Stumbling across the article “Coal Producer to Make Liquid Fuel in 2008” on the Xinhua News Agency website, I decided to use the article as my business class conversation topic for the day. A new coal-to-liquids (CTL) project in E’erduosi City, Inner Mongolia, is 95 per cent complete on the first production line. One of my students, from Inner Mongolia, knew right away where the project is located. She used such phrases as “China’s Kuwait” and “China’s Sea of Coal” to describe the region.
It is a random story about alternative energy that will not have a great impact on the world’s energy supply. But consider it in the context of this statement from government sources: “During the 11th five year plan, China will change the status of overdependence on traditional energy and enhance the proportion of renewable energy in primary energy generation.” This statement gives the story a whole new meaning. Translated into everyday English, here is what it means: Starting now, the Chinese government will support going into CTL projects full throttle, country-wide. It must do so to reduce oil import dependency and give itself a source of fuel oil or feedstock for products we manufacture everyday.
Today’s rising oil prices and cheaper CTL technologies make oil substitution economically viable. Production costs in China are estimated at $27-$35 per barrel of oil, rising to $45-$50 once distribution costs and taxes are included.
At E’erduosi, China’s largest coal company, Shenhua Group, will produce fuel from coal next year. The first year it will use 3.45 million tons of coal to make 1.08 tonnes (7.56 million barrels) of liquid products. These will include diesel oil, naphtha, hydroxybenzene plus liquefied petroleum gas (LPG). Presently 10,000 workers from across China are constructing the massive project. The first phase of the project involved capital spending of $1.6 billion – a high price to pay for that much product per year.
Fast forward to 2010 and the production levels are forecast to be 4 million tonnes of liquids (28 million barrels), a four-fold increase. Projections show 50 million tones (350 million barrels) in 2020. That would be a huge jump indeed.
These leaps and bounds in production need capital investment, which would explain the move by China Shenhua Energy to sell as many as 1.8 billion yuan-dominated A-shares on the Shanghai Stock Exchange. China Shenhua Energy Co. Ltd. (1088:Stock Exchange of Hong Kong Limited) is a wholly state-owned enterprise and is the sole large-scale energy group in China, with integrated businesses ranging from coal, power, railway, port facilities, coal-liquefied oils and coal-based petrochemical industries.
Key State Project: Coal-to-liquid is listed as a “key” state project to help deal with China’s petroleum security concerns. It becomes even more key now that ethanol production has been halted in the wake of low grain harvests and rising food prices. According to Chen Liming, executive vice president of Sasol China, “For a country as rich in coal resources as China, the CTL industry would be encouraged by the government”.
Shenhua Group is not the only player in the CTL game, nor are these projects limited to Inner Mongolia. Shenhua Ningxia Coal Group, a wholly-owned subsidiary of Shenhua Group, plans to develop two CTL plants using Sasol’s Fischer-Tropsch technology. Shandong Yankuang Group Co., Ltd the only domestic challenger to Shenhua has started its construction in Qinhe Township, Yulin City, Shanxi Province. Salim Group of Indonesia and Yitai, the largest private enterprise in Erdos city have invested in Dalu Coal Chemical Industrial Park, Zhungeer County of Erdos City. These groups and companies are the beginning of the CTL expansion bandwagon. No doubt the coming years will see a large number of CTL projects across China in every province with exploitable coal reserves, all with the blessing of the central government.
I have a question about all this. Where are all of the new inventions and renewables that were supposed to appear as a result of high oil prices? I have been sold that line for years now – since I was a child, actually. Clean energy will replace oil when prices get high and stay high. A plethora of new inventions will help us transition away from the last system that left our society dependent on a single substance.
Invention because of high prices is turning out to be an illusion – just as ethanol production was supposed to save the day. What we are seeing in China is more of the same: Researching and developing new ways to get oil from coal and energy from plants. Same system, different method of production. Nothing new.
I also wonder which country will be next to suspend ethanol production because of crop failures and rising food prices, and which nation will follow China in the “plan C” rush to CTL production, side-stepping anything renewable at all. The stark reality is that renewable and new energy sources will arrive only after ethanol is proven unreliable by interfering with food production and coal supply is constrained. Research and development of CTL technology will cost thousands of times less than coming up with an entirely new energy source from something other than coal, oil or natural gas.
David DuByne teaches business English in Chongqing, China while keeping an eye on energy, commodities and bio-fuel production in Asia. His website – Dave’s ESL biofuel – is devoted to bio-fuel and oil depletion.
