Dongguan Coal-to-Gas Transition: Paper Capacity, Fuel Costs and South China Price Outlook

Public information from the National Center for Biotechnology Information (NCBI) at the National Library of Medicine shows that coal has served for decades as a cornerstone fuel for China's economic expansion and for supplying electricity to people across the country.

According to NCBI, China is today both the largest coal producer and the largest consumer worldwide, using half of global coal output; in 2018, China imported 20% of all coal traded globally. The country is also the world's leading international financier of new coal-fired power plants.

NCBI further notes that coal represented 60% of China's primary energy consumption in 2018 and was linked to 50% of the country's fine particulate matter (PM2.5) pollution and 70% of its carbon emissions.

China has pursued long-term national policies aimed at tackling smog, cutting environmentally harmful emissions, optimizing the energy system, and developing clean, low-carbon energy. These policies include retiring outdated coal-fired and biomass boilers and replacing them with cleaner gas-fired boilers.

Consequently, provinces and municipalities have rolled out new energy plans and action programs. In the north, centralized heating and industrial power generation are both emphasized, while the south focuses mainly on industrial power generation.

A recent notice from the Dongguan Environmental Protection Bureau indicates that Dongguan is driving a broad-scale switch from coal-fired power to gas-fired power.

To facilitate this transition, the city has begun constructing 17 new power plants and has shut down 12 coal-fired and biomass boilers.

China's pulp and paper sector remains heavily coal-dependent

Fisher data shows that China's pulp and paper industry relies heavily on coal as fuel, in contrast with Europe and the United States, where papermaking is more oriented toward clean energy such as natural gas.

Today, more than 380 pulp and paper mills across China use coal as their primary fuel source.

Among them, mills in Hebei, Guangdong, Shandong, Zhejiang, and Guangxi account for roughly 50% of all paper enterprises in the country.

Under provincial policies, the boilers at these paper enterprises could be fully upgraded or eliminated during the 14th Five-Year Plan period (2021-2025).

For many pulp and paper mills in Dongguan, rising fuel costs are likely to be the key challenge as energy shifts from coal to natural gas.

On fuel cost, natural gas is more than twice as expensive as coal. Based on Guangdong Province calculations, the standard natural gas price is 2.06/m3 (with a 20% float), provincial pipeline network transport is 0.15-0.2/m3, city gas pipeline transport is 0.2-2.0/m3, and the total net price to the end user is 2.41-4.2/m3.

For instance, Fisher data indicates that Chinese containerboard makers using coal-fired power currently face average fuel costs of about 300-400/t.

If natural gas replaces coal, the cash production cost of papermaking could rise by 300-400/t. From a cost standpoint, this creates heavy pressure that many smaller companies cannot absorb.

As a result, some of these businesses may be pushed out of the market, which would further accelerate industry consolidation.

Fisher data also confirms that Dongguan's coal-to-gas transition will affect more than 14 million t of paper capacity, about 70% of which is carton board produced by the three major paper companies Nine Dragons, Lee & Man, and Jianhui.

Once the coal-to-gas conversion is complete, if supply and demand remain unchanged, paper market prices in South China could rise significantly due to higher manufacturing costs.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378305.html