China: coal-to-gas projects

Feb 03, 2014 12:00 AM

Recent forecasts for Chinese gas output have been bullish, based primarily on the success of production from unconventional gas resources. However, the forecasts of state-owned oil and gas companies' generally fall short of those made by government agencies.

The success or otherwise of unconventional gas in China has major implications for LNG demand and new import pipeline projects.

China hopes to raise its synthetic coal-to-gas output to 50 Bcm a year by 2020, accounting for 12.5% of domestic supply, according to Yang Lei, deputy director of the Department of Oil and Gas at the National Energy Administration, which comes under the umbrella of the powerful National Development and Reform Commission.

The comments echoed those made earlier in January by Wu Xinxiong, NDRC's deputy director as well as head of the NEA, as quoted in the National Business Daily.

Something may have been lost in translation. If 50 Bcm represents 12.5% of domestic supply, it implies that domestic supply will rise to 400 Bcm by 2020, which has generally been the upper boundary of forecasts for total Chinese gas consumption, including imports. It is likely, therefore, that the officials were referring to total Chinese gas supply.

The International Energy Agency's central New Policies Scenario, contained in its World Energy Outlook 2013, forecasts Chinese gas demand rising from 132 Bcm in 2011 to 307 Bcm in 2020. Other forecasts have put China's total 2020 gas demand much higher at between 350-400 Bcm.

The IEA estimates that domestic Chinese gas production will rise from 103 Bcm in 2011 to 178 Bcm in 2020 and to 266 Bcm in 2030.

Map: China's gas supply infrastructure
Map: China's gas supply infrastructure

But again estimates vary widely. According to a recent forecast by the Ministry of Land and Resources, China's natural gas output will more than double to reach 300 Bcm by 2030, split 50:50 between conventional and unconventional resources.

A note of caution with regard to the coal-to-gas estimates was sounded by state-owned China National Petroleum Corp.'s Economics and Technology Research Institute, which said in January that output may fall short of the government's target.

ETRI suggests some 20-30 Bcm of coal-to-gas production by 2020. ETRI said: "Only a few of those coal-to-gas projects approved by the government are likely to come on stream during 2017 to 2018, due to the severe environmental protection problems and lack of pipeline networks."

Nevertheless, even 20 Bcm would still represent a ten-fold expansion from volumes expected this year, making coal-to-gas a substantial component of domestic Chinese gas supply. The MLR says coal-to-gas production is expected to exceed 2 Bcm in 2014.

China's coal-to-gas strategy

The government has been encouraging greater utilization of abundant coal resources stranded in remote areas, such as converting coal to higher value products like natural gas and chemicals, with analysts previously estimating that output of synthetic coal gas will outstrip CBM in the long term.

China already produces significant amounts of coal gas, but the syngas produced is used almost entirely in the chemicals industry.

As of 2012, of total installed capacity, 66 of 69 gasification facilities were directed towards syngas for chemicals production, representing 95% of syngas output by nameplate capacity, according to the Gasification Technologies Council database.

China's push for Synthetic Natural Gas is based on traditional coal mining, with the innovative phase coming in the gasification and methanisation that produces syngas and then upgrades it to SNG.

The advantages include the more efficient extraction of coal's energy value, the potential use of poorer quality coals and the prevention of pollution in densely-populated areas.

Piping SNG produced in Xinjiang or Inner Mongolia to eastern and southern demand centers saves on rail and truck transport of coal to power stations in those areas.

However, any SNG produced is as likely to displace oil products as much as direct coal burn because China expects a rapid increase in city gas consumption over the next decade and is putting the infrastructure in place to facilitate this.

Coal gasification is often portrayed as a 'clean coal' technology, but its main claims in this area are its efficiency and its separation of CO2 pre-combustion, which makes it easier to capture and store CO2.

Without Carbon Capture and Storage, it represents a means of extending coal use rather than lowering its carbon impact. It may produce clean burning gas, but the CO2 is emitted earlier on in the process.

Coal-based SNG production can be seen from two viewpoints. First, as a means for China to exploit more fully its coal resource and thus ultimately to use more coal and emit more CO2.

Second, as a preliminary stage on the road to creating a genuinely low carbon process for the use of coal, which in its initial phase makes some emissions gains through using coal more efficiently.

In the short term, it is likely that by piping SNG to gas consumption centers, China is simply shifting the environmental impact of coal use from densely-populated areas in the south and east to the more sparsely-populated coal-bearing provinces of Xinjiang and Inner Mongolia in the west and north, and displacing oil imports rather than reducing coal use in the power generation sector.

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