Cheaper coal sparking interest in new projects

Amid high oil and gas prices and falling coal costs, Chinese companies are revisiting the idea of transforming

coal into more useful and higher-value derivatives such as chemicals, oil and gas, which could mitigate energy

security concerns.

Still, government policy will dictate how fast the coal-conversion industry is developed. Some analysts said

they believe it will remain a niche industry in China for some time, given water scarcity and carbon emission

issues.

China has the world's third-largest proven coal reserves, at 114.5 billion tons, trailing only the US and

Russia, according to BP Plc estimates. High transport costs to eastern markets and the central government's

campaign to shift development strategy westward have pushed companies to focus their investment on local

projects tapping large coal reserves in underdeveloped western regions of China.

In terms of coal-to-gas capacity, projects involving 15 billion cubic meters have so far secured approval from

the National Development and Reform Commission, China's top planning agency.

Projects entailing as much as 55 billion cubic meters are under construction, with a further 115 billion cubic

meters on drawing boards, according to estimates by analysts at Sanford C. Bernstein.

These projects could be price competitive with China's gas imports at current prices of liquefied natural gas,

their report said.

The large volumes, if realized, could reduce China's demand for additional gas imports beyond currently secured

purchase contracts before the end of the decade, analysts said.

Sinopec, for example, has recently announced plans to build two major gas pipelines with combined capacity of

60 billion cubic meters per year, for transporting synthetic gas from coal gasification projects from Xinjiang,

the energy-rich region in China's far northwest, to the eastern provinces of Shandong, Zhejiang and Guangdong

by 2016.

"Synthetic gas would effectively eliminate the market for additional gas imports before 2020," said Neil

Beveridge, senior analyst at Bernstein, referring to piped gas from Russia and liquefied natural gas from

elsewhere.

China's domestic gas production, plus currently contracted gas imports of 100 billion cubic meters, will reach

350 billion cubic meters by 2020. Demand is expected to reach 400 billion cubic meters.

Synthetic gas from coal gasification projects could provide 14 percent of China's gas demand by 2020, he said.

Coal-to-olefins projects, which are currently being explored to complement the traditional oil route in China,

also appear to be economic at current oil and chemicals prices, analysts said. Olefins, such as ethylene and

propylene, are used in the production of petrochemicals and polymers.

Coal-to-olefins could be China's strategic answer to cheap natural gas-based olefins in North America, analysts

said.

Warned to consider risks

Consulting and advisory firm Deloitte forecasts China's olefin capacity will reach 56 million tons at minimum

by the end of 2015, including 51 million tons of oil-based capacity. That compares with annual demand of 50

million tons.

China's feedstock diversification strategy supports the development of the coal-to-olefins business, said Yann

Cohen, Shanghai-based national leader for the chemicals industry at Deloitte China. But he has warned market

entrants to consider risks, such as overcapacity, price and quality consistency of coal, and water supply

accessibility and costs.

The coal-to-olefins capacity projected by Deloitte is conservative because it doesn't include projects that

haven't yet secured final government approval, he said. For example, Dow Chemical Co and top Chinese coal

producer Shenhua Group have been waiting for years for approval on a US$10 billion coal-to-chemicals project in

Shaanxi Province.

https://www.china.org.cn/business/2013-01/08/content_27617917.htm