China's Coal-to-Chemicals Industry Booms Amid High Oil Prices

China's coal-to-chemicals industry has experienced a significant boost due to high oil prices, which have risen sharply since the Middle East conflict began. Ningxia Baofeng Energy Group Co., the country's largest producer of coal-based chemicals, reported record profits for the first half of the year, with earnings reaching $1.4 billion. This represents a nearly twofold increase from the same period last year.

The company attributed its success to the volatility in crude oil prices, which rose rapidly and were highly volatile, significantly increasing feedstock costs for oil-based olefins. In contrast, domestic coal prices increased moderately, with feedstock costs for coal-to-olefins production rising only slightly.

China's reliance on coal for chemical production has been a key factor in the industry's growth, with the country already producing 85% of its methanol and ammonia from solid hydrocarbons. The high oil prices have made this business case even stronger, as coal remains significantly cheaper than crude oil and natural gas.

The Middle East disruption is unlikely to end anytime soon, and oil prices remain higher than before the conflict began. This should continue to support coal-to-chemicals producers, with Chinese energy companies looking to further develop their capabilities. PetroChina, for example, is developing a project to extract gas from coal rock, aiming to produce 30 billion cubic meters by 2035.