Coal-to-Gas Enters New Development Stage
Source：CCR(China Chemical Reporter) 2013-08-29
It is clearly stated in the Plan for Natural Gas Development during 2011-2015 issued at the end of 2012 that the supply of domestic natural gas will reach around 176.0 billion m3 in 2015. The output of natural gas produced from coal will be around 15.0-18.0 billion m3, accounting for 8.5-10% of the total. The coal-to-gas sector is included in the five year plan for the first time in history. Not too long ago, the development of the coal-to-gas sector started from scratch, but now it is entering a new stage.
1. China’s coal-to-gas sector is in a period of initial development
With the acceleration of industrialization and urbanization, the consumption of natural gas in China has grown rapidly, and there is a supply shortage. The consumption of natural gas in 2001 was 27.4 billion m3, and in 2011, it reached 130.7 billion m3, after an average annual growth of 16.9%. From 2009, when China became a net importer of natural gas, the supply gap of natural gas grew steadily and reached 28.0 billion m3 in 2011. With the accelerated transformation of the economic structure, the demand for natural gas will still grow relatively fast, and the shortage will become even more prominent.
To ease the shortage, China is strengthening prospecting and development, expanding import channels, and enabling other sources for gas within China. China is rich in coal but lacks oil and gas. Using the abundant coal resources to develop coal-to-gas and enable coal-to-gas to become a supply source can help increase the supply of natural gas to a certain extent. Coal-to-gas mainly uses coal as raw material to produce synthetic natural gas through gasification, purification and methanation. The technology is well developed and the process is relatively simple. Compared with other coal chemical technologies such as coal-to-liquids, the energy transformation efficiency of coal-to-gas is higher.
Coal-to-gas in China is still at a very early stage. So far, not a single coal-to-gas plant has started commercial production. Around 2010, a large number of enterprises planned coal-to-gas projects, and the total planned capacity reached more than 30.0 billion m3/a. However, the state soon ordered all coal chemical projects to stop immediately, and coal-to-gas was stuck in an embryonic state. But now, the National Development and Reform Commission has approved four coal-to-gas projects. These include a 4.0 billion m3/a project of Datang Power Generation Co., Ltd. in Keshiketeng, a 4.0 billion m3/a project of Datang Power Generation Co., Ltd. in Fuxin, a 1.6 billion m3/a project of Inner Mongolia Huineng Coal & Power Group and a 5.5 billion m3/a project of Xinjiang Kingho Energy Group Co., Ltd. These four projects will likely start production and reach the design capacity during 2011-2015. The total output will be 15.1 billion m3, being basically equal to the planned goal. On the whole, the coal-to-gas sector in China is still nascent, and its development still needs a considerable period of time.
2. Coal-to-gas development faces four challenges
The coal-to-gas development goals defined in the Plan for Natural Gas Development during 2011-2015 require overcoming such difficulties as raising funds for large investment, answering for the poor economic benefits, coping with the insufficient capacity of China’s natural gas pipelines, and complying with stringent environmental protection requirements.
Coal-to-gas projects have long industrial chains and require large investments. A complete coal-to-gas industrial chain includes coal mining, coal transport, natural gas synthesis and a way of moving the gas to consumer areas. The mining and transportation of the necessary coal will require little new investment. The construction of coal-to-gas plants and long-distance natural gas pipelines, however, call for huge investments. It is estimated that the construction of a 4.0 billion m3/a plant under present conditions will cost RMB 25-30 billion. Beyond that looms the challenge of funding the construction of long-distance pipelines.
Coal-to-gas is subject to restrictions from coal resources and water resources. Coal-to-gas mainly uses coal as raw material and the coal consumption is big. A 4.0 billion m3/a plant will consume around 12-15 million tons of lignite a year. To make this feasible, the operator needs to own a coal mine with a mining capacity of over 20.0 million t/a. Coal-to-gas processes also consume great quantities of water. At best, a perfectly designed plant of this size, effectively run, will consume around 16 million tons of fresh water a year.
The economics of coal-to-gas proposals are distorted by the mismatch of China’s market-geared coal prices and today’s natural gas pricing, where reform has lagged. Coal cost accounts for around 60% of the coal-to-gas cost. The coal-to-gas cost is therefore extremely sensitive to the coal price. With the recent developments in the domestic coal market, the market-orientation of coal prices has become more prominent. Coal prices tend to go up, making the cost of coal-based gas higher.
Coal-to-gas is also constrained by insufficient pipeline capacity. Coal-to-gas plants are usually constructed in the vicinity of coal mines, far from consumption markets. There is therefore the problem of how to transmit natural gas to markets. Small volumes of natural gas can be sold locally. Large volumes of natural gas have to be transmitted through pipelines. Coal-to-gas plants already constructed today are mostly located in Xinjiang or Inner Mongolia. Transmitting natural gas produced in Xinjiang or Inner Mongolia to eastern coastal areas needs the use of trunk pipelines such as the west-east gas transmission pipeline or the construction of long-distance pipelines of several hundred or even several thousand kilometers. Basic facilities matched to the development of the coal-to-gas sector at the present stage have not yet been fully constructed. The completion of the first-phase coal-to-gas project of Datang Power Generation Co., Ltd. in Keshiketeng of Chifeng has been postponed, mainly because of the pipeline problem.
3. Suggestions on the development of the coal-to-gas sector
The Plan for Natural Gas Development during 2011-2015 clearly defines the development goals of coal-to-gas. In view of the major problems existing in the development today, it is suggested to strengthen work on the following aspects:
(a) Formulate a state-level long-term plan for the development of the coal-to-gas sector. On one hand, coal-to-gas is an emerging sector in China and is still at the initial stage. It is not possible to make large-scale and rapid development today. On the other hand, coal-to-gas consumes great quantities of coal and water, and is also restricted by insufficient pipeline capacity. Coal is a strategic resource of the state. Water is related to environmental protection. Pipelines are inherently monopolies. Planning for coal-to-gas should be unified, with a comprehensive consideration of the overall situation. Established practices used in planning for the development of coalbed methane and shale gas can be taken as reference to formulate a plan for the development of coal-to-gas and for issuing corresponding supportive policies.
(b) Undertake approved coal-to-gas demonstration projects to attain near-term and medium-term goals. As long as coal-to-gas is not yet a mature sector, the admission threshold should be raised moderately, choosing large enterprises with leading clean coal technology, abundant capital and overall strength to construct the demonstration plants, fully use the potential influence of these projects and then gradually launch coal-to-gas projects in other areas. This is a practical option in the rational development of coal-to-gas projects today. Coal-to-gas is related to various industrial chains such as the mining of coal, the synthesis of natural gas from coal, the transmission of products and the expansion of markets. Enterprises with leading coal-to-gas technology can lead demonstration projects in collaboration with other worthy enterprises. While these projects emerge, the planning for coal-to-gas development should match future development modes to local resource carrying capacity, environmental protection and evolving infrastructures. This should be the micro basis for the development of the sector.
(c) Strengthen the research of clean coal technologies and the construction of infrastructure. More advanced furnaces should be used and more rational process flows such as gasification and purification should be designed through research to reduce the consumption of coal and water resources. At the same time, the emission of gases in production, such as carbon dioxide, should be minimized to reduce both pollution of the atmosphere and harm to the environment’s carrying capacity and to enhance both the inherent environmental advantage and the economic competitiveness of coal-to-gas. Furthermore, the goal of strengthening the construction of natural gas pipelines defined in the Twelfth Five-year Plan should also be used as an opportunity to speed up the construction of coal-to-gas pipelines and lay a solid foundation for attaining the coal-to-gas goal during the Twelfth Five-year Plan period and achieving even greater development afterward.
The coal-to-gas goal defined in the development plan is not very high. Considering a series of factors such as the limited capacity of producing conventional natural gas and the considerable complexity in attaining the goals defined in shale gas and coalbed methane development plans, however, attaining the coal-to-gas goal has especially great implications for carrying out the overall plan for natural gas development.