Nexant Complete Report template · 1.2 Net Capital Charges - Spread of Coal to Olefins versus Crude Oil to Olefins in January ... Until recently, coal to chemicals was seen as a promising

NexantThinkingTM

Coal to Chemicals - Viable in a Low Oil-Price Environment? Brochure December 2015

Special Reports

NexantThinkingTM

Special Reports

Coal to Chemicals - Viable in a Low Oil-Price Environment?

Brochure December 2015

JobNumber Special Reports

This Report was prepared by Nexant, Inc. (“Nexant”) and is part of the NexantThinking™ suite. Except where specifically stated otherwise in this Report, the information contained herein is prepared on the basis of information that is publicly available, and contains no confidential third party technical information to the best knowledge of Nexant. Aforesaid information has not been independently verified or otherwise examined to determine its accuracy, completeness or financial feasibility. Neither Nexant, Subscriber nor any person acting on behalf of either assumes any liabilities with respect to the use of or for damages resulting from the use of any information contained in this Report. Nexant does not represent or warrant that any assumed conditions will come to pass.

The Report is submitted on the understanding that the Subscriber will maintain the contents confidential except for the Subscriber’s internal use. The Report should not be reproduced, distributed or used without first obtaining prior written consent by Nexant. Each Subscriber agrees to use reasonable effort to protect the confidential nature of the Report.

Copyright © by Nexant Inc. 2016. All rights reserved.

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Coal to Chemicals - Viable in a Low Oil-Price Environment? i

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Contents

Section Page 1 Introduction ............................................................................................................................. 1

1.1 OVERVIEW ............................................................................................................... 1 1.2 BACKGROUND ......................................................................................................... 3 1.3 OBJECTIVE OF THIS STUDY .................................................................................. 5

2 Scope of Work ........................................................................................................................ 6 2.1 OVERVIEW ............................................................................................................... 6

3 Table of Contents ................................................................................................................... 10 4 Approach ................................................................................................................................ 16 5 Qualifications .......................................................................................................................... 17

5.1 GENERAL ................................................................................................................. 17 5.2 SUMMARY OF PROJECTS RELATED TO COAL-TO-CHEMICALS....................... 19

6 Contact Information ................................................................................................................ 22

Figure Page 1.1 Spread of Coal to Olefins vs Crude Oil to Olefins in January 2014 and 2015 ....................... 2 1.2 Net Capital Charges - Spread of Coal to Olefins versus Crude Oil to Olefins in January

2014 and 2015 ....................................................................................................................... 3 1.3 Chemical Production Potential from Coal .............................................................................. 4 5.1 Nexant Office Locations ......................................................................................................... 17 Table Page 1.1 China MTO/MTP Projects ...................................................................................................... 4 2.1 Polypropylene Cost of Production Estimate ........................................................................... 7

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Coal to Chemicals - Viable in a Low Oil-Price Environment? 1

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Section 1 Introduction

1.1 OVERVIEW

Until recently, coal to chemicals was seen as a promising route to diversify China’s slate of chemical feedstocks to reduce crude oil import reliance and as a way of creating jobs and monetizing abundant coal reserves in Western China. Spurred by technological advances and cheap coal from Inner Mongolia, China invested heavily in coal-to-chemical projects between 2003 and 2014. For China, coal offered a more realistic and readily available starting point to chemicals than the alternative of importing LNG, LPG, naphtha or crude oil.

The dramatic fall in crude oil prices in late 2014 jolted the global economy and unequivocally altered investment views in energy and petrochemical markets. Naphtha based petrochemical participants found new life from a less expensive feedstock, while North American shale oil and gas producers struggled with high drilling and logistic costs. Similarly in China, coal to chemicals producers found their margins substantially narrowed to the point of questioning the viability of coal as a starting point for petrochemicals. Policy shifts by the Chinese government over the past two years, including new environmental taxes, increased financial charges, new technical guidelines, and policies resulting from a limited water supply further increase the challenges for the coal to chemicals industry in a low oil-price world.

The first step in any coal to chemical production technology is using coal to produce synthetic or synthesis gas (syngas). In early 2014, with Brent crude above $100 per barrel and coal in Mongolia at $42 per ton, the spread between naphtha feedstock and coal was $850 per ton of olefins. The collapse of crude oil narrowed the spread significantly to $134 per ton of olefins by early 2015, although coal still remains a cheaper feedstock route for Chinese olefins production on a cash basis as illustrated in Figure 1.1. While almost all of Chinese coal-to-chemicals (CTO/MTO) projects remain committed as producers have spent considerable time and resources preparing for these massive olefins and derivatives plants, there were a few cancellations such as the million tons per annum olefins project1 in Xinjiang, China. Even if oil prices recover, the decline will have left an imprint of greater volatility and downside risk recognition.

1 Xinjiang Guanghui Coal Chemical Industry

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Figure 1.1 Spread of Coal to Olefins vs Crude Oil to Olefins in January 2014 and 2015 (U.S. dollars per ton)

Source: Nexant Analysis

From Figure 1.1, it is evident that coal to olefins conversion consumes twice as much utilities and has fifteen times the environmental costs as the crude oil feedstock route. Furthermore, Chinese coal reserves are largely in the Inner Mongolia interior, thus the transportation cost to coastal demand centers negatively affects the economics. Essentially, the spread between coal and crude oil to olefins production has narrowed significantly, benefiting European and North American producers, and reducing the attractiveness of coal to chemical projects in China.

As seen in Figure 1.2, the spread between coal and crude oil to olefins production has narrowed further when capital costs are included.

0

200

400

600

800

1000

1200

1400

1600

Jan-14 Jan-14 Jan-15 Jan-15Eastern China

Naphtha CrackerMine-mouth China

(from MTO)Eastern China


(from MTO)

Net Raw Materials Utilities Fixed Costs Environmental Costs Transportation

$850 (2014)

$134(2015)

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Figure 1.2 Net Capital Charges - Spread of Coal to Olefins versus Crude Oil to Olefins in January 2014 and 2015

(U.S. dollars per ton)

1.2 BACKGROUND

Coal gasification is a well-proven technology with a long history of applications ranging from the earliest uses of coal gas for heating and lighting in urban areas (“town gas”), to the production of synthetic fuels such as liquid hydrocarbons and synthetic natural gas (SNG) chemicals and most recently to large-scale IGCC (integrated gasification combined cycle) power generation.

Essentially all of the important first-stage organic petrochemicals were made from coal from the 1900s to the 1930s. The coke oven industry provided by-product ammonia, ammonium sulfate, benzene, toluene and phenols. In the fuels and chemicals sector, success was achieved in producing straight chain hydrocarbons, alcohols, and other organic chemicals from synthesis gas, as exemplified by the work of Bergius, Fischer and Tropsch and others.

The chemical industry switched almost completely to natural gas and petroleum liquids between 1940 and 1965, driven by their low cost and ready availability. As an example, DuPont started to make methanol from coal in relatively large amounts in Belle, West Virginia, but quickly shut this unit down when inexpensive natural gas became available during the early 1950s. The use of coal for the production of organic chemicals diminished greatly over time as a consequence of both its high capital cost and environmental concerns regarding by-products produced and the effects of coal mining/extraction.

China has exhibited increased activity in coal-to-chemicals, initially in coal to ammonia/urea and coal to calcium carbide-PVC projects. Subsequently, coal-to-methanol and other chemicals (BDO and derivatives, etc.) became important in China. Methanol plants have become increasingly large, and when coupled with modern methanol to olefins (MTO)/methanol to propylene (MTP) technology, these plants were expected to provide China with the opportunity to develop an alternative coal-based olefin/polyolefin industry. Approximately 22 coal to olefin and methanol to olefin (CTO/MTO) projects have started up or are underway as of Q1 2015, estimated to add 6.6 million tons of ethylene and 7.9 million tons of propylene capacity per year between 2015 and 2020 as shown in Table 1.1.

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(from MTO)Eastern China


(from MTO)

Net Raw Materials Utilities Fixed Costs

Environmental Costs Transportation Depreciation

$76 (2015)

$800 (2014)

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Table 1.1 China MTO/MTP Projects

Company Ethylene Propylene Start-up Shandong Yangmei Hengtong Chemicals 295 2014 Sinochem Yiye Energy Investment 800 2014 Pucheng Clean Energy Chemical 300 400 2014 Wilson Clean Energy 135 160 2015 or 2016 (Construction Underway) Jiutai Energy (Zhungeer) 300 300 2015 Zhengda (Changzhou) New Material 500 500 Q1 2015 Zhejiang Xingxing New Energy 600 Q1 2015 Shanxi Coking 300 300 Q2 2015 Xinjiang Guanghui Coal Chemical Industry 1,000 Cancelled (2015) China Coal Energy Yili Coal Electrochemical 300 2016 Jiangsu Sailboat Petrochemical Chemicals 833 2016 Source: ICIS Chemical Business 2015

The list of potential chemicals that can be derived from coal is the same as from gas and petroleum, given that coal provides both the hydrogen and carbon atoms needed for petrochemical production. A roadmap of key chemicals from coal is shown in Figure 1.2.

Figure 1.3 Chemical Production Potential from Coal

Methyl Acetate Acetic Anhydride

Power & Steam

Acetate EstersFischer-TropschLiquids

NaphthaAcetic Acid

Waxes

Diesel

Car Fuel

Alpha Olefins

Formaldehyde

Coal/Petcoke Gasification Synthesis Gas Methanol

Town Gas

Acrylonitrile

HydrogenationProcesses

Ammonium Nitrate

H2

Fuel Cells

Dimethyl Ether

Ammonia

Urea

Distrib.Co-Generation

Ethylene &Propylene

Urea/Ammonium

Nitrate

Ketene

VAM PVA

Diketene & Derivatives

CO

CO Chemicals

Oxo Chemicals

Acrylic Acid/Acrylates

Polyolefins

Alpha Olefins

Source: “Eastman Gasification Overview”, Eastman Gasification Services Company, July 19, 2004(with modifications and additions)


Power & Steam


NaphthaAcetic Acid

Waxes

Diesel

Car Fuel

Alpha Olefins

Formaldehyde


Town Gas

Acrylonitrile


Ammonium Nitrate

H2

Fuel Cells

Dimethyl Ether

Ammonia

Urea


Ethylene &Propylene

Urea/Ammonium

Nitrate

Ketene

VAM PVA


CO

CO Chemicals

Oxo Chemicals


Polyolefins

Alpha Olefins


Power & Steam


NaphthaAcetic Acid

Waxes

Diesel

Car Fuel

Alpha Olefins

Formaldehyde


Town Gas

Acrylonitrile


Ammonium Nitrate

H2

Fuel Cells

Dimethyl Ether

Ammonia

Urea


Ethylene &Propylene

Urea/Ammonium

Nitrate

Ketene

VAM PVA


CO

CO Chemicals

Oxo Chemicals


Polyolefins

Alpha Olefins

Source: “Eastman Gasification Overview”, Eastman Gasification Services Company, July 19, 2004(with modifications and additions)

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1.3 OBJECTIVE OF THIS STUDY

The study gives subscribers a solid grasp of the state of development of coal to chemicals technologies, including an update on the status of such technologies as currently practiced in China. In particular, Nexant considers the viability of coal to chemicals technology in China in a the low oil environment of 2015 as well as a view of competitiveness in 2020 under multiple (low, medium, and high) oil price scenarios to provide an understanding of the conditions that favor coal-based chemicals. The report addresses the main technological pathways to coal-to-chemical conversion and the relative competitiveness (economics) of coal to chemical routes as compared to the common petrochemical route from petroleum or natural gas. The study provides a snapshot of comparative economic analysis of petrochemicals via the oil/natural gas versus coal to chemicals economics on a mine-mouth basis.

Building on the previous 2013 study on coals to chemicals, this study addresses policy shifts impacting the Chinese coal to chemicals industry. The study also includes a wider discussion of the leading (i.e. improved effective conversion rate) CTO processes available in China, and an updated analysis of capital costs and their effect on competitiveness.

The report will be a valuable resource for investors, marketers, and petrochemical companies that have already invested or looking to invest in the coal to chemicals industry. The report will also provide insight to other chemical producers into the shifting competitiveness of coal based chemicals in a low, medium, and high-priced oil environment. The key questions the study addresses include:

What are the leading and effective coal to chemical technologies available?

How does the changing spread between coal and crude affect the relative production economics of coal to olefins in China?

How competitive are the coal to chemical routes compared to competing petrochemical/natural gas routes in a cheap oil scenario? What about a high oil scenario?

How will the new environmental policy shifts in China affect economics for these processes?

What will be the impact of the new technical guidelines in China on the competitiveness of these processes?

How will changing finance charges in China impact cost of capital and competitiveness of new coal to chemical projects?

This prospectus describes Nexant’s “Coal to Chemicals – Viable in a Low Oil-Price Environment?” multi-client study, provides the report Table of Contents, the methodology employed, and Nexant’s qualifications to perform such a study. The study was published at the end of 2015.

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Section 2 Scope of Work

2.1 OVERVIEW

This multi-client study builds on Nexant’s Special Report – “Coal to Chemicals: Visiting and Revisiting the future” published in November 2013. The study profiles and assesses the state of technology as related to coal to chemicals production and include cost of production economics for selected coal to chemical plants located in China. The study further compares the economics of petrochemical versus coal to chemicals production especially in the current situation of low crude oil prices. In addition, the study evaluates a future view of competitiveness in 2020 under multiple (low, medium, and high) oil price scenarios to provide an understanding of the conditions that favor either coal-based chemicals or conventional production routes. The coal to chemicals plants are pro-forma plants located at the mine mouth in an interior coal rich region in China (i.e., Inner Mongolia). Economics are prepared for Leader plants that use naphtha feedstock and serve the Chinese market for the same products. Two or more sets of economics are compared on a landed (port) “Coastal China” basis which is representative of the primary product markets in China.

2.1.1 Comparative Economics - Coal versus Naphtha Feedstock

Leader cost of production economics are provided for each of the coal to chemical technologies noted below (using one representative coal gasification technology). Comparative economics are provided for one leading petrochemical route for each of the below mentioned products as follows:

Methanol

- imported from the Middle East, natural gas

- imported from the United States, natural gas (for 2020)

Ammonia (China, natural gas)

Urea (China, natural gas)

Ammonium nitrate (China, natural gas)

MEG (two analyses)

- imported from the Middle East, integrated with an ethane cracker

- imported from Taiwan using merchant ethylene

MTO/Polyolefins (three analyses for injection molding HDPE):

- imported from the Middle East, integrated with an ethane cracker

- imported from Korea using merchant ethylene - imported from the United States, integrated with an ethane cracker

PP (Coastal China, merchant propylene, General Purpose homopolymer PP)

Aromatics (Coastal China, pygas extraction)

Acetic Acid (imported methanol and natural gas)

Vinyl acetate (imported from Korea, made with merchant ethylene)

PVC (two analyses)

- Coastal China, imported VCM

- imported from the United States using merchant VCM

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Butanediol (via n-butane, coastal China)

Acrylic acid (via merchant propylene; Coastal China)

Acrylonitrile

- Coastal China via merchant propylene

- imported from the United States using merchant propylene

Ethanol (via ethylene hydration, merchant ethylene Coastal China)

An illustrative cost of production analysis is shown in Table 2.1.

Table 2.1 Polypropylene Cost of Production Estimate US Gulf Coast

CAPITAL COST MILLION U.S. $Plantstart-up 2011 Inside BatteryLimits(ISBL) 113.20

Outside Batter Limits (OSBL) 94.10Location Total Plant Capital 207.30Capacity 400 thousand tons per year Other Project Costs (OPC) 51.83

882 millions lbs per year Total Project Investment 259.13Operating rate 100 percent Working capital 64.53Throughput 400 thousand tons per year Total Capital Employed 323.66

UNITS PRICE ANNUALPer Ton U.S. $/ U.S. $ COST U.S.$ U.S. $

PRODUCTION COST SUMMARY Product Unit Per Ton millions Per LbRAW MATERIALS Propylene ton 1.0023 1,958.00 1,962.50 785.00

Hydrogen ton 0.0001 7,016.00 0.70 0.28Extruder Additives ton 1.0000 11.00 11.00 4.40Catalysts & Other Chemicals U.S. $ 1.0000 11.00 11.00 4.40

TOTAL RAW MATERIALS 1,985.21 794.08 0.90BYPRODUCT CREDITS - -

NET RAW MATERIALS 1,985.21 794.08 0.90UTILITIES - -

Cooling Water kiloton 0.0550 27.87 1.53 0.61Electrical Energy MWh 0.2549 52.13 13.29 5.32Inert gas Nm³ 28.9900 0.07 2.03 0.81Process Water ton 0.0002 322.42 0.06 0.03Steam (high pressure) ton 0.0320 18.19 0.58 0.23Steam (medium pressure) ton 0.0080 16.14 0.13 0.05Steam (low pressure) ton 0.0800 15.89 1.27 0.51

TOTAL UTILITIES 18.90 7.56 0.01NET RAW MATERIALS & UTILITIES 2,004.10 801.64 0.91VARIABLE COST 2,004.10 801.64 0.91

DIRECT FIXED COSTS Labor 23 employees 50,677 U.S. $ 2.91 1.17Foremen 4 employees 57,522 U.S. $ 0.58 0.23Supervisor 1 employees 69,410 U.S. $ 0.17 0.07Mainteace, Material &Labor 2 % of ISBL 5.66 2.26Direct Overhead 45 % Labor & Supervision 1.65 0.66

TOTAL DIRECT FIXED COSTS 10.97 4.39 0.00ALLOCATED FIXED COSTS General Plant Overhead 60 % Direct Fixed Costs 6.58 2.63

Insurance, PropertyT ax 1 % Total Plant Capital 5.18 2.07Environmental 0 % Total Plant Capital - -

TOTAL ALLOCATED FIXED COSTS 11.77 4.71 0.01TOTAL FIXED COSTS 22.74 9.09 0.01TOTAL CASH COST 2,026.84 810.74 0.92Depreciation @ 10 % for ISBL & OPC 5 % for OSBL 53.02 21.21 0.02COST OF PRODUCTION 2,079.86 831.94 0.94Return on Capital Employed (ROCE) @ 10% 80.91 32.37 0.04COST OF PRODUCTION + ROCE 2,160.77 864.31 0.98

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2.1.2 Gasification Technologies

This study reviews gasification technology associated with chemicals production and discusses the challenges and opportunities such technologies face. Nexant describes and reviews the primary technologies for coal gasification and investigates recent developments that are important from both cost and environmental perspectives. Nexant reviews the following gasification technologies:

Fixed-bed reactors

Fluidized-bed reactors

Entrained-flow reactors

China is by far the country with the largest number of coal gasification installations in the world. An overview of coal gasification and capacity listings in China is provided. Leader economics for a representative gasification technology are presented using a mine-mouth China basis.

2.1.3 Product Technologies

This study further examines the technologies for coal to chemicals by reviewing and evaluating the processes and economics for the production of major petrochemicals, including:

Methanol (from coal syngas)

Ammonia (from coal syngas)

Urea (from coal syngas)

Ammonium nitrate (from coal syngas)

MEG (from coal syngas)

MTO/Polyolefins (via methanol from coal syngas; Injection Molding HDPE as the polyolefin)

MTP/PP (via methanol from coal syngas; General Purpose Homopolymer PP)

Acetic Acid (via methanol from coal syngas)

Aromatics (via methanol from coal syngas)

Vinyl acetate (via acetylene from calcium carbide)

VCM/PVC (via acetylene from calcium carbide; suspension PVC)

Butanediol (via acetylene from calcium carbide)

Acrylic acid (via acetylene from calcium carbide)

Acrylonitrile (via acetylene hydrocyanation)

Ethanol (Celanese technology)

For the derivative units (i.e., HDPE), Nexant selected a Leading technology typical of that utilized in China.

2.1.4 Location

Cost of production economics are developed for Mine-mouth China (i.e., a coal rich region such as Inner Mongolia) as well as for Coastal China using coal as a starting feedstock. Comparative economics are prepared for conventional petrochemical routes for each product listed above. Landed economics are prepared in cases where the traditional petrochemical routes are not typically practiced in China (i.e., for methanol from natural gas). All comparisons are on a Coastal China port basis, meaning that the Mine-mouth economics include domestic freight and logistics, while imports include logistics, freight and any tariff or duty.

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2.1.5 Year

Cost of production economics are prepared for the first half of 2015 on a pro-forma basis. This is compared to the full year 2020 forecast using Nexant’s most current raw material and other pricing forecasts for high, medium and low crude oil price scenarios.

2.1.6 Strategic Considerations

The use of coal as a source of carbon for organic chemicals is technically viable and is being actively developed primarily in China. A key deliverable of this study is the evaluation of the economic competitiveness of coal versus conventional feedstocks under the new paradigm of cheap oil. Longer term, the use of coal is expected to have competitive pressures due to coal’s environmental footprint such as the greenhouse effect and pollution which governments increasingly measure. Nexant includes a brief discussion of the strategic issues, as relevant to China, associated with coal use in this study.

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Section 3 Table of Contents

Section

1 Executive Summary ............................................................................................................... 1-1

1.1 OVERVIEW ............................................................................................................... 1-1

1.2 ECONOMICS ............................................................................................................ 1-3

1.2.1 2015 Comparative Analysis ......................................................................... 1-3

1.2.2 2020 Comparative Analysis ......................................................................... 1-4

1.3 CHINA POLICY AND COAL TO CHEMICALS STRATEGY ..................................... 1-6

1.4 STRATEGIC OUTLOOK FOR COAL-BASED CHEMICALS .................................... 1-7

2 Introduction ............................................................................................................................. 2-1

2.1 OVERVIEW ............................................................................................................... 2-1

2.2 STRATEGIC DRIVERS FOR THE GROWTH OF COAL TO CHEMICALS PROCESSES ............................................................................................................ 2-1

2.2.1 China ............................................................................................................ 2-1

2.2.2 Rest of World ................................................................................................ 2-6

2.3 OIL PRICE SCENARIOS AND SPREAD TO COAL COMPARISON ....................... 2-7

2.4 GENERAL ASSESSMENT OF COAL TO CHEMICALS BREAKEVEN ................... 2-7

2.5 SCOPE OF THIS REPORT....................................................................................... 2-8

3 Coal Gasification Technologies .............................................................................................. 3-1

3.1 OVERVIEW ............................................................................................................... 3-1

3.1.1 Gasification Process..................................................................................... 3-1

3.1.2 Chemistry ..................................................................................................... 3-3

3.1.3 Types of Gasifiers ........................................................................................ 3-4

3.2 COAL CHARACTERISTICS AFFECTING GASIFICATION ..................................... 3-9

3.3 ENTRAINED-FLOW GASIFIERS .............................................................................. 3-10

3.3.1 GE Energy (Chevron Texaco/GE) Entrained-Flow Gasifier ......................... 3-10

3.3.2 CB&I E-GAS (Formerly ConocoPhillips) Entrained-Flow Gasifier ............... 3-11

3.3.3 Shell Entrained-Flow Gasifier ....................................................................... 3-12

3.3.4 Siemens Entrained-Flow Gasifier ................................................................. 3-15

3.3.5 Prenflo Entrained-Bed Gasifier .................................................................... 3-16

3.3.6 MHI Entrained-Flow Gasifier ........................................................................ 3-16

3.3.7 EAGLE Entrained-Flow Gasifier ................................................................... 3-18

3.3.8 ECUST Entrained-Flow Gasifier .................................................................. 3-18

3.3.9 HCERI Entrained-Flow Gasifier ................................................................... 3-19

3.3.10 MCSG Entrained-Flow Gasifier .................................................................... 3-20

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3.3.11 OSEF Entrained-Flow Gasifier ..................................................................... 3-20

3.3.12 Noell Entrained-Flow Gasifier ...................................................................... 3-21

3.3.13 HT-L Entrained-Flow Gasifier ....................................................................... 3-21

3.4 MOVING (FIXED)-BED GASIFIERS ......................................................................... 3-22

3.4.1 Lurgi Dry-Ash Gasifier .................................................................................. 3-22

3.4.2 British Gas/Lurgi Moving-Bed Gasifier ......................................................... 3-23

3.5 FLUIDIZED-BED GASIFIERS ................................................................................... 3-25

3.5.1 High-Temperature Winkler Gasifier .............................................................. 3-25

3.5.2 Bluegas Fluidized-Bed Gasifier .................................................................... 3-25

3.5.3 KRW Fluidized-Bed Gasifier ........................................................................ 3-26

3.5.4 KBR Transport Gasifier ................................................................................ 3-26

3.5.5 U-Gas Fluidized-Bed Gasifier ...................................................................... 3-27

3.6 GASIFICATION CAPACITY IN CHINA ..................................................................... 3-28

3.6.1 Entrained-Bed Gasification Capacity in China ............................................. 3-29

3.6.2 Moving (Fixed)-Bed Gasification Capacity in China ..................................... 3-37

3.6.3 Fluidized-Bed Gasification Capacity in China .............................................. 3-38

4 Coal to Acetylene ................................................................................................................... 4-1

4.1 OVERVIEW ............................................................................................................... 4-1

4.2 CALCIUM CARBIDE PROCESS .............................................................................. 4-2

4.2.1 Background .................................................................................................. 4-2

4.2.2 Process Design ............................................................................................ 4-3

5 Conversion Technologies ....................................................................................................... 5-1

5.1 OVERVIEW ............................................................................................................... 5-1

5.2 METHANOL (FROM COAL SYNGAS) ..................................................................... 5-2

5.2.1 Chemistry ..................................................................................................... 5-2

5.2.2 Process Description ..................................................................................... 5-2

5.2.3 Capacity Analysis ......................................................................................... 5-7

5.3 AMMONIA (FROM COAL SYNGAS) ........................................................................ 5-8

5.3.1 Chemistry ..................................................................................................... 5-8



5.4 UREA (FROM COAL SYNGAS) ............................................................................... 5-11

5.4.1 Chemistry ..................................................................................................... 5-11



5.5 MEG (FROM COAL SYNGAS) ................................................................................. 5-16

5.5.1 Chemistry ..................................................................................................... 5-16

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5.6 METHANOL TO OLEFINS (VIA METHANOL FROM COAL SYNGAS) ................... 5-23

5.6.1 UOP/Hydro Advanced MTO Process ........................................................... 5-23

5.6.2 Lurgi MTP® Process ..................................................................................... 5-28

5.6.3 Dalian Institute of Chemical Physics (DICP) DMTO Process ...................... 5-34

5.6.4 Sinopec SMTO Process ............................................................................... 5-38

5.6.5 FMTP Process .............................................................................................. 5-41

5.6.6 Market Share of Licensors ........................................................................... 5-44


5.7 ACETIC ACID (VIA METHANOL FROM COAL SYNGAS) ....................................... 5-49

5.7.1 Chemistry ..................................................................................................... 5-49



5.8 VINYL ACETATE (VIA ACETYLENE FROM CALCIUM CARBIDE) ........................ 5-55

5.8.1 Chemistry ..................................................................................................... 5-55



5.9 VCM (VIA ACETYLENE FROM CALCIUM CARBIDE) ............................................. 5-59

5.9.1 Chemistry ..................................................................................................... 5-59



5.10 BUTANEDIOL (VIA ACETYLENE FROM CALCIUM CARBIDE) .............................. 5-63

5.10.1 Chemistry ..................................................................................................... 5-63



5.11 ACRYLIC ACID (VIA ACETYLENE FROM CALCIUM CARBIDE) ........................... 5-69

5.11.1 Chemistry ..................................................................................................... 5-69



5.12 ACRYLONITRILE (VIA ACETYLENE FROM CALCIUM CARBIDE) ........................ 5-70

5.12.1 Chemistry ..................................................................................................... 5-70



5.13 ETHANOL (CELANESE TCX TECHNOLOGY) ........................................................ 5-75

5.13.1 Chemistry ..................................................................................................... 5-75


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6 Economics .............................................................................................................................. 6-1

6.1 BASIS OF ECONOMICS ........................................................................................... 6-1

6.2 METHODOLOGY ...................................................................................................... 6-1

6.2.1 Variable Costs .............................................................................................. 6-2

6.2.2 Direct Fixed Costs ........................................................................................ 6-2

6.2.3 Allocated Fixed Costs................................................................................... 6-3

6.2.4 Technical Support/Royalty ........................................................................... 6-4

6.2.5 Corporate Overheads ................................................................................... 6-4

6.2.6 Working Capital ............................................................................................ 6-4

6.2.7 Cash Costs ................................................................................................... 6-5

6.2.8 Location Factors ........................................................................................... 6-5

6.2.9 Plants Considered ........................................................................................ 6-5

6.3 FEEDSTOCK PRICES .............................................................................................. 6-7

6.3.1 Gas Prices .................................................................................................... 6-7

6.3.2 Coal Price in China ....................................................................................... 6-7

6.3.3 Corn Price in China ...................................................................................... 6-7

6.4 SHIPPING AND TARIFF COSTS ............................................................................. 6-8

6.4.1 Shipping Costs ............................................................................................. 6-8

6.4.2 Tariff ............................................................................................................. 6-9

6.5 COAL BASED CHEMICAL PRODUCTION – MINE MOUTH CHINA ....................... 6-10

6.5.1 Methanol (From Coal Syngas) ..................................................................... 6-10

6.5.2 Ammonia (From Coal Syngas) ..................................................................... 6-12

6.5.3 Urea (From Coal Syngas) ............................................................................ 6-14

6.5.4 Ammonium Nitrate (From Coal Syngas) ...................................................... 6-16

6.5.5 MEG (From Coal Syngas) ............................................................................ 6-18

6.5.6 HDPE – Injection Molding (Integrated with Ethylene via MTO) ................... 6-20

6.5.7 Polypropylene – General Purpose Homopolymer (Integrated with Propylene via MTP) ...................................................................................... 6-24

6.5.8 Acetic Acid (via Methanol from Coal Syngas) .............................................. 6-26

6.5.9 Vinyl Acetate (via Acetylene from Calcium Carbide) ................................... 6-28

6.5.10 PVC (via Acetylene/VCM from Calcium Carbide) ........................................ 6-30

6.5.11 Butanediol (via Acetylene from Calcium Carbide) ....................................... 6-32

6.5.12 Acrylic Acid (via Acetylene from Calcium Carbide) ...................................... 6-34

6.5.13 Acrylonitrile (via Acetylene Hydrocyanation) ................................................ 6-36

6.5.14 Ethanol (Celanese Technology) ................................................................... 6-38

6.6 COMPARATIVE ECONOMICS TO NAPHTHA – COASTAL CHINA ....................... 6-40

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6.6.1 Methanol ....................................................................................................... 6-40

6.6.2 Ammonia ...................................................................................................... 6-41

6.6.3 Urea .............................................................................................................. 6-41

6.6.4 Ammonium Nitrate ........................................................................................ 6-42

6.6.5 MEG ............................................................................................................. 6-43

6.6.6 HDPE – Injection Molding ............................................................................ 6-44

6.6.7 Polypropylene – General Purpose Homopolymer ........................................ 6-45

6.6.8 Acetic Acid .................................................................................................... 6-46

6.6.9 Vinyl Acetate ................................................................................................ 6-47

6.6.10 PVC .............................................................................................................. 6-48

6.6.11 Butanediol .................................................................................................... 6-49

6.6.12 Acrylic Acid ................................................................................................... 6-50

6.6.13 Acrylonitrile ................................................................................................... 6-51

6.6.14 Ethanol ......................................................................................................... 6-52

6.7 CONCLUSIONS ........................................................................................................ 6-53

7 Strategic Implications ............................................................................................................. 7-1

7.1 COMPETITIVENESS ................................................................................................ 7-1

7.1.1 Gasifier Technologies................................................................................... 7-1

7.1.2 Methanol ....................................................................................................... 7-1

7.1.3 Ammonia, Urea, and Ammonium Nitrate ..................................................... 7-2

7.1.4 MEG ............................................................................................................. 7-2

7.1.5 Olefins and Polyolefins ................................................................................. 7-3

7.1.6 Acetic Acid .................................................................................................... 7-3

7.1.7 Vinyl Acetate ................................................................................................ 7-3

7.1.8 PVC .............................................................................................................. 7-4

7.1.9 Butanediol .................................................................................................... 7-4

7.1.10 Acrylic Acid and Acrylonitrile ........................................................................ 7-4

7.1.11 Ethanol ......................................................................................................... 7-4

7.2 SENSITIVITIES TO COAL PRICE IN 2015 .............................................................. 7-5

7.3 SENSITIVITIES TO COAL VERSUS OIL PRICE SCENARIO IN 2020 .................... 7-8

7.3.1 Introduction ................................................................................................... 7-8

7.3.2 Methanol ....................................................................................................... 7-11

7.3.3 Ammonia ...................................................................................................... 7-12

7.3.4 Urea .............................................................................................................. 7-13

7.3.5 Ammonium Nitrate ........................................................................................ 7-14

7.3.6 MEG ............................................................................................................. 7-15

7.3.7 HDPE – Injection Molding ............................................................................ 7-16

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7.3.8 Polypropylene – General Purpose Homopolymer ........................................ 7-17

7.3.9 Acetic Acid .................................................................................................... 7-18

7.3.10 Vinyl Acetate ................................................................................................ 7-19

7.3.11 PVC .............................................................................................................. 7-20

7.3.12 Butanediol .................................................................................................... 7-21

7.3.13 Acrylic Acid ................................................................................................... 7-22

7.3.14 Acrylonitrile ................................................................................................... 7-23

7.3.15 Ethanol ......................................................................................................... 7-24

7.3.16 Conclusions .................................................................................................. 7-25

7.4 FUTURE POLICY CHALLENGES ............................................................................ 7-26

7.4.1 Introduction ................................................................................................... 7-26

7.4.2 Macroeconomic Trends ................................................................................ 7-26

7.4.3 Policy and Regulation................................................................................... 7-27

7.4.4 Carbon Tax ................................................................................................... 7-28

7.4.5 Limited Water Supply ................................................................................... 7-30

7.4.6 Finance Charges .......................................................................................... 7-30

8. References ............................................................................................................................. 8-1

Appendix Page A Cost of Production Estimates 2015 ........................................................................................ A-1

B Cost of Production Estimates 2020 ........................................................................................ B-1

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Section 4 Approach

The evaluations of conventional technology are based on Nexant’s in-house and published information regarding process technology, augmented by contacts with licensors, engineering contractors and other experts in the industry. The evaluations of developing technology are “built up” from a review of patents, public domain information, and discussions with technology development companies and engineering contractors.

Nexant uses proprietary and commercial state-of-the-art software tools to develop the technology and economic estimates. These are well established, state-of-the-art engineering tools in the chemical process industry and are used by major engineering contractors.

The economic evaluations are designed to approximate typical regional costs of production based on capital costs that are appropriate for “factored estimates”. They do not reflect specific site issues, but are a reasonable representation of the subject countries/regions.

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Section 5 Qualifications

5.1 GENERAL

Nexant uses multidisciplinary project teams drawn from the ranks of our international staff of engineers, chemists, economists and financial professionals, and from other Nexant groups to respond to the requirements of each assignment. Most of the consulting staff possesses credentials in both scientific and commercial disciplines plus substantial industrial experience. The collective talents of our staff are strategically located and closely linked throughout the world, resulting in valuable insights gained through a variety of perspectives.

Nexant is an international consultancy and is dedicated to assisting businesses within the global energy, chemical, plastics, and process industries by providing incisive, objective, results-oriented management consulting. Over four decades of significant activity translates into an effective base of knowledge and resources for addressing the complex dynamics of specialized marketplaces. By assisting companies in developing and reviewing their business strategies, in planning and implementing new projects and products, diversification and divestiture endeavors and other management initiatives, Nexant helps clients increase the value of their businesses. Additionally, we advise financial firms, vendors, utilities, government agencies and others interested in issues and trends affecting industry segments and individual companies.

The Nexant Group was formed as an independent global consulting company in 2000, combining a number of companies that had a long history of providing consultancy services to the chemical and refining-related industries. Nexant’s experience covers all aspects of project development relating to major refinery, petrochemical, and polymer investments, ranging from grassroots plants to revamps of existing process units. Nexant’s key offices serving the petrochemical and downstream oil sectors are located in New York, Houston, London, Bangkok and Bahrain, and locations for other offices are shown in Figure 5.1.

Figure 5.1 Nexant Office Locations

Headquarters Main Offices

Representative Offices

San FranciscoWashington, DC

White Plains

LondonFrankfurt

Bahrain

TokyoSeoul

Shanghai

Singapore

Kuala LumpurBangkok

Buenos Aires

La PazRio de Janeiro

Project Offices

New Delhi

Pretoria

Abuja

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From major multinationals to locally based firms and governmental entities, our clients look to us for expert judgment in solving compelling business and technical problems and in making critical decisions.

Nexant’s clients include most of the world’s leading oil and chemical companies, financial institutions, and many national and regional governments. Nexant, Inc. is active in most of the industrialized countries of the world, as well as in most of the developing areas including the Middle East, Africa, and East and Southeast Asia.

Major annual subscription programs are:

Process Evaluation/Research Planning (PERP)

Petroleum & Petrochemical Economics (PPE)

Polyolefin Planning Service (POPS)

The PERP program covers technology, commercial trends, and economics applicable to the chemical industry. The program has more than 40 subscribers, including most of the major international chemical companies. Many of the processes to be analyzed in this multi-client study have been assessed in the PERP program.

The PPE program provides historic and forecast analysis of the profitability, competitive position and supply/demand trends of the global petroleum and petrochemical industry. The program includes capacity listings and analysis, global supply, demand and trade balances, profitability, competitiveness, and price analysis and projections for all the major petrochemical value chains. The PPE program is supported by an internet-based planning and forecasting tool that provides online access to the database behind the reports of the PPE program.

The POPS program provides reports on the global polyethylene and polypropylene industry. It is recognized globally as the benchmark source for detailed information and analysis on current commercial, technical and economic developments in the polyolefins industry. Coverage includes: capacity listing and analysis, detailed consumption, supply/demand, trade, operating rates, price forecasts, technological developments, new products, inter-material substitution and regional competitiveness.

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5.2 SUMMARY OF PROJECTS RELATED TO COAL-TO-CHEMICALS

COAL TO CHEMICALS – VISITING AND REVISITING THE FUTURE – The objective of this multi-client study completed by Nexant was to profile and assess the state of technology as related to coal to chemicals production, as well as benchmark the competitiveness of coal to chemicals technologies vis-à-vis conventional processes. The study included cost of production economics for selected pro-forma coal to chemical plants located at the mine-mouth in the interior coal rich region in China. The study also included economics for conventional processes for leader plants serving Chinese markets to provide comparative economics.

SYNTHETIC FUEL CAPITAL AND PRODUCTION COSTS -- Nexant performed this study for the U.S. Department of Energy (DOE) as input to their assessment of the costs and benefits of flexible and alternative fuel use in the U.S. transportation sector. Nexant reviewed state-of-the-art coal liquefaction technology and developed production cost estimates for producing synthetic crude and then upgrading the syncrude to a gasoline product

CHEMICALS FROM COAL AND SHALE FEEDSTOCKS -- Recognizing the eventual importance of coal and shale resources in replacing gas and petroleum, this study examined the various technologies that could be used to produce feedstocks and chemicals. Three separate potential implementation cases were treated in detail: Economic, By-product, and "National Need." The production of synthetic fuels, olefins and aromatics and their derivatives from coal and shale were projected. A large number of patent references and flowsheets are included in the study, which also reviewed the chemical implications of synthetic fuels programs in the United States and elsewhere. There is also a section on utilization of U.S. tar sands resources

SYNTHESIS GAS (FUTURE SOURCES) -- This report reviewed the technology for production of synthesis gas (H2, CO mixtures) from a number of sources. Most emphasis was devoted to coal and biomass (municipal solid waste and wood) gasification and new gasification technology. The report discussed downstream processing requirements and examined coal and biomass properties and their impact upon gasifier design. The economics of producing industrial fuel gas (gasifier effluent after acid gas removal) via different routes were compared to the direct use of natural gas and low sulfur fuel oil

HYDROGEN-SYNTHESIS GAS STUDY -- Nexant completed a Multiclient study on the production of hydrogen and synthesis gas from heavy oils and coal. The objective of this study was to analyze the effects on the U.S. natural gas shortage on that portion of the petrochemical industry dependent upon natural gas as a feedstock, with particular emphasis on ammonia, methanol, and hydrogen-based chemicals. The study included a section on comparative costs for all hydrocarbon feedstocks from natural gas to coal

WEST GERMAN COAL RESEARCH AND DEVELOPMENT/COAL GASIFICATION -- West German companies have undertaken a massive effort to update their technologies to meet motor fuels and chemical requirements from indigenous and imported coals. An unusually productive marriage of government and private money, deployed in pilot plants located in chemical and energy complexes, is steadily advancing the state of the art in West Germany. Promising United States technologies are also being considered and improved. This study reviewed and analyzed the individual programs for their merit and impact on synthetic fuels and coal-based chemicals projects in the industrialized countries

EVALUATION OF COAL BASED AMMONIA/METHANOL PROJECT -- Nexant developed the overall facilities concept and developed capital cost estimates for this project. Lurgi and Koppers-Totzek gasifiers were studied in detail. Internal steam and power balances were developed and the optimal synthesis gas processing sequence was developed

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EVALUATION OF COAL/NATURAL GAS BASED METHANOL/POWER -- Nexant developed the overall facilities concept and capital cost estimates for an integrated complex employing "second generation" coal gasification, steam/methane reforming and combined cycle power generation technologies for the co-production of methanol and power. Relative coal and natural gas consumption was based on producing a stoichiometrically balanced methanol synthesis gas from coal-based hydrogen deficient and natural gas based carbon deficient synthesis gases

COAL TAR CHEMICALS -- In response to a Japanese company's request for an analysis of coal tar chemicals, Nexant conducted a study of U.S. and West European markets/applications and evaluated the technology for four basic coal tar chemicals and specific hydrogenated derivatives. The compounds studied included tetralin, biphenyl, acenaphthene, phenanthrene and hydrogenated derivatives of acenaphthene and phenanthrene. The technology review covered all aspects of the chemistry of these materials as well as all applications and developments worldwide

IMPACT OF COAL CONVERSION PLANTS ON AROMATICS -- For a U.S. chemical company, Nexant assessed the economic feasibility of aromatics recovery from byproducts streams of coal gasification and coal liquefaction plants. Production technology and economics are provided for benzene, toluene, phenol, cresol, xylenol, and coal derived naphtha

SMOKELESS FUELS FROM COAL -- For a specialty fuel producer, Nexant identified and characterized methods for producing smokeless briquettes that met international standards and identified potential binders that could be used with existing equipment to produce smokeless briquettes that could be used for export. Binders studied included: coal tar pitch, petroleum resin, coal and starch

MARKETING ASSESSMENTS OF COAL PRODUCTS/BYPRODUCTS -- Nexant, under contract to Tri-State Synfuels Company (a partnership between Texas Eastern Synfuels Inc. and Texas Gas Synfuel Corporation) examined in detail the marketability of products from a Lurgi/Fischer-Tropsch coal-based facility being considered for Henderson, Kentucky. The coal conversion facility was being evaluated by Tri-State under a cooperative funding agreement with the U.S. Department of Energy. The products from the plant included high Btu substitute natural gas (SNG) liquid transportation and heating fuels, and a wide range of chemical products and byproducts. Nexant analyzed the general eight-state region surrounding the proposed plant. Recommendations and observations were made relating to possible changes in the originally envisioned slate of products that might improve the project's revenue generation capability. Future product prices and values were forecast, based on Nexant's prevailing long-term prognosis of energy, petroleum and petrochemical demands. Nexant performed two similar market analysis studies for New York Power Authority (NYPA). One involved a proposed 600 MW coal gasification combined cycle power plant considered for the Buffalo area. Nexant analyzed current and future markets for the fuels and chemicals (including synthesis gas derivatives) that could be manufactured in the complex. The second study was for a coal gasification plant being evaluated by NYPA for the South Bronx. Products considered for this plant included medium-Btu gas (and potential products) steam, sulfur, carbon dioxide and industrial gases (oxygen, nitrogen and argon)

VALUE OF COED PROCESS COAL-DERIVED LIQUIDS IN A PETROLEUM REFINERY -- This study analyzed the value of liquids produced in a plant designed to make synthetic crude oil from coal

VALUE OF LIQUIDS PRODUCED FROM COAL IN A COG (COAL, OIL GAS) REFINERY -- This study, for the Pittsburgh & Midway Coal Mining Company, determined the value of coal-derived liquids in petroleum refineries

COAL-METHANOL SLURRY PREFEASIBILITY STUDY -- This study analyzed the economic viability of using coal-methanol slurry fuels in Malaysia

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COAL-LIQUID MIXTURE -- Assistance was provided to the U.S. Synthetic Fuels Corp., on oil, water and methanol coal mixture technologies, economics and markets in regard to defining the scope for a planned solicitation

COAL MINE ASSETS APPRAISAL -- Certain coal mining equipment (mobile and fixed) and systems were evaluated and appraised in support of a lease financing

EVALUATION OF COAL TO SYNTHETIC GASOLINE PROJECT -- This project compared the attractiveness of gasoline production from coal derived methanol via the Mobil MTG (methanol-to-gasoline) process, to the economics of direct coal liquefaction as well as coal based methyl fuel production

CHEMICALS FROM COAL AND SHALE -- This study was performed under an RANN grant by the Office of Energy R&D Policy, NSF. The objectives of this study were: estimate feedstock demands for major organic chemicals; gauge the probable timing as to when chemical feedstock demands will constitute an unreasonably large fraction of conventional hydrocarbon sources; identify the potential technologies for (a) transformation of coal and shale building blocks to primary organic chemical building blocks or feedstocks, and (b) synthesis of current "petrochemicals" from such coal and shale-derived building blocks; define research and development strategies and a related program to assure that any conversion of the organic chemical industry to coal and shale would be based upon available and the most economically possible technology

SYNTHESIS GAS FOR CHEMICALS -- This Multiclient report dealt with the applicability of emerging synthesis gas based routes to chemicals compared to traditional production methods. The synthesis gas based routes were analyzed based on the economics of large-scale production of synthesis gas from coal

COAL TO UREA PROJECT EVALUATION -- This report for LGI International provides an evaluation for the market and profitability of coal based methanol and derivatives production.

MARKET ASSESSMENT FOR COAL TO CHEMICAL COMPLEX – This study for Worley Parsons and InterRAO is part of a feasibility assessment ranking for a Russian coal gasification project. The assessment recommends chemicals that might be produced based on production of methyl, incorporating market and competitive factors, but not technology or cash flow.

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Section 6 Contact Information

AMERICAS Nexant, Inc. 44 South Broadway, 4th Floor White Plains, NY 10601-4425 U.S.A. Attn: Vai Ravindran Consultant Tel: + 1-914-609-0384 Fax: + 1-914-609-0399 Email: [email protected]

EUROPE Nexant Limited 1 King's Arms Yard, 1st Floor London EC2R 7AF United Kingdom Attn: Anna Ibbotson Principal [email protected]

Or Attn: Heidi Junker Coleman Global Programs Support Manager Tel: + 1-914-609-0381 Fax: + 1-914-609-0399 e-mail: [email protected]

ASIA Nexant (Asia) Ltd 22nd Floor, Rasa Tower 1 555 Phahonyothin Road Kwaeng Chatuchak, Khet Chatuchak Bangkok 10900 Thailand Attn: Tiankanok Sirichayaporn Senior Consultant [email protected]

mailto:[email protected]



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Section 6 Contact Information

Nexant, Inc. San Francisco New York Houston Washington D.C. London Frankfurt Bahrain Singapore Bangkok Shanghai Kuala Lumpur www.nexant.com www.nexantthinking.com

Documents

Nexant Complete Report template · 1.2 Net Capital Charges - Spread of Coal to Olefins versus Crude Oil to Olefins in January ... Until recently, coal to chemicals was seen as a promising