Thermal coal players were upbeat with a plan from the government to ban export of low-rank coal. But, strong lobby from low-rank coal producers forced government to delay implementation of the program. China coal players, meanwhile, have moved faster in the development of coal-to-chemical industry as power generations are urged to use cleaner sources of energy. Is it time to seriously develop coal-to-chemical industry in Indonesia through a mandatory domestic processing of low-rank coal?

In August 2012, The Oil Drum posted an article titled ‘China’s Coal to Chemical Future’, which highlighted rapid development of the industry in China. The author pointed to 20% of chemical feedstock in China was sourced from coal, while for poly vinyl chloride (PVC), the country already sourced almost 100% from coal.

Main chemical feedstock derived from coal is methanol, which is produced through gasification of coal, methanol synthesis, and refining. Direct liquefaction produces diesel, naphtha, and hydrocarbon gases from coal, while gasification produces methanol, which is raw material for formaldehyde, MTBE, acetic acid, DME, esters, olefins, and others. These are raw materials in the production of fuel, pesticides, plastics, fibers, etc.

China currently produces more than 25% of the world’s output of methanol, including those sourced from coal. Indonesia, meanwhile, only has two methanol plants with combined capacity of around 1 million tons, using natural gas as feedstock. They are PT Kaltim Methanol Industry (KMI) and Pertamina’s Bunyu Methanol plant operated by Medco Energi (MEDC).

China also produces around 70% of its nitrogen fertilizers (urea, compound fertilizers, etc) from coal, while Indonesian ammonia-urea factories uses 100% natural gas as feedstock.

Yesterday, China Coal Energy Company Ltd, one of the largest coal producers in China, announced completion of commissioning of Phase I of Fertilizer Project in Tuke Industrial Park, Ordos, Inner Mongolia. Phase I of the project has an annual design capacity of 1 million tons of synthetic ammonia and 1.75 million tons of urea with investment cost of RMB9.51 billion. We are talking about three new ammonia-urea plants using natural gas as feedstock like those operated by Pupuk Kaltim (PKT) or Pupuk Kujang in Indonesia.

In addition, The Mengda Coal-Based Methanol Project in Ordos also completed the commissioning of all processes and produced methanol with annual design capacity of 600,000 tons per annum and investment cost of RMB3.55 billion. We are talking about similar size of KMI in Bontang, East Kalimantan.

How about such projects in Indonesia?

Well, while Indonesia has abundant low-rank coal reserves, most of production (CV below 5000 Kcal/Kg) is exported. According to energy and mineral resources ministry, export of low-rank coal accounted for 2.36% of total coal export in 2011, but predicted to have grown to 9% in 2012 and above 10% last year.

Initiatives to add value are only seen in upgrading facilities planned by a partnership between Kobe Steel, J Coal, and Arutmin Indonesia in Satui, South Kalimantan; upgraded brown coal (UBC) projects planned by Pendopo Energi Batubara (BUMI/Bakrie), PT Bhakti Energi Persada (Adaro Group), and Delma Mining Corp (Rizal Risyad), etc.

Coal-to-Ammonia?

Well, in late 2012, IHI Corporation announced an initiative to build such plant with 100 billion yen of investment in Indonesia.

Coal-to-Methanol?

Well, MEX Energy and Yanchang Group plan to build an integrated coal-to-methanol and olefin facilities in Indonesia with consumption of 12 million tons of low-rank coal per annum. But, its progress is not clear.

Something to do with policy direction?

May be! Article 93 (1) of Government Regulation No 23/2010 about added value of minerals and coal actually applies to coal as well, where processing of coal includes liquefaction, gasification, and coal water mixture (CWM). Mandatory domestic processing has been implemented on metals since January 12, 2014 with export ban on all mineral ores.

Article 93 can be used to ban export of low-rank coal with mandatory processing. Of course, this is not a guarantee that low-rank coal will be processed into chemicals, because crushing, washing, blending, upgrading, and briquetting are also considered ‘value-added processing’ in the regulation.

Implementation of Article 93 (1) of GR No 23/2010 on low-rank coal will be a boost to medium-high-rank coal producers in the country, because it might reduce the supply of low-rank coal in the seaborne market, especially to India. Let’s see whether the next government will introduce such policy.

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