China's Coal Chemical Industry Enters New Phase of Low-Carbon Transformation and Strategic Reshaping

Driven by the dual objectives of carbon neutrality and energy security, China's vast coal chemical sector is undergoing a profound strategic realignment, shifting from extensive expansion to a new era defined by technological upgrading and low-carbon development, a BBC analysis finds. Industry experts confirm the sector's relationship with petrochemicals is now viewed as complementary rather than substitutive.

Following more than a decade of demonstration projects, China's modern coal chemical industry has secured global leadership in both scale and technological application. By the end of 2024, official data shows the cumulative annual production capacity of China's four major demonstration segments reached:

• Coal-to-olefins: 19.095 million tonnes

• Coal-to-ethylene glycol: 11.97 million tonnes

• Coal-to-liquids: 8.44 million tonnes

• Coal-to-gas: 115.95 billion cubic metres

This established China as the world's largest producer of coal chemical products.

The country maintains absolute dominance in traditional coal chemical sectors. In 2024, China's total methanol production capacity surpassed 110 million tonnes, accounting for 60% of the global total. The coal-to-methanol process constitutes approximately 75% of this capacity, fundamentally defining the national supply structure. China also leads the world in synthetic ammonia production, with capacity exceeding 75 million tonnes in 2024. Coal-based plants account for approximately 74% of this, while natural gas-based plants contribute about 17%.

Spatially, the industry is highly concentrated, having established four distinctive modern coal chemical industrial demonstration zones in coal-rich regions: Ordos in Inner Mongolia, Yulin in Shaanxi, Ningdong in Ningxia, and Zhungeer in Xinjiang. These hubs attract major projects through abundant coal reserves, relatively ample land supply, and policy support, creating integrated industrial chains from coal mining and processing to gasification, liquefaction, and downstream production of olefins, ethylene glycol, and fuels. This clustering model facilitates mutual raw material supply, cascading energy use, and shared infrastructure, significantly reducing production costs and boosting overall competitiveness.

The Core Dynamic: Cost Competition Dictated by the 'Coal-Oil' Price Ratio

The competition between coal-based and petroleum-based chemical industries hinges fundamentally on raw material costs, with the critical benchmark being the ratio of international oil prices to Chinese coal prices.

Economic analysis indicates that when the ratio of Brent crude oil prices to the price of 5,500 kcal coal in China exceeds 7 to 8, the coal chemical route demonstrates strong economic viability. When the ratio falls below 7, the economic advantage shifts to the petrochemical route. Over the past five years, this ratio has experienced significant volatility. The 2020 international oil price crash and the 2021 energy crisis saw the ratio hit extreme lows and highs respectively, causing rollercoaster-like swings in coal chemical profitability.

A direct cost comparison between coal-to-olefins and petroleum-based steam cracking reveals that the coal-to-olefins cost curve has been relatively stable since late 2021. When Brent crude oil prices exceed US$60–65 per barrel, its cost advantage becomes pronounced. In contrast, the naphtha cracking route is highly correlated with volatile international oil prices. Particularly since the latter half of 2023, with oil prices at elevated levels, the cost of oil-based olefins has been substantially higher than that of coal-based olefins.

Product Substitution: Direct Competition and Indirect Links

In methanol, the coal-based route remains dominant. Within its downstream consumption, methanol-to-olefins (MTO) and coal-to-olefins (CTO) processes account for approximately 51%, forming a critical bridge between the coal chemical and petrochemical sectors. Olefins produced via MTO compete directly with petroleum-based counterparts.

In olefins, coal-to-olefins and petroleum-based routes engage in direct competition. The coal route requires high fixed investment but has relatively stable feedstock costs, while the petroleum route is directly exposed to international oil price volatility.

For synthetic ammonia, competition primarily exists between coal-based and gas-based processes, with an indirect link to petrochemicals. Its demand is more inelastic, heavily influenced by agricultural policies and industrial cycles.

Future Trends: Challenges and Opportunities Under 'Dual Carbon' Goals

The industry now faces a landscape of simultaneous challenges and opportunities, shaping several key trends:

1. Policy and Transformation

The 'dual carbon' strategy is the industry's most significant variable. As a high-carbon-emission process, coal chemical production will be incorporated into China's Emissions Trading Scheme (ETS), internalising carbon costs. This creates cost pressure but also drives the sector towards low-carbon transformation and adoption of technologies like CCUS and green hydrogen coupling.

2. Technological Advancement

Development is progressing on two parallel tracks: rapid advancement in low-carbon technologies, including CCUS demonstrations and green hydrogen coupling; and a strong trend towards producing high-end, specialised products and new materials to enhance value and technological barriers.

3. Resource Constraints

Rigid constraints on water resources and environmental capacity are forcing a shift from scale expansion to quality and efficiency gains. Future development will prioritise resource recycling and energy conservation, with new project approvals becoming more stringent.

4. Industrial Convergence

The integrated development of the coal chemical industry with petrochemicals, new energy, and power sectors is emerging as a new paradigm. Integrated industrial parks enable multi-energy complementarity and multi-product co-production, enhancing overall efficiency and economic returns.

Comprehensive analysis indicates that China's coal chemical industry is at a critical juncture for transformation. In the short term, it will maintain a dynamic equilibrium with petrochemicals. Over the medium to long term, sustainable development must overcome three major challenges: emission reduction pressures, resource and environmental constraints, and technological innovation bottlenecks. Future industry leaders are expected to be those who pioneer low-carbon technologies, successfully transition to high-end products, and possess robust cost control and risk management capabilities.