Can China's coal chemicals become a backstop for energy security amid Middle East turmoil?

• Can China rely on these measures to offset the impact of the Iran situation? To what extent can they meet China's energy demand?

Coal-to-liquids, coal-to-gas, and coal chemicals can provide China with a critical strategic buffer against geopolitical disruptions such as those involving Iran, but they cannot fully offset all impacts.

First, China's core positioning for coal-to-liquids and coal-to-gas is as a "last resort" for extreme geopolitical crises and energy supply disruptions. Their primary purpose is to safeguard the baseline security of industrial chains, rather than to serve as large-scale commercial suppliers. In addition, both current capacity and capacity planned under the "15th Five-Year Plan" remain relatively small. Existing coal-to-liquids capacity is still smaller than a single 10-million-tonne refinery, and existing coal-to-gas capacity accounts for only about 1.7% of China's total natural gas consumption. As a result, these options cannot fully offset a major collapse in Middle Eastern supply.

Coal chemicals, especially coal-to-methanol, play a much stronger hedging role in the domestic supply system.

Methanol: Domestic coal-to-methanol capacity accounts for about 77% of total national methanol capacity, while imports mainly serve as marginal balancing supply for coastal regions. If Middle East tensions delay methanol arrivals, coastal prices may rise in the short term, but ample capacity in northwest China can make up the shortfall by increasing operating rates. In fact, after the conflict broke out, weekly coal-to-methanol operating rates remained at a high level of 104%–106%, and corporate profitability turned from losses to gains.

Olefins: Coal-to-olefins (MTO) capacity accounts for about 16% of China's total ethylene and propylene capacity. Middle Eastern naphtha supplies account for roughly 40% of China's imports. When those supplies contract, utilization of naphtha-based ethylene capacity falls noticeably. As of the week of Apr 20–24, national naphtha-based ethylene capacity utilization had dropped to 73.26%, down 15.37 percentage points from the week when the Middle East conflict broke out (Feb 27– Mar 5). Over the same period, MTO units using coal as feedstock and light-hydrocarbon processes maintained high operating rates, while average national ethylene capacity utilization declined by 10.6 percentage points. 

•  Are the current economics favorable?

At current oil prices, with Brent above 90 USD/barrel, coal-to-liquids and coal chemicals are highly economical. Industry consensus holds that Brent crude at 60–65 USD/barrel is roughly the break-even range for coal-to-olefins and coal-to-ethylene glycol, while prices above 80 USD/barrel enter a strong profit zone. For every 10 USD/barrel increase in oil prices, the cost advantage of coal-based routes expands by 8%–12%, and profits rise by 15%–20%.

This strong profitability has already shown up in the market. In March, national coal-to-liquids capacity utilization rose to 100%, and coal-based polyolefin margins surged from losses to profits.

Coal-based polyethylene: process margin rose to 1,465 RMB/tonne, up 1,405 RMB/tonne month-on-month; monthly capacity utilization reached 98.49%.

Coal-based polypropylene: process margin rose to 1,470.85 RMB/tonne, up 1,659.06 RMB/tonne month-on-month; monthly capacity utilization reached 100%.

These two routes recorded the largest margin increases among all process chains, and their utilization rates also ranked among the highest, fully demonstrating their competitiveness in the current market environment.

• Is this only a short-term solution, or can it be relied on long term? What is the government's current strategy?

For China, the development of modern coal chemicals is a long-term strategy that has been under preparation for nearly 20 years. Its core role is to serve as a strategic reserve and ballast stone for national energy and industrial-chain security, rather than as a purely commercial project. After nearly two decades of development, China's coal chemical industry has achieved full-chain technological self-reliance and global cost leadership, giving it the confidence and capability to serve as a strategic energy reserve.

At the same time, an increased strategic role does not mean returning to the old path of large-scale expansion. The current government strategy is to pursue high-quality development in a more high-end, diversified, and low-carbon direction under the rigid constraints of "peaking total coal consumption" and "carbon peaking".

According to Mysteel OilChem, coal-to-olefins will be the main area of scale expansion during the "15th Five-Year Plan" period, with planned new capacity increasing by 57% from current levels. Coal-to-liquids and coal-to-gas remain strategically important, but their shares of total national consumption are still small, with oil at about 1% and gas at about 4%. Their main function is to secure supply under extreme scenarios, not to become commercial mainstays. Coal-to-methanol has already reached a dominant scale and now faces overcapacity risk; future priorities will be energy-saving and carbon-reduction retrofits and operational efficiency improvements, rather than new capacity additions.

Even where new capacity is added, the focus is shifting toward coal-based specialty fuels, high-end polyolefins, biodegradable materials such as PGA, carbon fiber, and other advanced chemical materials, while also integrating green power, green hydrogen, and CCUS technologies.

Conclusion

Overall, China's development of coal-to-liquids, coal-to-gas, and modern coal chemicals has both short-term value in responding to external shocks and long-term value in supporting national energy security. These industries cannot fully replace Middle Eastern oil and gas, but they can provide stable supply, support industrial chains in critical moments, and show strong economics under today's high oil-price environment. Going forward, the sector's priority will not be simple expansion, but upgrading toward high-end, low-carbon, and new-material applications, while balancing security and transition.

The above content is the major conclusions and highlights extracted from the evolving role of the coal chemicals sector under China's 15th Five-Year Plan sector of China (Energy Transition) Policy Perspective (produced by GL Consulting) report.

The full report offers a comprehensive, data-rich analysis of the sector's strategic evolution, featuring granular metrics on supply resilience, regional capacity utilization, and the specific impact of Middle East volatility on China's crude oil import patterns.

Click the hyperlinks for the full text or email glconsulting@mysteel.com.