tune the business scope and details,” Peter Wong, president/Greater China at Dow, tells CW.

Top players in coal-based methanol*
(in thousands of m.t./year)
HNCC Group 1,900
Yankuang Group 1,700
China BlueChem 1,600
Shanghai Huayi 1,400
Berun Unichem 1,350
Jiutai Energy 1,000
Kingboard Chem 970
ENN Group 720
East Hope Group 700
Huadian Yutianhua 610
*China’s top 10 producers of coal-based methanol, ranked by 2012 capacity. Source: IHS Chemical.

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