SunSirs: Middle East Tensions Impact Energy Security; Strategic Advantages of Coal-Based Chemical Industry Come to the Forefront

According to the China Business News, influenced by the situation in the Middle East, international oil prices have been fluctuating at high levels, while prices for downstream chemical products such as methanol and olefins have also skyrocketed.

The rise in oil prices has not only driven up the cost of chemical raw materials but has also brought to light the economic advantages of coal-to-chemicals. A research report by SDIC Securities points out that geopolitical conflicts are reshaping the relative pricing of energy sources, fully highlighting the strategic advantages of coal-to-chemicals. The blockade of the Strait of Hormuz in late February 2026 pushed oil prices above $100 per barrel, while the breakeven point for coal-to-olefins is only $45–$50 per barrel and that for coal-to-oil is approximately $55–$65 per barrel. The widening cost spread has given coal chemical industry a cost advantage of over 30% compared to the petrochemical industry.

China’s resource endowment—characterized by “abundant coal, scarce oil, and limited natural gas”—makes modern coal chemical industry the “keystone” for ensuring energy self-reliance and control. Developing modern coal chemical industry holds significant strategic importance for reducing dependence on imported oil and gas, promoting the diversification of raw materials for chemical products, and advancing the clean and efficient utilization of coal.

Geopolitical Conflicts Drive Up Chemical Prices

The situation in the Middle East not only affects oil prices but also impacts markets for chemical products such as methanol and olefins.

As a core global supplier of chemical products, restrictions on export shipping from the Middle East have directly led to a critical shortage of domestically imported methanol and olefins—categories with high import dependency—driving up prices across the entire chemical sector.

Taking PTA (purified terephthalic acid) as an example, in the first quarter of 2026, the average price in the East China PTA market was RMB 5,628 per ton, up RMB 1,005 per ton from the previous quarter—a 21.74% increase—and up RMB675 per ton year-on-year, representing a 13.63% rise. In the first quarter of 2026, the domestic PTA market initially fluctuated before trending upward, with price volatility primarily driven by geopolitical tensions, crude oil prices, and cost pressures. In March, raw material prices surged significantly due to the situation in the Middle East, increasing pressure across all cost segments.

The strengthening of crude oil prices has highlighted the “substitution effect” of coal-based chemicals. In recent years, as China has deepened its strategic focus on the coal-based chemicals sector, chemical products derived from coal have partially replaced those derived from crude oil.

Taking polyolefins as an example, data shows that by the end of 2025, domestic annual polyolefin production capacity reached 88.095 million tons, a year-on-year increase of 12.9%. Of this, annual polyethylene capacity stands at 39.05 million tons, up 13.8% year-on-year; annual polypropylene capacity is 49.045 million tons, up 12.3% year-on-year.

In terms of capacity structure, oil-based olefins remain the primary production route for domestic polyolefins in 2025, with their share of total capacity increasing slightly year-on-year. By the end of 2025, oil-based production accounted for 63% of polyethylene capacity, an increase of 1.8 percentage points year-on-year, while coal- or methanol-based production accounted for 19% and light hydrocarbon-based production accounted for 15%. For polypropylene, oil-based production accounted for 55% of capacity, an increase of 2 percentage points year-on-year, while propane-based production accounted for 23% and coal- or methanol-based production accounted for 22%.

Given China’s energy endowment characterized by “abundant coal, scarce oil, and limited natural gas,” the coal chemical industry plays an irreplaceable strategic role in ensuring energy security and advancing the “dual carbon” goals. Faced with the new situation of year-on-year growth in total energy consumption, the strategic value of the coal chemical industry in enhancing energy self-sufficiency has become even more prominent.

Since March, rising crude oil prices have driven significant increases in the prices of products such as methanol and coal-to-liquids. Currently, the international market reacts quickly, while the domestic market’s response is somewhat slower. The source predicts that by 2026, the coal supply-demand balance will shift from a relatively loose to a relatively balanced and periodically tight pattern, with the price center rising compared to 2025.

Cost Advantages of Coal Chemical Industry Become Apparent

As the price gap between international oil and gas widens, the cost advantages of industrial pathways such as coal-to-methanol, coal-to-oil, and coal-to-olefins have become increasingly evident.

Industry insiders point out that when international oil prices exceed $60 per barrel, the cost advantages of coal-to-olefins and coal-to-methanol products begin to emerge; when international oil prices exceed $80 per barrel, coal-based chemical production gains a significant cost advantage over crude oil-based chemical production due to raw material costs, thereby driving the development of coal-to-chemicals projects.

Currently, the results of China’s coal chemical industry market layout are already evident.

After more than two decades of exploration, Yankuang Energy has established four major chemical production bases in Shandong, Shaanxi, Inner Mongolia, and Xinjiang, with a total coal chemical production capacity exceeding 11 million metric tons. Key product capacities include: 4.33 million tons of methanol sales, 1 million tons of coal-to-liquids capacity, and 1 million tons of acetic acid capacity, along with 920,000 tons of urea capacity, 400,000 tons of ethylene glycol capacity, 300,000 tons of caprolactam capacity, and 80,000 tons of polyformaldehyde capacity.

Baofeng Energy’s 3-million-ton-per-year coal-to-olefins project at its Inner Mongolia base—the world’s largest single-plant facility of its kind—is scheduled to reach full production capacity in 2025. With an annual olefins production capacity of 5.2 million tons, the company has risen to the top of China’s coal-to-olefins industry in terms of scale.

In October 2025, the National Energy Administration issued the “Guiding Opinions on Promoting the Integrated Development of Coal and New Energy,” which proposed promoting the synergy and mutual reinforcement between the extension of the coal industry chain and the development of new energy. It encouraged coal-to-oil, gas, and coal chemical projects to adopt large-scale utilization of green electricity and green hydrogen as substitutes, as well as the application of carbon capture, utilization, and storage (CCUS), to reduce carbon emissions from coal conversion.

Baofeng Energy has launched the world’s first large-scale green hydrogen-coupled olefin production project in Inner Mongolia. At the Ningdong Base in Ningxia and the Ordos Industrial Base in Inner Mongolia, the company utilizes green electricity generated from wind, solar, and storage to produce green hydrogen, replacing fossil-based hydrogen production in coal chemical processes. It is exploring the establishment of a fully closed-loop production system encompassing “new energy power generation—on-site hydrogen production—substitution of chemical feedstocks—hydrogen storage regulation,” using green hydrogen to replace coal in the production of green methanol and green olefins, thereby achieving carbon reduction at the source.

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