China will increase LNG imports.  Some predict imports of 110 billion cubic meters per year (BCM) by 2020.  However, the cost of LNG is presently $16/MMBtu. This is an expensive fuel source when China has domestic options including coal-to-gas, underground coal gasification, and coal bed methane.   China is therefore changing focus and is pursuing these alternatives. The biggest program includes building plants in the western and northern coal fields which will convert coal to gas. This gas will be piped across country and provide clean burning fuel for major eastern cities.  It is the avowed solution to the smog problem.

The reason for a huge coal-to-gas program is the low cost of the product from a reliable domestic source.  Here are the cost components:

The costs for coal bed methane are likely to be in the same range. Underground gasification could be even less expensive depending on the depth of the seam.

If China produces 200 BCM from coal and coal bed methane and buys only 40 BCM of LNG, then the implications on the world LNG market will be very substantial. There would be a negative effect on gas prices.  The program would benefit a gas turbine operator or gas-to-chemicals manufacturer in any country which would be a potential exporter of LNG.  Here are the Chinese gas sources under a plan to make maximum use of coal gas.

The Chinese have 15 coal-to-gas projects underway which will produce 80 BCM of gas per year.  Another 25 projects are under discussion which, if all were constructed, would raise gas from coal production to 200 BCM. This compares to the U.S. present shale gas production of 260 BCM.

China has the world’s third largest ready reserves of coal bed methane (CBM), estimated at 36.8 trillion cubic meters (TCM), of which 10 TCM can be exploited.  China plans to complete construction of two major coal bed methane production bases in the central and western regions by 2015 and increase the number to three to five in another ten years.

China is also the leader in underground gasification. It has thirty projects under discussion and one in construction.  Carbon Energy's first commercial UCG project is located at Haoqin Coal Field in Xiwuqi in Inner Mongolia, China. 

Underground coal gasification is estimated to increase reserves by 300 to 400 percent.  When coupled with coal bed methane, total recoverable reserves are sufficient to supply the world for hundreds of years.

Here is the Chinese coal production for last year compared to a very approximate estimate of coal production in 2025:

The Chinese vision entails cleaning up the air in the big cities by piping in coal gas from the west and north of the country. The elimination of 300 million tons of coal burned by industry and residences will go a long way toward reducing the smog in Beijing and elsewhere.  The Chinese leaders have been quoted as saying that the health of these citizens in the short term is a higher priority than global warming.

In China, 16 olefin and polypropylene from coal projects are due for start up by the end of next year with a combined capacity of 10 million tons per year. This new capacity will exceed the additional petrochemical capacity planned for the U.S.  So the Chinese are saying that shale gas is only one route to an inexpensive raw material for chemical manufacture.  With another 650 million tons of coal slated for coal-to-chemicals, China will be a major petrochemical manufacturer.

The conventional coal-to-fuels route uses indirect gasification.  For decades there has been research on direct liquefaction. This is potentially a much less expensive way to make high quality liquid fuels. China now has a successful commercial direct liquefaction plant in operation and two more under construction.

China has coal reserves in excess of 110 billion tons. Another 300 billion tons could be recoverable with underground coal gasification.  Coal bed methane is a reserve of equivalent size. China imported 276 million tons of coal in 2013. The environmental efforts to reduce coal burning in many countries have unintended consequences.  Reduced world demand for coal lowers prices.  China will be the beneficiary. 

World coal production is now 8 billion tons per year. China is the major consumer, but it is also the major supplier of cement and other energy intensive products, so its coal consumption is proportional.

China is leading the coal-to-gas and chemicals initiative, but India and other countries are likely to follow.  The lower the per capita GDP, the lower the relative concern about global warming and the greater the concern about the necessities of life.  To the Chinese apartment owner faced with $16/MMBtu LNG or $4.50/MMBtu coal gas, the global warming arguments are not likely to be persuasive.

China can also make a case for the total environmental benefits of the program.  If the result is smogless cities, the benefits will be very substantial.  The tradeoff between CO₂ and pollutants such as NO_x and particulate has been reduced to a common metric by McIlvaine in the Sustainability Universal Rating System.     

McIlvaine continually analyzes these developments in two publications N049 Oil, Gas, Shale and Refining Markets and Projects and N043 Fossil and Nuclear Power Generation: World Analysis and Forecast.  The costs and potential for alternatives are analyzed in N042 Renewable Energy World Markets.  The company was founded to further environmental knowledge in 1974.  In response to the oil crisis, McIlvaine initiated the Coal Gasification and Liquefaction Knowledge System in 1979. The first issue covered DOE activities to develop direct coal liquefaction.  This technology was eventually acquired by a U.S. company Headwaters.  It is this technology 35 years later which is finally being commercially deployed in China.

How different would the situation in the Middle East be today if the U.S. had continued to support the synfuels programs?  One can only speculate. The future of Middle East supply is equally uncertain. The perspective of China faced with assured coal gas or uncertain quantities from an unreliable Russia and a region in revolution has to be weighted toward reliable supply. In other words, China will make the decision the U.S. could have made decades earlier.

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