RISKY BUSINESS
Growth of Water-Intensive Coal Conversion Projects in Western China
BY ZHOU YANG & XINZHOU QIAN
Senior Editor:
Jennifer L. urner
Managing Editor:
Richard Liu
Research & Editing Assistants:
ZizhuChen & Samuel Moore
Infographics:
Siqi Han & Xinzhou Qian
Designer:
Amanda Mei
CHOKE
P O I N T
A GLOBALREPORT
November 2019
PUZZLING SUCCESS OF A FAILING INDUSTRY
I
n July 2016, one of China’s largest power generation groups, China Datang Corporation (CD), sold its entire coal-to-chemical company for a single yuan.
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CD had invested 60 billion yuan in the petrochemical industry in 2005, anticipating a windfall from converting coal into feedstock chemicals for China’s fertilizer and other industries. But the anticipated boom never panned out. CD offloaded the coal conversion company, Datang Energy Chemical, after three years with an estimated 11.6 billion yuan in losses. While China is projected to fulll its 2015 Paris commitment to reduce the proportion of coal in its energy mix to below 58 percent by 2020—a full 10 years ahead of schedule—the country remains the world’s largest producer and consumer of coal.
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1
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As China’s government has promoted policies curbing coal-red power out of air pollution and climate concerns, the coal industry and subnational governments have searched for alternative sources of demand. Tus, we have seen a slow but steady rise of coal conversion to chemical industries. As an alternative form of coal demand, coal-to-chemical (CC) threatens China’s climate commitments and perpetuates coal reliance. Yao Wu, energy market analyst at Energy Security Analysis Incorporated notes, “China is serious about its Paris commitments in terms of transportation and power. But the petrochemical industry receives national support because China wants to boost domestic chemical production to avoid import dependency. Because chemical production emits carbon, supporting the industry contradicts China’s climate goals.”
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China now has the largest coal conversion industry in the world. Industrial-scale coal conversion emerged in China in the early 1900s turning coal into coke, a feedstock for iron, steel, and plastic production.
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Half a century later, another coal conversion technology arose in coal-to-synthetic fertilizers.
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(See Figure 1)
. Coal-to-coke industries expanded most rapidly in the 1990s to fuel China’s industrialization boom. Due to overcapacity and environmental concerns, in 2006 the Chinese central government instituted policies, with little success, to slow coal-to-coke production.
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SHAKY START TOMODERN COAL CONVERSION
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n 1998, the Chinese government started pushing the development of more modern coal conversion technologies such as liquefaction to turn coal into oil to address vehicle fuel shortages and decrease dependence on foreign imports.
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Local governments in coal-abundant but impoverished western regions quickly invested in this new industry. Coal-to-oil projects mushroomed in over 10 provinces. According to University of California researchers, planned and newly constructed plants could produce 16 million tons of oil annually by the end of 2007.
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At the time, China’s provincial governments planned investment into proposed projects totalled 120 billion yuan or 18 billion USD. Alarmed by the blind investment and over-development of the sector, in 2006 the central government banned the approval of coal-to-oil projects with an annual output less than 3 million tons.
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wo years later, no new construction of coal-to-oil projects was permitted except for two Shenhua Group mega projects.
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Learning lessons from the hasty and unsustainable development of the coal-to-oil sector, the Chinese central government initially kept a tight grip on coal gasication technologies that local governments started building in 2009. However, a mere three years later, central policymakers started to loosen restrictions on coal-to-gas (Syngas) plants in western China.
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Te quick shift came after Beijing and many other east coast cities were engulfed in smog from coal-red power plants and cars. Central policymakers saw an urgent need to push coal power out of the east.
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Policymakers were also driven by the desire to reduce over-dependence on imported natural gas. Te
Air Pollution Prevention and Control Action Plan
released 2013 and the National Energy Administration’s 2014
Instructions on Energy Work
paved the way for the accelerated coal-to-gas development.
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Most recently, the National Energy Administration released
13th Five Year Plan for the Demonstration of Coal Conversion Industry
which was the rst national strategic paper for the CC industry. Te plan stipulated that coal conversion must become safer and environmentally viable.
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(
See Map 1
).
“THE MOUNTAINS ARE HIGH ANDTHE EMPEROR IS FAR AWAY”
he uctuating policies for the coal-to-oil and coal-to-gas projects reect intensifying divergent priorities of central and local governments regarding coal conversion development. Local governments in China’s coal-rich regions are desperate to nd markets for coal overcapacity and create job growth.
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o reap
Figure 1: Explaining Traditional and Modern Trees
China has two “trees” of coal conversion technologies: traditional and modern. Te
traditional coal conversion
industry primarily produces coke, synthetic ammonia and fertilizers. Despite the lack of market demand, the sector boomed for decades. In recent years the utilization rate of coke, calcium carbide and methanol dropped below 70 percent, making overcapacity a problem. Te central government has been working to phase out this now backward industry. Te
modern coal conversion
industry primarily produces oil (through direct or indirect liquefaction of coal
natural gas, and a variety of industrial chemicals, most importantly aromatics, ethanol, and olens. According to Dr. ian Yajun, coal conversion expert from the National Institute of Clean and Low-Carbon Energy, coal-to-olens (used to produce plastics) has been the best coal conversion industry in terms of prot.
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After years of demonstrations, projects, and research, modern coal conversion industries are still not mature and do not meet the requirements for industrial-scale development.
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the economic rewards from modern coal conversion technologies, some local governments and companies dashed forward like wild horses to build plants. In certain cases, local governments have set policies requiring that 50 to 60 percent of coal produced should be locally converted into value-added products.
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Tough local governments have chomped at the bit to invest in modern CC plants, Beijing policymakers are still trying to rein the sector in. Economically, CC technology is only protable when the price of foreign oil and natural gas is high.
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Additionally, poorly regulated CC poses environmental risks. (
See Figures 2
&
3).
WHAT ARE THE RISKS?
C
oal conversion industries pose a troika of environmental threats: wastewater discharge, water overconsumption, and greenhouse gas emissions. As an alternative form of coal demand, coal conversion undercuts China’s aspirations to curb coal dependency and become a leader on climate change.
Water Consumption in Water-Scarce Areas
Water is the top environmental concern of the coal conversion industry. When producing chemicals and fuels from coal, coal gasication and cooling consumes