Coal to Oil - Same System, Nothing New

Stumbling over the description "Coal Producer to Make Liquid Fuel in 2008" on the Xinhua News agency website, I decided to use the description as my enterprise class conversation topic for the day. A new coal-to-liquids (Ctl) scheme in E'erduosi City, Inner Mongolia, is 95 per cent unblemished on the first output line. One of my students, from Inner Mongolia, knew right away where the scheme is located. She used such phrases as "China's Kuwait" and "China's Sea of Coal" to quote 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 convert the status of overdependence on primary energy and improve 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: beginning now, the Chinese government will withhold going into Ctl projects full throttle, country-wide. It must do so to sell out oil import dependency and give itself a source of fuel oil or feedstock for products we compose everyday.

News From Mongolia

Today's rising oil prices and cheaper Ctl technologies make oil substitution economically viable. output costs in China are estimated at - per barrel of oil, rising to - 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 consist of diesel oil, naphtha, hydroxybenzene plus liquefied petroleum gas (Lpg). Presently 10,000 workers from over China are constructing the huge project. The first phase of the scheme involved capital spending of .6 billion - a high price to pay for that much goods per year.

Fast forward to 2010 and the output 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 output need capital investment, which would elucidate 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 replacement of Hong Kong Limited) is a fully state-owned enterprise and is the sole large-scale energy group in China, with integrated businesses fluctuating 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 scheme to help deal with China's petroleum protection concerns. It becomes even more key now that ethanol output 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 manufactures would be encouraged by the government".

Shenhua Group is not the only player in the Ctl game, nor are these projects tiny to Inner Mongolia. Shenhua Ningxia Coal Group, a wholly-owned subsidiary of Shenhua Group, plans to compose two Ctl plants using Sasol's Fischer-Tropsch technology. Shandong Yankuang Group Co., Ltd the only domestic challenger to Shenhua has started its building in Qinhe Township, Yulin City, Shanxi Province. Salim Group of Indonesia and Yitai, the largest incommunicable enterprise in Erdos city have invested in Dalu Coal Chemical market Park, Zhungeer County of Erdos City. These groups and associates are the beginning of the Ctl expansion bandwagon. No doubt the arrival years will see a large whole of Ctl projects over China in every province with exploitable coal reserves, all with the blessing of the central government.

I have a query about all this. Where are all of the new inventions and renewables that were supposed to appear as a succeed 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 ideas that left our community dependent on a singular substance.

Invention because of high prices is turning out to be an illusion - just as ethanol output was supposed to save the day. What we are looking 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 dangle ethanol output because of crop failures and rising food prices, and which nation will succeed China in the "plan C" rush to Ctl production, side-stepping whatever 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 output and coal provide is constrained. Research and amelioration of Ctl technology will cost thousands of times less than arrival up with an entirely new energy source from something other than coal, oil or natural gas.

Coal to Oil - Same System, Nothing New

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