The closure of the Strait of Hormuz has sent the vast Asian chemicals industry into a tailspin. Deprived of the likes of Qatari natural gas and Saudi Arabian oil, the region’s fertilizer and plastics plants are slowing production or even shutting down. Everywhere except China, that is.
In petrochemicals, China is unique. As well as a traditional industry that uses oil and gas as feedstock, it has parallel output that relies on its abundant domestic coal. Unsurprisingly, India and other regional powers want to copy and paste the Chinese method. This would not be easy — or climate friendly.
The consequences would be global. China and India together consume 70 percent of the planet’s coal, so any extra use would keep the dirtiest fossil fuel in demand for longer. More consumption means more CO2 emissions and more warming.
Illustration: Yusha
The Chinese coal-to-chemicals industry is a huge contributor to this. Take urea, an important nitrogen fertilizer that is used in rice and corn farming. China produces about 80 percent of it from coal, while India manufactures almost all of its own urea from oil and gas.
Despite its massive scale, this Chinese industry has gone largely under the radar. Yet it consumes about 380 million metric tonnes of coal as a feedstock. If it were a country, it would rank as the third-largest consumer of coal, behind China and India and ahead of the US, Japan and other top coal users.
India has pledged nearly US$4 billion to quickly start up a coal-to-chemicals business, aiming to process as much as 75 million tonnes of the fossil fuel into fertilizers, plastics and other synthetic products by 2030. The New Delhi government would cover 20 percent of the building cost for new plants and would help earmark coal reserves for forthcoming projects, guaranteeing long-term supply.
The nascent industry offers India the same advantages that attracted China decades ago. First, it enhances energy security. India is rich in coal, and each tonne of petrochemicals it produces this way does not need foreign oil and gas. Second, using coal to make fertilizers improves the country’s food security, another government priority.
Then there are economic benefits, lowering the import bill of oil and gas and thus the pressure on the country’s foreign exchange. Finally, it is a novel way to use domestic supplies that supplements the coal industry’s traditional consumers — power plants, steel furnaces and cement companies — thus prolonging its life. Mining the fossil fuel employs about 750,000 people in India and it is a vital source of jobs in several states.
Still, replicating the Chinese model would not be easy. New Delhi’s first problem is the feedstock itself: Domestic Indian coal has too much ash to be easily converted into chemicals. Another drawback is technology. China has spent the last couple of decades reinventing the original extraction process — called the Fischer-Tropsch synthesis after the two German chemists who patented the technique a century ago. India does not have the same know-how, particularly in more advanced areas where coal is converted into methanol to produce goods such as olefins, used to make plastics.
Money is an obstacle, too. Without more government support, companies would struggle to make fertilizers and other products that remain competitively priced when natural gas and oil prices drop.
India launched its original coal-to-chemicals blueprint in 2020, but did not get much built. In 2024, after gas prices rose, it offered money to kickstart projects, but few companies took the subsidies. Now it has quadrupled financial support, and, for the first time, the private sector looks ready.
If New Delhi is successful, it would give coal another unexpected life extension. And where things stand today is already somber. Global demand for the fossil fuel climbed to a historic high last year, and everything suggests it will hit another record in 2026 and stay close to its highs for several years more. The oil crises of 1973 and 1979 were a huge boost for coal, particularly among the most industrialized nations, with many using it to replace oil for electricity generation. This time it is about chemicals, but the impact of the Hormuz shock threatens to be similar.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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