China pushes for coal gasification

by Xina Xie

China has launched a multi-billion dollar effort to turn some of its massive coal resources into gas. China now has more than 10 coal-gasification plants under construction with total nameplate capacity of about 1.2 tcf per year.
If all these coal-gasification projects become reality their output would amount to about half of China's current natural gas consumption of just over 2.5 tcf per year.

And the effort is coming at a huge expense. Each plant costs at least $ 1.5 bn.
There are two main drivers behind the push for more coal-to-gas projects: soaring demand for natural gas due to urbanization and environmental concerns; and while China has plenty of coal, oil and gas are in short supply.

Two of the country's biggest companies -- CNOOC and China Power Investment Corporation -- are leading the gasification effort. Last year, Fu Chenyu, the CEO of CNOOC, announced that his company will spend about $ 12 bn on two big projects to turn coal into methane.
Meanwhile, China Power will invest over $ 4 bn to build a coal gasification plant in the next two and half years with yearly gas production expected to be about 200 bn cf. The China Power project began construction in November in Xinjiang Province where coal reserves are estimated at more than 36 bn tons.

Coal gasification has been part of the central government's development plans for several years. And gasification is among five demonstration projects in the coal sector that the government is hoping to develop. The others include coal liquefaction, coal to dimethyl ether, coal to ethylene glycol and coal to olefins.
"It is an important strategic policy for China to gasify some coal, especially low heat brown coal, high sulphur coal, and coal from remote areas," said Zhang Anhua, an official from the Central University of Finance and Economics. And the National Development and Reform Commission, China's powerful licensing outfit is pumping out the permits. In the final four months of 2009, the agency approved two large gasification projects in Inner Mongolia with a total yearly capacity of about 200 bn cf.

From 2000 to 2008, China's natural gas demand increased on average by 16 % per year. And last November, the China Social Science Academy predicted that the country will have a shortage of at least 1 tcf this year and shortages of more than 3 tcf by 2020.
To meet demand, China has been increasing the importation of pipeline gas and liquefied natural gas. However, the imported gas is much more expensive than the domestic gas, which has helped push the government to support coal gasification.

China has huge coal resources. Some estimates put the total as high as 1 tn tons. But only a fraction of that is economically recoverable. BP puts the country's coal reserves at 114.5 bn tons, placing it third in the world behind Russia (157 bn tons) and the US (238 bn tons).
But about 70 % of China's recoverable coal is in remote arid western areas like Ordors, Jugger and Tuha basins. If the coal is gasified locally and the gas is transported by pipeline or as liquefied gas, it can be utilized in a much more efficient manner. In addition, pollutants may also be better controlled.

Despite the ongoing push, some energy experts have doubts about coal gasification.
"Coal gasification may relieve the natural gas supply gap to some extent and ensure the energy security of our country. However, if a low-carbon economy is developed soon, coal gasification will have to be restricted. In any case, it is not a highly efficient way of energy utilization. Therefore, it is not proper to develop coal gasification on a large scale," said former director Zhou Dadi of the Energy Research Institute at the NDRC.

Another big hurdle: water availability.
Gasification requires huge amounts of fresh water and the coal-rich areas of western China are already short of water.