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The peak demand for gas is approaching: Exploring ways to use coal-to-natural gas as a means to address this issue. Author/Source: Date: 2018-10-23. Clicks: 3. With the continuous rapid development of China’s economy, the demand for natural gas and the gap between supply and demand are increasing, leading to more pronounced seasonal supply-demand discrepancies. It is against this backdrop that coal-to-natural gas projects have come into existence. Producing natural gas through the efficient utilization and clean conversion of coal is of great significance for alleviating the shortage of oil and gas resources in China, ensuring the country’s energy security, and promoting the prevention and control of air pollution. After nearly 10 years of development, coal-to-natural gas production in our country has reached a certain scale, but it also faces prominent problems such as difficulty in achieving full production capacity and poor economic viability. The reason for this is, on the one hand, the price of coal-based natural gas has not been made market-driven; gas prices are strictly regulated, resulting in relatively low prices ； On the other hand, due to seasonal gas demand, there are significant imbalances between supply and demand during heating seasons and non-heating seasons, which have a major impact on the production and economic viability of coal-to-natural gas conversion. It is therefore urgent to find solutions to address the issue of peak shaving in coal-to-natural gas production. 1 Analysis of the necessity for peak shaving 1.1 **Industrial policies impose requirements regarding natural gas peak shaving. The 13th Five-Year Plan for energy development specifies that there is a significant issue of temporary surplus in China’s natural gas consumption and supply capacity, as well as a serious shortage of storage facilities for peak shaving. The compensation mechanisms for natural gas peak-shaving costs and the corresponding price adjustment systems have not yet been fully established; therefore, natural gas companies and users are encouraged to take an active role in peak-shaving and shifting usage times, in order to enhance the capacity of natural gas to respond to such demands. The plan highlights the importance of natural gas for peak shaving, explicitly encouraging enterprises and users to take part in peak shaving and shifting consumption to off-peak times, thereby providing guidance for peak shaving in coal-to-natural gas projects. 1.2 There is demand in the natural gas consumption market. Natural gas consumption in China exhibits distinct seasonal patterns, especially in the northern regions, where gas used for heating constitutes the main portion of annual consumption. The heating season represents the peak period for gas usage, resulting in large fluctuations between peak and low levels of consumption during winter and summer. This creates significant difficulties in managing gas supply from upstream sources, leading to an excess of gas supply in summer and shortages in winter each year. In the winter of 2017, the implementation of large-scale \"coal-to-gas\" conversion projects in northern regions exacerbated the shortage of gas supply. Taking Beijing as an example, the annual gas supply volumes in 2014, 2015, and 2016 were 10.5 billion m3, 13.9 billion m3, and 15.2 billion m3 respectively. The low-demand period for gas supply was from April to October in each of these years, while the high-demand period was from November to March of the following year. The largest peak-to-valley ratios during those years were 13.15 times, 8.3 times, and 8.1 times respectively. From 2014 to 2016, for three consecutive years, the average peak-to-valley difference in natural gas consumption in Beijing was close to 10 times. The peak period coincided with the heating season, which ran from November to March of the following year; this shows that heating is the main factor driving gas consumption in the Beijing area. For up to 7 months each year, it is a non-heating period, or a low-demand gas period; this poses the issue of seasonal peak shaving for upstream gas suppliers. Coal-to-natural gas projects must develop targeted peak-shaving measures based on the conditions of the long-distance pipeline storage facilities and their own actual situations, in order to avoid ending up in a situation where production and supply are restricted during periods of low demand for gas. 1.3 Coal-to-natural gas companies have concerns: The first-phase coal-to-natural gas projects in Inner Mongolia and Xinjiang, which were put into operation during the 12th Five-Year Plan period, faced production difficulties due to the lack of effective peak-shaving measures. The first phase of the Inner Mongolia project has a designed production capacity of 4 million m3/day; it began operations and started supplying gas to the grid in December 2013. After its commissioning, it faced restrictions on gas supply from CNPC’s pipeline network during the non-heating seasons, with a daily supply limit of 3 million m3/day in summer, allowing it to operate at only 75% of its capacity. In addition, an extra fee was charged for storage and peak-shaving services ； The first phase of the Xinjiang project was designed with a production capacity of 4.2 million m3/day; it began operating and supplying gas to the grid in December 2013. During the non-heating seasons each year, it still faces the issue of limited gas supply from CNPC’s pipeline network in summer, and an additional fee is charged for storage to help manage peak demand. Since the two coal-to-natural gas projects that have been put into operation did not consider peak-shaving measures in the initial stage, this led to a situation where production and gas supply had to be restricted during off-peak periods. Peak-shaving during these off-peak times has thus become an unavoidable issue for coal-to-natural gas projects. Therefore, such projects should choose conversion products that offer good peak-shaving capabilities, mature technology, and a certain degree of added value, in order to reduce production during off-peak times and ensure adequate supply to meet market demand in winter, thereby enhancing the ability of these projects to withstand market risks. 2 Peak-shaving methods using coal-based natural gas: At present, the options for peak-shaving natural gas in China are limited, and the capacity for peak-shaving is severely insufficient. How coal-to-natural gas projects can select the optimal peak-shaving method based on their own actual conditions in order to maximize investment returns is an issue that must be addressed in the preliminary stage. Choosing a peak-shaving method that is process-compatible, technically reliable, and offers significant benefits is the only way for coal-to-natural gas to adapt to the natural gas consumption market. 2.1 Peak shaving using gas storage facilities Underground gas storage facilities are structures built using depleted underground gas or oil layers, and they represent the most common and cost-effective form of underground gas storage at present. Gas storage facilities use the peak-shaving and valley-filling principle for load balancing: when the supply of gas exceeds demand, the excess natural gas is stored in these facilities, while when the supply is less than demand, gas is released from there to meet the shortfall. Underground gas storage facilities are generally located at the end of gas transmission networks or near areas with high gas consumption, so as to be able to respond quickly to changes in gas demand and carry out peak-shaving operations on time. Gas storage facilities have advantages such as large storage capacity and reliability, but large-scale gas storage projects require stringent geological conditions for site selection, have long construction periods and high investment costs. Moreover, the processes of storing and releasing gas are complex, and dehydration treatment is necessary before the gas can be supplied to urban gas distribution networks, which increases the costs associated with regulating gas supply levels. These issues severely hinder the development of gas storage facilities for peak load management in China. As a supporting facility for pipeline projects, the construction of underground gas storage facilities lags significantly behind that of pipelines. By the end of 2016, China had built 18 such facilities, with a total effective storage capacity of 6.4 billion m3 per year, accounting for approximately 3.1% of the country’s annual gas consumption – a figure far below the world average of 10%. Given the current situation of China’s natural gas pipeline network, the capacity of storage facilities available for peak-shaving during off-peak periods in the coal-to-natural gas sector is severely insufficient. Excluding the peak-shaving capacity provided by conventional natural gas itself, the available peak-shaving capacity for coal-to-natural gas is limited. Moreover, the amount of gas produced from coal for peak-shaving purposes is under direct control of the pipelines operated by CNPC and Sinopec; during off-peak periods, it is inevitably squeezed by conventional natural gas, resulting in high costs associated with peak-shaving. This, in turn, increases the operational burden on coal-based natural gas production. 2.2 LNG for peak shaving: LNG peak shaving involves using the excess natural gas available during off-peak periods of consumption. Through processes such as throttling, expansion, or external cooling, this gas is compressed to 1/625th of its original volume at normal pressure and -160 °C, thereby turning it into LNG for storage. During peak demand periods, this LNG is vaporized and supplied to the urban gas distribution network to help regulate demand. LNG peak shaving offers the advantages of flexible storage and transportation as well as high mobility, making it suitable for gas supply and peak shaving in small towns. As a liquefied form of natural gas, LNG also faces the challenge of selling in off-peak seasons. From April to September each year, as demand for gas decreases significantly in the northern regions, LNG, just like natural gas, enters a period of low sales, making it difficult to address on a fundamental level the issue of using coal-based natural gas for large-scale peak load regulation. At the same time, LNG requires high investment costs; a facility capable of processing 400 million cubic meters of natural gas per year costs around 500 million yuan to build, with an investment of nearly 20 million yuan per 10,000 tons of LNG produced. The cost of liquefying natural gas ranges from 0.3 yuan to 0.4 yuan per cubic meter. LNG facilities are used only as peak-shaving devices, resulting in low utilization rates and poor return on investment. Furthermore, LNG sales prices are at their lowest levels during the off-season, and the long-term storage of liquid products as well as their transportation over long distances increase the risks and storage and transportation costs. For a 4 billion m3/year coal-to-natural gas project, using LNG plants for peak shaving presents significant limitations in terms of the scale of peak shaving that can be achieved, the available peak shaving markets, and the associated costs; it can therefore be considered as an auxiliary means of peak shaving in conjunction with the local gas demand market. 2.3 IGCC power generation and peak-shaving via coal-to-natural gas power generation: Coal-to-natural gas projects are typically located in regions rich in coal resources such as Shaanxi, Inner Mongolia, Shanxi, Anhui, and Xinjiang, all of which are areas with severe electricity surpluses. Due to comprehensive restrictions imposed by the local development and reform commission on coal-fired power generation, the online operation rate of such plants is less than 40%, and most coal-fired power companies are now facing losses. The tightening policies regarding coal-based power generation have significantly reduced the viability for developing IGCC and coal-to-natural gas power generation. The Natural Gas Utilization Policy (2012 version) explicitly stipulates that the construction of base-load gas power generation projects (excluding projects powered by coalbed methane or mine gas) in the areas of 13 large coal-producing regions, including Shaanxi, Inner Mongolia, Shanxi, and Anhui, is classified as a prohibited activity; from an industrial policy perspective, such projects are not eligible for approval. In terms of construction costs, IGCC is three times that of coal-fired power generation; in terms of electricity generation costs, IGCC is approximately 2.5 times that of coal-fired power generation, while the cost of coal-to-natural gas power generation is about twice that of coal-fired power generation. From the perspectives of capital investment, energy efficiency, and operating costs, neither IGCC nor coal-to-natural gas power generation is competitive; using them as a means for regulating peak demand via coal-to-natural gas production will exacerbate the losses incurred during the off-peak periods in such projects. 2.4 Coal-based ethylene glycol for peak shaving Driven by significant cost advantages and strong market demand, there has been a surge in the construction of coal-based ethylene glycol plants in China in recent years. Since 2015, the capacity of such plants has exceeded 5 million tons per year; by 2016, coal-based ethylene glycol accounted for around 37% of the total ethylene glycol production capacity. Coal-to-ethylene glycol production typically employs a two-step process using syngas. The most challenging aspects of this process are the control of methyl nitrite (a highly explosive compound) during the synthesis of dimethyl oxalate (DMO), as well as the hydrogenation of DMO. These issues represent technical bottlenecks faced by most of the coal-to-ethylene glycol plants that have been built in China. As a result, such projects often encounter problems such as poor catalyst stability, low product quality, insufficient operational efficiency, and difficulties in achieving full production capacity during the initial stages of operation. Furthermore, certain quality parameters of coal-based ethylene glycol products limit their market development potential. Ethylene glycol produced domestically is mainly used in the production of polyesters; however, due to certain issues such as light transmittance, ethylene glycol derived from coal has not yet been fully accepted by the polyester industry. Coal-based ethylene glycol is in a phase of rapid development, with a large amount of production capacity for such ethanol glycol currently under construction or planned. Once all these projects are completed and put into operation, the domestic ethylene glycol market will face a situation of overcapacity. At the same time, there is a surge in renovation projects aimed at converting large quantities of coke oven gas and small-scale methanol plants into facilities for producing ethylene glycol. Although there is a shortage of ethylene glycol production capacity in China and across Asia, global production capacity for ethylene glycol is already in excess. In the coming years, these factors will all squeeze the growth space of the ethylene glycol market. The scale of individual coal-to-ethylene glycol plants is relatively small, resulting in limited peak-shaving capacity. The existing coal-to-ethylene glycol plants all have a capacity of 200,000 tons per year; further industrial expansion of such plants entails certain technical risks. It is therefore evident that coal-to-ethylene glycol is suitable only for peak-shaving in small and medium-sized coal-to-natural gas projects. 2.5 Peak shaving using coal-to-methanol technology: Coal-to-methanol technology falls under the category of projects for the clean and efficient utilization of coal. In China, there are many large-scale projects that have been operating successfully for years; this technology is mature and reliable, with abundant operational experience. Coal-to-methanol and coal-to-natural gas share common processes in gasification, shift conversion, and purification, as well as similar synthesis processes; it represents the method for peak-shaving in coal-to-natural gas projects that requires the least process adjustments, offers the highest process compatibility, and entails the lowest additional investment. The methanol peak-shaving process flow diagram for the coal-to-natural gas project is shown in Figure 1. 2.5.1 Analysis of the methanol industry chain: Methanol is characterized by a long industry chain and wide range of applications. Methanol holds an important fundamental role in the chemical industry, being primarily used to produce a range of organic products such as olefins, gasoline, methanol-to-aromatics compounds, formaldehyde, acetic acid, methane chlorides, and methylamine. Coal-to-methanol production has become the dominant force in the upstream industry for methanol; by the end of 2017, coal accounted for 75% of the raw materials used in methanol production. Methanol-to-olefins conversion, on the other hand, has become one of the main downstream products of methanol – by the end of 2017, olefins made up 46% of methanol’s total consumption. Process routes for synthesizing acetaldehyde, ethanol, and aromatics starting from methanol (which are now mostly produced from ethylene) have gradually been developed and put into use. In particular, the synthesis of aromatics such as benzene, toluene, and xylene from methanol enables maximum utilization of resources and a significant reduction in pollutant emissions. It has been ranked as the fifth major product among coal-based chemical projects such as coal-to-olefins, coal-to-natural gas, and coal-to-oil. Major demonstration projects for coal-based aromatics production have been included in the key tasks for energy technology innovation during the 13th Five-Year Plan period, with the aim of achieving breakthroughs in key technologies, thereby serving as a new direction for the development of the methanol industry. Methanol is also an emerging alternative fuel. Methanol is a clean and high-quality fuel that can replace gasoline and diesel; it features a high octane rating, good combustion properties, high energy efficiency, and low levels of pollutants emitted after combustion. Methyl tert-butyl ether (MTBE) is an excellent gasoline additive that can improve the anti-knock properties of gasoline. Adding 10% to 15% MTBE to gasoline can increase its motor octane number (MON). Methanol and its advanced processed products exhibit good cleanliness, substitutability, and operability compared to traditional fuels in applications such as automotive, marine, and industrial heating sectors. They are receiving increasing attention within the industry and are being increasingly adopted; they have become one of the key approaches in China for ensuring energy security and promoting the development of alternative energy sources. 2.5.2 Analysis of the methanol market prospects: The methanol industry has broad market prospects. Over the past 10 years, China’s methanol industry has developed rapidly, and it is now the largest producer and consumer of methanol in the world. Although the demand for traditional methanol-derived products such as formaldehyde and acetic acid has slowed down, the strong growth of downstream industries driven primarily by the production of olefins from methanol has contributed to the continuous expansion of the entire methanol market. In 2016, China’s methanol consumption reached 61.53 million tons. The average annual growth rate of methanol consumption from 2010 to 2016 was as high as 18.1%, which is much higher than the growth rates of China’s GDP and energy consumption. With the rapid development of emerging downstream products such as methanol-to-olefins and alcohol-ether fuels, as well as promising advances in future downstream industries like methanol-to-ethanol and methanol-to-aromatics, the methanol industry is set to enter another period of rapid growth. On the supply side, competitive methanol production capacity will continue to increase, primarily driven by methanol plants associated with coal-to-olefins facilities. It is estimated that by 2020, China’s methanol production capacity will reach 96 million tons per year, with an output of 69.6 million tons per year and an operating rate of 72% for the relevant facilities. Some less competitive coal-based ammonia and methanol production facilities, as well as those that use natural gas for methanol production, will gradually withdraw from the market, thereby expanding the market opportunities for coal-based methanol production. 3 Conclusion 3.1 Underground gas storage facilities are extremely limited, and they cannot serve as viable options for regulating peak demand in coal-to-natural gas production in the near future ； LNG for peak shaving has significant limitations in terms of the scale of peak shaving that it can achieve, the market for such services, and the associated costs; it is therefore not suitable for use in peak shaving during the off-peak periods for coal-based natural gas ； IGCC and coal-to-natural gas power generation for peak shaving are not competitive in terms of industrial policy, geographical constraints, investment costs, and power generation costs. From a comprehensive economic and technical analysis, underground gas storage, LNG, IGCC, and coal-to-natural gas power generation are all unsuitable for peak shaving using coal-to-natural gas. 3.2 The development of coal-based ethylene glycol has been ongoing for over 10 years, but industrial demonstration projects have yet to fully meet the expected requirements. The overall scale of this technology is still not fully mature, and there are risks related to market demand; it can be used for peak-shaving in medium-scale coal-to-natural gas projects. 3.3 The coal-to-methanol process is similar to the coal-to-natural gas process, with a high degree of overlap. It represents the method that requires the least process adjustments, offers the highest degree of process compatibility, and entails the smallest additional investment for peak shaving. Moreover, it benefits from significant cost advantages at larger scale, resulting in good economic returns and enabling the maintenance of overall project profitability ； At the same time, as a basic chemical raw material, methanol has a long downstream industrial chain, a wide range of application areas, and large market potential