Chinese Coal-to-Liquids and Gas Program Could Completely Change the World
Energy Markets
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:
Cost of Gas Derived From Coal
Cost Segment $/MMBtu
Coal 2.00
Capital 1.30
Operation and Maintenance 1.20
Total 4.50
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.
Gas Use In China
Source 2013 BCM 2025 BCM
Conventional 100 100
Shale 20 50
Pipeline imports 20 50
LNG 20 40
Coal to gas including CBM and UBC 50 200
Total 210 440
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 worlds 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:
Chinese Coal Consumption
Coal Use Million Tons 2013 Million Tons 2025
Large electric power 2,500 3,000
Residential 50 0
Industry 300 50
Heating 100 50
Steel and other ( coke) 400 700
Coal to gas including CBM and UGG 50 700
Coal-to-chemicals and fuel 120 800
Total 3,520 5,300
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 NOx 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.
Headlines for June 27, 2014 Utility E-Alert
UTILITY E-ALERT
#1181 June 27, 2014
Because of the Fourth of July Holiday the Next E-Alert will be July 11
Table of Contents
COAL US
Supreme Court endorses regulation of Greenhouse Gas Emissions
COAL - WORLD
Consortium agrees to develop First Phase of 1200 MW Coal-fired Power Plant in
Vietnam
POSCO Energy wins License for CHP-5 in Mongolia
GAS/OIL US
Transco files at FERC for Rock Springs Expansion Project to New Gas-fired
Power Plant in Maryland
Natural Gas-fired Power Plant planned for Salem Township, Pennsylvania
GAS/OIL WORLD
Institute for Democracy and Economic Affairs (Ideas) urges New Tenders for
Project 4A in Johor State, Malaysia
Siemens Consortium receives Turnkey Construction Order from PETRONAS for
Cogeneration Power Plant in Johor, Malaysia
Huaneng Power International, Inc. Shanxi Dongshan Gas Turbine Project obtains
Approval
BHI Co. awarded Contract by Samsung C&T for design and supply of HRSGs for
Rabigh II Combined Cycle Power Plant in Saudi Arabia
NUCLEAR
Chinas ICBC to finance Romanian Nuclear Project
Westinghouse developing Seismic Option for AP1000 Nuclear Reactor
Korean Consortium to upgrade Research Reactor in the Netherlands
BUSINESS
$9 Billion Fabric Filter System Market will expand from 4 Percent to 8 Percent
a Year
Wisconsin Energy buying Integrys for $5.8 Billion
General Electric wins $17 Billion Bid to buy Alstom's Gas Turbine Business
Dominican Republic, AES Corp. strike US $260 Million Energy Deal
AES sells Minority Stake in Masinloc Power Plant and Development Projects in
the Philippines to EGCO Group for $453 Million
FirstRand Limited Investment Banking Unit will finance $120 Million of Ghanas
$820 Million Kpone Power Plant
HOT TOPIC HOUR
The Hot Topic for June 26 was CCR $ Billions Needed
Gas Turbine Emission Control Webinar on July 17 will focux on NOx, CO and
Toxics
Webinar on July 10 on Direct Sorbent Injection
Wet Calcium FGD Hot Topic Hour on July 24
Upcoming Hot Topic Hours
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http://home.mcilvainecompany.com/index.php/databases/2-uncategorised/89-42ei
McIlvaine Hot Topic Hour Registration
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on important energy and pollution control subjects. Power webinars are free for
subscribers to either Power Plant Air Quality Decisions or Utility Tracking
System. The cost is $300.00 for non-subscribers.
See below for information on upcoming Hot Topic Hours. We welcome your input
relative to suggested additions.
DATE SUBJECT
July
10 Direct Sorbent Injection
17 Gas Turbine Emission Control
24 Wet Calcium FGD
31 Mercury Sorbent Options
August
7 MATS Timing and Technology Options
14 Industrial Boiler and Cement MACT Timing and Compliance Options
21 MEGA Symposium
28 Demineralization and Degasification
September
4 Hot Gas Filtration
11 Power Plant Pumps
18 Power Water Monitoring
25 Power Plant Water Treatment Chemicals
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Click here for the Free Hot Topic Hour Registration Form
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Bob McIlvaine
President
847-784-0012 ext 112
rmcilvaine@mcilvainecompany.com
www.mcilvainecompany.com