High Oil Prices Boost China's Coal-to-Chemicals Sector

Key facts

• Ningxia Baofeng Energy Group reported record profits equivalent to $1.4 billion for the first half of the year.
• The company's profits increased nearly twofold on an annual basis.
• Soaring crude oil prices significantly increased feedstock costs for oil-based chemicals.
• Coal prices have risen but remain lower than crude oil and natural gas.
• China produces 85% of its methanol and ammonia from coal.
• PetroChina is developing a project to extract gas from coal rock, targeting 30 billion cubic meters by 2035.

High international crude oil prices are providing a significant financial advantage to China's coal-to-chemicals industry, enabling producers to report record profits. Ningxia Baofeng Energy Group, a leading player, announced first-half earnings equivalent to $1.4 billion, nearly doubling its profit year-on-year.

The company cited the rapid and volatile rise in crude oil prices as a key factor, which substantially increased the cost of oil-based chemical feedstocks. In contrast, domestic coal prices saw only moderate increases, making coal-to-olefins production comparatively cheaper.

This dynamic has been further amplified by disruptions to oil flows from the Middle East, which have kept oil prices elevated compared to pre-conflict levels. The sector's stocks saw a notable surge of 30% between late February and mid-March, reflecting investor confidence in the industry's ability to leverage coal for petrochemical production.

Data from the International Energy Agency indicates that China already relies on coal for 85% of its methanol and ammonia production. Despite rising coal prices due to stronger demand, they remain considerably lower than crude oil and natural gas, reinforcing the economic viability of coal-to-chemicals.

Looking ahead, Chinese energy companies are expanding their coal-based operations. PetroChina, for instance, is developing a project aimed at extracting gas from coal rock, with a target output of 30 billion cubic meters by 2035.