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Economic Observer Xing Qixin/Text In July 2024, at least 2,000 coal trucks drove out of the Baishihu open-pit coal mine in Naomaohu Town, Yiwu County, Hami City, Xinjiang Uygur Autonomous Region every day. If the number of coal trucks picked up by surrounding companies is included, the number of coal trucks arriving at the coal mine can reach about 3,000. In winter, there will be even more vehicles leaving the coal mine.

On June 23 this year, this coal mine was just approved by the Emergency Management Department of the Xinjiang Uygur Autonomous Region, and its annual production capacity increased from 18 million tons/year to 35 million tons/year.

The Baishihu open-pit coal mine is a microcosm of the significant "leap forward" in Xinjiang's coal production capacity in the past five years.

Starting from 2019, Xinjiang's coal potential began to be released rapidly. The production capacity has maintained double-digit growth for five years, increasing from 190 million tons in 2018 to 413 million tons in 2023.

This growth rate is still continuing. In the first half of 2024, Xinjiang's industrial raw coal output was 240 million tons, a year-on-year increase of 13.4%. According to the plan of the autonomous region government, by 2025, Xinjiang is expected to achieve an annual production capacity of more than 460 million tons and an output of more than 400 million tons.

Shanxi, Inner Mongolia, Shaanxi and Xinjiang are the four major coal producing areas in China. Among them, Xinjiang ranks first in the country in terms of coal resources, with a predicted reserve of 2.19 trillion tons, accounting for 40.6% of the predicted reserve of coal resources in the country. However, due to the limitations of mining capacity and transportation capacity, Xinjiang's coal production has grown slowly, and its coal production capacity is far lower than that of the other three major coal producing areas.

Against the backdrop of coal production in the central and eastern provinces and southwestern provinces reaching its peak or even decreasing, Xinjiang's accelerating coal production capacity not only shoulders the responsibility of ensuring China's energy security, but is also driving the shift of focus of related industries such as coal chemical industry, changing the layout of China's energy map.

A person from the relevant department of Xinjiang Uygur Autonomous Region told the Economic Observer, "Our goal is to exceed Shaanxi Province's coal production (Shaanxi Province's coal production in 2023 is 760 million tons) during the 15th Five-Year Plan period, but whether it can be achieved depends on the downstream market demand and the newly approved coal production capacity."

Five years of production growth

Before 2019, the release of Xinjiang's coal production capacity was relatively slow. From 2015 to 2018, Xinjiang's coal production capacity only increased from 146 million tons to 190 million tons, but since 2019, Xinjiang's coal production capacity has almost maintained double-digit growth every year.

The continuous release of Xinjiang's coal production capacity comes not only from policy promotion, but also from actual market demand.

In 2019, the Xinjiang Uygur Autonomous Region Government issued the "Implementation Plan for Resolving Excess Capacity in the Coal Industry in 2019". This plan states that "in the future, Xinjiang's coal capacity reduction will shift from total capacity reduction to systematic capacity reduction and structural capacity optimization, focusing on disposing of 'zombie enterprises' and eliminating backward capacity, vigorously eliminating ineffective and inefficient supply, and freeing up market space for high-quality capacity to play a better role"; in 2020, the National Development and Reform Commission approved a total of 23 coal projects, 20 of which were located in Xinjiang.

In 2021, high coal prices during power outages further stimulated the release of Xinjiang's coal production capacity. In 2021 and 2022, Xinjiang's coal production capacity increased by 18.3% and 28.6% respectively.

Liu Xianbin, the mine manager of Guanghui Mining's Baishihu open-pit coal mine, recalled that when coal prices were high in 2021, the fleet of cars waiting to buy coal formed a long queue that seemed to have no end, and all mines were operating at maximum capacity. "Now we don't have to worry about sales, as we can sell all the coal we produce."

An important background to the substantial growth in Xinjiang's coal production is the emergence of a coal gap in southwestern provinces.

According to Sun Baodong and others from the National Energy Group Institute of Technology and Economics in the article "Research on the Development Status of Xinjiang's Coal Industry and Economic Analysis of Xinjiang Coal Export", with the vigorous promotion of classified disposal of coal mines in 2020, Sichuan Province closed and withdrew 106 coal mines, and no coal resource development projects were deployed during the "14th Five-Year Plan" period; Chongqing City closed and withdrew all coal mines in 2021, and all coal was transported from other provinces and regions; with the increasing depletion of resources in Guizhou Province and the widening gap between Sichuan and Chongqing, the amount of coal transferred out has declined significantly compared with before 2017, and the demand for different types of coal has led to a small amount of coal being transferred in; although the gap between coal supply and demand in Yunnan Province is not large, with the depletion of coal resources in surrounding provinces, the gap between coal supply and demand in the southwest region, including Yunnan Province, will continue to expand in the future.

Against this backdrop, Xinjiang's coal production is expected to continue to grow.

In May 2022, the People's Government of the Xinjiang Uygur Autonomous Region issued the "Implementation Plan for Accelerating the Construction of Xinjiang's Large-Scale Coal Supply and Security Bases to Serve National Energy Security", emphasizing the need to accelerate the construction of Xinjiang's large-scale coal supply and security bases, and pointed out that in order to further release advanced coal production capacity, it is necessary to accelerate the construction of Xinjiang's large-scale coal supply and security bases. The "Plan" proposes that during the "14th Five-Year Plan" period, Xinjiang will take increasing production and supply as the basic principle. In 2025, Xinjiang is expected to achieve an annual production capacity of more than 460 million tons and an output of more than 400 million tons; it is expected to increase production capacity by 164 million tons, with a capacity increase of more than 60%.

Compared with coal in the mainland, Xinjiang coal resources have the characteristics of thick coal seams, multiple coal seams, shallow burial, good mining conditions, and outstanding cost advantages. Taking thermal coal with a calorific value of 5,000 calories as an example, according to the latest data from the Xinjiang Coal Trading Center, on July 31, the price of 5,000-calorie thermal coal from the Zhundong Coal Mine in northern Urumqi was 160 yuan/ton, while the price of thermal coal with the same calorific value in Ordos, Inner Mongolia was around 550 yuan/ton, a price difference of more than 3 times.

The above-mentioned person from the relevant department of the autonomous region predicts that Xinjiang's coal production capacity will continue to grow in the next 10 years. "Because our consumer market is constantly expanding, Xinjiang has newly approved production capacity every year. Take the recently approved open-pit coal mines as an example. The service life is about 30-50 years, and it is impossible for them to be exhausted in the short term." The person predicts that Xinjiang's coal production capacity will reach 1 billion tons.

“Xinjiang coal export”

In the first half of 2024, Hami, China's emerging new "coal capital", produced more than 70 million tons of coal, a year-on-year increase of 13%, and exported more than 27 million tons of coal. In terms of export direction, nearly 70% of the coal was shipped to Gansu, followed by Ningxia, and then other regions.

Hami is the eastern gate of Xinjiang and the main force of Xinjiang coal export. Starting from Huayuanxiang Station, the eastern gate, to Lanzhou Luotuoxiang Station, one of the nearest destinations for Xinjiang coal export, the distance is about 1,337 kilometers, and the tax-inclusive freight rate reaches 215.44 yuan/ton, which is almost the same as the coal price in Hami. The freight rate from Hami Shankou Station to Xiaojiacun Station in Xianyang, Shaanxi Province reaches 270.62 yuan/ton, and the freight rate to Sichuan, Shandong, Liaoning and other places reaches 400 yuan/ton. Some freight rates to Shanghai, Jiangsu, Henan and other places exceed 500 yuan/ton, and the freight rates in some areas of Heilongjiang, Guangxi and Yunnan exceed 600 yuan/ton.

Xinjiang is located in the western part of China, which means that transportation cost is the primary problem facing the utilization of Xinjiang coal.

At present, Xinjiang coal is mainly transported by rail, supplemented by road. In terms of rail transportation, Xinjiang coal is mainly transported through the "one main and two wings" railway lines. The "one main" refers to the Lanzhou-Xinjiang Railway, which is the main freight line and bears the main volume of Xinjiang coal transportation. The two wings mainly refer to the "north wing" and the "south wing". The "north wing" refers to the Linha line around the northern slope of Tianshan Mountain and the line extending westward, namely the Linhe line-Hami-Jiangjunmiao line. The "south wing" leads to the southwest region, namely the Geku line.

As Xinjiang coal production has increased significantly, the amount of coal shipped out has also gradually increased. An article published by the Xinjiang Coal Trading Center shows that before 2017, the annual coal output of Xinjiang basically remained at 10 million tons to 15 million tons. Until the past three years, the amount of coal transferred out has increased significantly. According to data from the Urumqi Railway Bureau, the amount of raw coal transferred out of Xinjiang Railway increased from 9.947 million tons in 2017 to 55.214 million tons in 2022, an increase of 5.5 times. According to incomplete statistics, the amount of raw coal transferred out of Xinjiang by railway and road in 2022 exceeded 80 million tons.

According to data released by the Urumqi Railway Bureau, as of July 8, the volume of coal exported from Xinjiang by railways this year has reached 43.84 million tons, a year-on-year increase of 58.7%.

The sharp increase in outbound transport volume has put pressure on the transport capacity of Xinjiang’s railway lines.

Most of the coal produced by Guanghui Mining's Baishihu Coal Mine is transported by road to the railway station and then transported to western provinces by rail. Liu Xianbin introduced that every morning, the coal mine applies for vehicles from the local railway bureau according to the order volume. It needs to load 7 to 8 trains every day, each of which can carry 3,500 tons of coal, but the total number of vehicles is limited. In Zhundong and other Xinjiang coal producing areas, the railway capacity is also relatively tight. When there is no spare capacity, the coal mine needs to transport the coal by road to the logistics base in Liugou, Gansu, and then transfer it to rail transportation.

The staff of the above-mentioned relevant departments said that there are currently three railway lines for Xinjiang coal transportation, namely the north, middle and south lines. The transportation capacity of the middle line is basically saturated now. The Hexi Corridor has many mountains and it is difficult to expand the capacity. In the future, the transportation capacity of the north and south lines will be mainly expanded, and the next step will be to focus on breaking through the upper limit of transportation capacity.

Liu Xueliang, a senior engineer at Xinjiang Engineering College, told the Economic Observer that when calculating costs, the railway bureau needs to comprehensively calculate the round-trip freight costs of Xinjiang coal. "Coal is transported in one direction, and the amount coming in is relatively small. Usually, the trucks go out fully loaded and come back empty."

From an economic perspective, transportation costs determine that Xinjiang's coal coverage is mainly in the western provinces.

The above article suggests that Xinjiang coal is more competitive in Sichuan, Chongqing, Qinghai, and Lanzhou, considering the comprehensive transportation distance and mining costs. For ports around the Bohai Sea, the two lakes region, and the eastern coastal areas, the transportation distance exceeds 3,500 kilometers, which is three times that of Shanxi, Shaanxi, and Inner Mongolia. It is not economically efficient and not competitive. For Sichuan and Chongqing, the transportation distance is 2,000 kilometers to 2,600 kilometers. Although the total cost is not advantageous, due to the large coal gap in Sichuan and Chongqing, it is more competitive overall. For the Hexi Corridor, Qinghai and other regions, although Xinjiang coal does not have a clear advantage in transportation distance, the low pit cost is enough to offset the disadvantage of transportation distance.

Xinjiang Energy GiantGuanghui EnergyYang Xian, the company's secretary, told the Economic Observer that China's overall coal consumption remains stable with a slight increase. Against the backdrop of the gradual withdrawal of coal production capacity in the eastern region and overall stability in the central region, China's coal supply growth will be mainly guaranteed by Xinjiang. In the future, as the strategy of exporting Xinjiang coal continues to advance, the main market scope of Xinjiang coal will be further expanded, and on the basis of traditional markets such as Gansu, Ningxia, and Qinghai, it will further radiate to supply coal-deficient areas such as Sichuan, Chongqing, Yunnan, Guizhou, and the two lakes and one river.

Yang Xian said: "This is the general trend of the overall coal market. The coal production capacity in the eastern region is still gradually reducing and withdrawing. The coal production capacity in central regions such as Shanxi, Shaanxi and Inner Mongolia is mainly stable, and the increase in the western region is mainly guaranteed by Xinjiang, so Xinjiang's coal market share will continue to grow. The adjustment of the mid-term plan for the 14th Five-Year Plan also shows that Xinjiang has added 140 million tons. The country's strategic intention is very clear."

The above-mentioned relevant department personnel said that the export volume of "Xinjiang coal" in 2023 will be 110 million tons, and the export volume in 2024 will most likely exceed 130 million tons, and it is expected to increase rapidly in the future. The "West-to-East Power Transmission" project is also an important means of transformation for Xinjiang coal to "go global".

At present, the construction of four channels for "exporting electricity from Xinjiang" has been completed, and the fifth channel, the Hami-Chongqing ±800 kV ultra-high voltage direct current transmission project, is under construction.

In 2023, Hami City transmitted a total of 66.6 billion kWh of electricity, a year-on-year increase of 5.7%. Among them, 47.2 billion kWh was transmitted through the ±800 kV Tianshan Converter Station and 19.3 billion kWh was transmitted through the 750 kV transmission channel. The local electricity transmitted by Hami was 57.4 billion kWh, a year-on-year increase of 7.9%, accounting for 86.2% of the transmitted electricity.

According to data from the Xinjiang Power Exchange Center, in the first half of 2024, Xinjiang's electricity transmission was 59.274 billion kWh, with an average daily transmission of 327 million kWh.

This year, Wuramjiang Reimu, deputy secretary of the Hami Municipal Party Committee and mayor, said at the National People's Congress that the State Grid Corporation of China will accelerate the implementation of the planning and construction of power grid upgrade projects, new energy access projects, and Xinjiang power transmission projects, especially the construction of the Hami-Chongqing ±800 kV UHV DC project in 2023. This move will help promote the development and utilization of clean energy resources in Hami and even Xinjiang, optimize the energy supply pattern in the northwest and central and eastern regions, achieve a stable energy supply, drive the development of Hami's energy industry, and accelerate the transformation of resource advantages into economic advantages.

The rise of coal chemical base

Naomaohu Town in Yiwu County, Hami City, is located in the northern Xinjiang, covering an area of ​​7,701.23 square kilometers. It is located in the northern part of the county and borders Mongolia in the northeast. The oil content of coal in the Naomaohu mining area is over 12%, which is a rare oil-rich coal resource in the world. It is also an ideal raw material for coal-to-oil and gas and the development of coal chemical industry. In recent years, many large groups have invested in coal chemical projects here.

By the end of the 14th Five-Year Plan, Hami will strive to achieve a coal quality and graded utilization scale of 28 million tons/year, 4.6 million tons/year of coal-based chemicals, 200,000 tons/year of coal-based new materials, 800 million cubic meters/year of coal-to-gas, and a converted coal volume of more than 60 million tons.

After coal is processed through coal-to-oil, coal-to-gas and coal-to-olefin processes, refined oil, natural gas and other coal chemical products are obtained. These products can be transported to the central and eastern parts of Xinjiang through pipelines, which can also greatly reduce the transportation cost of Xinjiang energy out of Xinjiang. Therefore, the development of the coal chemical industry is not only a policy requirement, but also an inevitable choice for Xinjiang coal to increase its competitiveness.

according toCinda SecuritiesAccording to the Coal 2024 Mid-term Strategy Report, Xinjiang's coal consumption is mainly local conversion. In 2023, Xinjiang's coal consumption accounts for 76% of the region's total coal production, of which coal-fired power and coal chemical consumption account for 50% and 20% respectively, and the scale of external transmission accounts for 24% of the region's total coal production.

The "14th Five-Year Plan" outline clearly states that Xinjiang will build a national large-scale oil and gas production, processing and reserve base, a large-scale coal, coal-fired power and coal chemical base, a large-scale wind power base, and a national energy and resource land channel, namely "three bases and one channel."

The above-mentioned relevant department of the autonomous region said that the current growth rate of Xinjiang's coal is mainly due to the growth of coal chemical demand. In the future, most of the planned increase in coal chemical products in the country will come from Xinjiang. The approved volume of coal mines is determined based on the downstream market, and the state will require coal mines to clarify their downstream conversion markets. The construction cycle of coal downstream conversion projects is relatively long. Open-pit coal mines may be completed within one or two years of construction, but coal-to-gas and coal-fired power projects may take two or three more years to complete than open-pit coal mines.

The 2024 "Work Report of the Government of the Xinjiang Uygur Autonomous Region" proposes that Xinjiang will accelerate the development of coal, coal-fired power and coal chemical industry clusters, further release high-quality coal production capacity, increase coal exploration and development in Jungar, Hami, Turpan, Jungar South and other places, promote the construction of a number of supporting coal-fired power projects, start construction of a number of coal-to-olefins and coal-to-gas projects, promote the clean and efficient use of coal by grading and quality, strive to achieve 500 million tons of raw coal production, and focus on building a national large-scale coal supply guarantee base and a coal-to-oil and gas strategic base.

Liu Xueliang said that at present, Xinjiang coal chemical projects have laid out and constructed some processing and transformation projects with relatively reliable technical routes. Because the coordination and interaction between upstream and downstream is relatively low, it is difficult to form a production capacity scale in the short term, and coal chemical industry still needs to extend to the system industrial chain. "The direction of deep processing of coal is an industrial direction that is very consistent with the situation in Xinjiang. However, Xinjiang coal chemical industry is still in the early stage of industrial development. Taking clean coal as an example, the biggest difficulty now is that a stable downstream market has not yet been formed. All products are gradually developed from simple to complex. First, the scale of primary processed products is made, and the added value of products is continuously improved before finding a way out for these products. At present, policies, funds and technology are no longer the biggest obstacles. Large coal chemical enterprises are actively expanding and deploying coal processing business. They are very willing to obtain resources in Xinjiang and build their own coal chemical transformation industrial parks."

Tang Daqian, deputy director of Fitch Ratings Bohua's Industrial and Commercial Enterprise Department, told the Economic Observer that the profitability and stability of modern coal chemical industry are greatly constrained by international oil prices. Previous studies have shown that the break-even oil prices for coal-to-olefins, coal-to-ethylene glycol, coal-to-oil, coal-to-aromatics and natural gas are $40/barrel, $50/barrel, $60/barrel and $65/barrel, respectively. The so-called break-even oil price means that if the crude oil price is lower than this price, it will be difficult to make a profit by coal chemical production. In the future, if Xinjiang's coal industry wants to continue its high growth, it is important to strengthen Xinjiang's coal export capacity and develop supporting industries such as coal-fired power and modern coal chemical industry.

Yang Xian said that the advantages of Xinjiang's coal chemical industry are low cost of raw coal and strong comprehensive market competitiveness; the disadvantage is that it is relatively far from the market, but after converting multiple tons of coal into one ton of chemical products, the cost of transportation can be greatly reduced. At the same time, the consumer market for coal chemical products in Xinjiang is also gradually increasing. For example, most of coal tar and methanol can be consumed locally in Xinjiang, and the rest can be transported to the mainland. Against the background of Hami building a national strategic base for coal-to-oil and gas, Xinjiang's coal chemical industry will once again usher in opportunities for rapid development.

Xinjiang also faces some challenges in developing the coal chemical industry. In July this year, Chen Yang of the China Coal Processing and Utilization Association pointed out in the article "Research on the Current Development and Policy of Xinjiang's Modern Coal Chemical Industry in the 14th Five-Year Plan" that the development of Xinjiang's modern coal chemical industry faces problems including "relatively scarce water resources", "high transportation costs" and "low-carbon transformation technology routes and economics still need to be explored".