Asian Nations Turn to Coal-based Chemical Industries in Response to Middle East Energy Crisis

The conflict in the Middle East and the closure of the Strait of Hormuz have led to a surge in global oil and gas prices, resulting in a significant increase in the demand for coal as a substitute raw material.

Although China's coal production, imports, and coal consumption for power generation continued to decline in the first four months of this year, overall consumption remains robust, and the application range is rapidly expanding from traditional power generation to the fields of gasification and petrochemicals. According to Bloomberg, China's coal-based chemical industry now consumes 380 million tons of coal annually, which, if considered a single country, is equivalent to the third-largest coal consumer globally. Against the backdrop of disrupted crude oil supply, the cost advantage of coal is evident, and Chinese coal-based chemical sector stocks rose by 30% from late February to mid-March.

New extraction technologies are also advancing in tandem. China is currently the only country in the world using hydraulic fracturing technology for coalbed methane extraction, with last year's production reaching 4.2 billion cubic meters. Reuters reports that China National Petroleum Corporation is developing related extraction projects, aiming to achieve an annual production of 30 billion cubic meters by 2035. This technological path is highly similar to shale extraction.

India, which relies on imports for more than 80% of its oil consumption, is following this model. The Modi government plans to invest $4 billion to launch domestic coal-based chemical industries, with a goal of converting 75 million tons of coal into local products such as fertilizers and plastics by 2030. However, Bloomberg analysis points out that the difficulty of converting Indian coal is higher and China has about 20 years of technological accumulation. Once the Middle East situation eases in the future and gas prices fall, Indian projects will face competitiveness challenges. This trend indicates that during periods of supply tension, the reliability and economics of energy have overtaken emission reduction goals.