China鈥檚 Hormuz workaround is making India jealous
By Javier Blas
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鈥檚 fertilizer and plastics plants are slowing production or even shutting down. Everywhere but 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, . This won鈥檛 be easy 鈥 or climate friendly.
The consequences will be global. China and India together consume 70% of the planet鈥檚 coal, so any extra use will keep the dirtiest fossil fuel in demand for longer. More consumption means more CO2 emissions and more warming.
The Chinese coal-to-chemicals industry is a huge contributor to this. Take urea, an important nitrogen fertilizer that鈥檚 used in rice and corn farming. China produces about 80% of this stuff from coal, while India manufactures almost all of its own urea from oil and gas.
Despite its massive scale, . Yet it consumes about 380 million metric tons 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 $4 billion to quickly startup a coal-to-chemicals business, aiming to process as much as 75 million tons of the fossil fuel into fertilizers, plastics, and other synthetic products by 2030. The New Delhi government will cover 20% of the building cost for new plants and will 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, so every ton of petrochemicals it produces this way is one that doesn鈥檛 need foreign oil and gas. Second, using coal to make fertilizers improves the country鈥檚 food security, another government priority.
Then there are the economic benefits, lowering the import bill of oil and gas and thus the pressure on the country鈥檚 foreign exchange. Finally, it鈥檚 a novel way to use domestic supplies that supplements the coal industry鈥檚 traditional consumers 鈥 power plants, steel furnaces, and cement companies 鈥 thus prolonging its life. Mining the fossil fuel employs about 750,000 people in India, and it鈥檚 a vital source of jobs in several states.
Still, replicating the Chinese model won鈥檛 be easy. New Delhi鈥檚 first problem is the feedstock itself: Domestic Indian coal has too much ash to be easily converted into chemicals. Another drawback is the technology. China has spent the last couple of decades reinventing the original extraction process 鈥 called the Fischer-Tropsch synthesis after the two German chemists who patented the technique a century ago. India doesn鈥檛 have the same knowhow, 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 will struggle to make fertilizers and other products that remain competitively priced when natural gas and oil prices drop (or if they do).
India launched its but didn鈥檛 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 the financial support and, for the first time, the .
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 an , 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鈥檚 about chemicals, but the impact of the Hormuz shock threatens to be similar.
BLOOMBERG OPINION
