02-06-08 The parent of XinAo Gas Holdings is planning to build a large-scale chemical plant in north-eastern China powered by Underground Coal Gasification (UCG), a spokeswoman said.
UCG is the process of creating gas by the partial combustion of coal hundreds of meters below the Earth's surface, and is a technology that experts believe can help limit the pace of climate change and boost energy security by tapping previously inaccessible coal reserves.

ENN Group wants to build a plant that will produce 300,000 tons of methanol a year in Tongliao, a city on the border of Liaoning province and Inner Mongolia region, a person familiar with the plans said. The methanol will then be converted into dimethyl ether, or DME, which is a substitute for diesel. It would be fifteen times larger than ENN's methanol plant in Wulanchabu, in Inner Mongolia, which is currently China's only existing facility powered by UCG.
"At this stage, the project is still in (the) preparation phase," a XinAo spokeswoman said.

High oil prices and concerns over climate change are prompting coal-rich countries to take a new look at UCG, a technology which has its roots in the Soviet Union. UCG involves drilling two boreholes to a coal bed deep underground. Oxygen and steam are pumped down the first well where they undergo a series of chemical reactions with the coal to create a synthetic gas that can be brought to the surface through the second well.
While experts see risks involved in the rapid roll-out of UCG internationally -- such as possible subsidence at production sites and mismanagement due to a lack of engineers skilled in using the technology -- they say these are can be overcome and are outweighed by the potential economic and environmental benefits. There is no mining involved in UCG, while costs from using synthetic gas at power plants or chemical complexes are lower than using conventional coal because there is no need to bring in feedstock by road or rail.

Environmental benefits include less pollution than burning coal on the surface. No sulphur oxide or nitrogen oxide is produced, and there are lower levels of mercury and particulates.
"This is really a game-changing technology (potentially) for carbon dioxide," said John Thompson, director of the coal transition project at the Clean Air Task Force, a non-profit organization based in the US. Unlike more experimental technologies like carbon capture and sequestration, which involves storing greenhouse gases underground, experts say UCG is proven and has been tested for nearly half a century. At Angren in Uzbekistan, there is a 22 MW power plant that has been operating on UCG for 49 years.

However, UCG's fortunes have fluctuated with the price of crude oil and natural gas. With crude futures peaking above $ 135 a barrel in May, more investors are attracted to its potential.
Julio Friedmann, leader of the carbon management program at the Lawrence Livermore National Laboratory in California, said the economics of UCG were "stellar", particularly when compared with coal gasification on the surface.
"You don't have to buy a gasifier, which is a massive piece of capital. You also have much lower operating expenses because you don't have to mine the coal, transport the coal, handle the ash, the pollution control is simpler and (involves) lower costs," he said.

Risks inherent to UCG include possible pollution of water supplies -- a particular concern of communities in emerging economies -- and how to deal with subsidence as coal resources are used up, although experts say these can be successfully managed by skilled engineers.
"The biggest risk is that a fly-by-night outfit will try this (technology), they don't know what they are doing and create a problem," Friedmann said.

It's not just China, which has the world's third-largest coal reserves, that is looking to develop UCG as an alternative fuel source. Australia, the US and South Africa have started projects, while the UK is examining the technology as a way to unlock its offshore coal reserves in the North Sea.
In August last year, India amended legislation so that coal mines can be allocated to companies for UCG as well as surface coal gasification and plants that can convert coal into synthetic fuels. India has the world's fourth-largest coal reserves.

A working group set up by India's government published a report on the status of UCG last autumn and flagged interest from companies such as Reliance Industries and GAIL India in developing UCG projects.
GAIL envisages having three commercial power plants with a combined generating capacity of 750 MW in operation by 2015, according to the working group's report.