OREANDA-NEWS. April 18, 2011. China is implementing stricter controls on proliferating coal-to-chemical projects since the nascent technology has yet to fully evolve, industry sources and analysts said.

None of the major projects approved have successfully started commercial operations in the country, they said.

“High pollution and technology hurdles are [the] biggest challenges. Due to immature processing technology, some plants could not even be stated up after being built,” said Xiao Hui, an analyst at Shenzhen-based broker China Huatai United Securities.

“That’s why all such projects are increasingly difficult and time-costing to get permits,” Xiao said.

On Tuesday, China’s top economic planner, the National Development and Reform Commission (NDRC), set the minimum scale for coal-to-chemical projects that will be considered.

NDRC also centralised approval of these projects, stripping local governments of such power.

A coal-based olefin plant must at least have a 500,000 tonne/year capacity, while a 1m tonne/year limit is set for coal-to-methanol, coal-to-methyl tertiary butyl ether (MTBE) and coal-to-liquids facilities.

For coal-to-natural gas projects, the capacity must be at least 2bn cubic metres/year, while a coal-to-monoethylene glycol (MEG) plant must at least have a 200,000 tonne/year capacity, according to NDRC.

The stricter rules are aimed at ensuring efficient use of coal resources, as well as curbing methanol overcapacities, industry sources said. China's total coal reserves as at end-2009 stood at 5,570bn tonnes, based on official data.

“To limit coal chemicals is a good thing, at least for the methanol industry. There’s heavy excess of methanol capacity,” said Xiao at Huatai United Securities.

China has a surplus of methanol even though  plants are operating at just half of their capacities. Producing methanol from coal is currently a money-losing venture, industry experts said.

Meanwhile, adopting the technology of extracting petrochemicals from the cheapest fossil fuel available also poses environmental risks, which may endanger China’s commitment towards cutting its greenhouse gas emissions target, industry sources said.

“Currently, only coal-to-methanol has [a] relatively mature technology. Plants [that convert] methanol to chemicals like olefin and  MEG [and others] suffered unstable operation and quality problems on products,” said an official from Shenhua Group, China’s biggest coal producer.

The group’s own 600,000 tonne/year methanol-to-olefins plant in Inner Mongolia has yet to start commercial operation, according to the source.

Shenhua has another project – a joint venture project with US’ Dow Chemical – in Yulin, Shaanxi province, which is pending NDRC approval, said the source.

The project, which hopes to produce 3m tonnes/year of methanol to yield 1.2m tonnes/year of olefin, meets the government’s requirement on project scale, the source said.

The partners are planning to kick off construction within the year if the government allowed them to proceed with the project.

“We see that the government’s stance is turning harder. So, there’s possibility that our projects will be rejected,” said the source from Shenhua Group.