Issues surrounding the coal-to-oil industry

On October 10, a research report issued by the internationally renowned investment bank UBS raised China Shenhua’s (1088.HK) target price significantly from 35.15 Hong Kong dollars to 101 Hong Kong dollars. As soon as the report was released, China Shenhua’s A-share price hit the daily limit for 3 consecutive days; after reaching a high of 94.88 yuan, it closed at 80.05 yuan on October 23 ； China Shenhua’s H-share closed at 49.45 Hong Kong dollars on the 23rd, after reaching a high of 57.95 Hong Kong dollars. UBS’ report is based on the assumption that coal market prices will continue to rise, as well as on profit forecasts for Shenhua’s range of coal-based chemical projects, including coal-to-oil production. In fact, it is currently difficult to make an accurate assessment as to whether Shenhua’s first domestic coal-to-oil production line with an annual capacity of 1 million tons, set to come online next year, will generate high returns. The prospects of the coal-to-oil industry, and whether China should pursue its development vigorously, have become issues of concern for all parties amid high oil prices. Currently, international oil prices are continuing to rise, putting significant pressure on China’s oil imports. On September 16, news came from the first China (Taiyuan) International Coal and New Energy Industries Expo indicating that a series of technical research efforts and demonstration projects are underway in China aimed at replacing oil with coal, in order to reduce the country’s future dependence on oil imports. China has completed two pilot tests for coal indirect liquefaction on a scale of 1,000 tons and 10,000 tons respectively. Three coal-to-oil projects are expected to come online in 2008: the world’s first coal direct liquefaction production line with an annual capacity of 1 million tons built by Shenhua Group, the coal-to-oil project operated by Inner Mongolia Yitai Group, and two coal-to-oil indirect liquefaction projects with an annual capacity of 160,000 tons each, carried out by Lu’an Group in Shanxi Province, which will go into operation next year. Around 2008, a production capacity of 1.32 million tons per year will be established, and by 2020 the national capacity will reach 50 million tons per year. Currently, the debate regarding coal-to-oil conversion focuses mainly on its economic viability. Zhang Yuzhuo, vice general manager of Shenhua Group and chairman of Shenhua Coal-to-Oil Co., Ltd., said at the coal expo: “Under the current high oil prices, developing coal-to-oil is economically viable.” ” Chen Liming, Executive Vice President of Sasol China, which is at the forefront of coal-to-oil technology worldwide, also said that coal-to-oil has bright prospects in China, and China’s cautious approach and step-by-step strategy are conducive to the long-term development of this technology. Chen Yuhui, a chemical industry analyst at Orient Securities, shares the same view; he believes that, as things stand now, once the first industrial-scale facility for coal-to-oil conversion is built, the future prospects for this technology are very optimistic. It can play a positive role both from the perspective of **energy security and strategically.

Considering merely the continuous rise in oil prices and China’s energy structure, which is characterized by a lack of oil and gas but an abundance of coal, it seems that coal-to-oil conversion is an effective way to reduce China’s high dependence on foreign oil and alleviate the pressure associated with oil imports. However, there are indeed many issues worth considering regarding the vigorous development of coal-to-oil as an industry and as an energy strategy. I. Is a capacity of 50 million tons per year large or small? China is a country with high energy demands. Experts predict that by 2020, China’s oil demand will reach 600 million tons. 50 million tons is a negligible amount compared to that figure. At that time, with China’s oil production at 250 million tons and oil produced from coal at 50 million tons, China’s dependence on imported oil will still be as high as 50%. Therefore, even if a large-scale coal-to-oil industry is established, it cannot fundamentally solve China’s energy shortage problem. II. Is China truly a country rich in coal resources? Data shows that China’s coal reserves amount to 687.2 billion tons. It ranks third in the world, accounting for 11% of the global total, but its per capita storage amount is only 60% of the world average. The United States accounts for 23% of the world’s total coal reserves, producing 1 billion tons of coal per year; coal makes up 27.4% of its total energy consumption. In 2006, China produced 2.3 billion tons of coal, with coal accounting for 70% of its total energy consumption. China can only be regarded as a major coal-producing country in the world, but neither when compared to the United States nor when considered in terms of per capita coal availability, can it be considered a country with abundant coal resources. III. The issue of carbon dioxide emissions. For 50 million tons per year of coal-to-oil production, 200 million to 250 million tons of coal are required annually. Assuming that each ton of coal produces 3.5 tons of carbon dioxide, this will result in an increase in carbon dioxide emissions of 700 million to 900 million tons per year. On September 24, Foreign Minister Yang Jiechi said at the thematic session on adaptation at the United Nations High-Level Conference on Climate Change that as a responsible major developing country, China will take proactive measures within its capabilities to strive to control the growth rate of greenhouse gas emissions. Vigorously developing the coal-to-oil industry goes against the smooth implementation of China’s Climate Change Action Plan. IV. Water resources issues. Coal-to-oil production requires a large amount of water, with over 10 tons of water consumed per ton of product. China suffers from a shortage of freshwater resources, and provinces such as Shanxi, Shaanxi, and Inner Mongolia are among those most affected by water scarcity. The implementation of coal-to-oil projects in these areas will undoubtedly exacerbate the growing strain on water resources. Prolonged droughts may affect the normal operation of the device. V. The issue of ecological balance. To build a coal-to-oil project with an annual capacity of 1 million tons, 5 million tons of coal and 10 million tons of water are required each year. In addition, upstream coal mines, downstream production facilities, logistics systems, as well as facilities for production and living services must also be established. With the development of such large-scale coal-to-oil production bases, a town with a population of over 100,000 people will emerge. If 500,000 tons of coal-to-oil waste residues, 20 million to 30 million tons of wastewater from production and daily life, along with large amounts of sulfur-containing industrial exhaust gases, are not properly disposed of, it will have a fairly severe impact on the local ecological environment. If coal-to-oil projects are built on a large scale in areas where the ecological balance is already quite fragile, without taking into account the environmental carrying capacity, it will directly affect the stable economic and social development as well as the protection of the local ecological environment. VI. The issue of coal’s energy utilization efficiency. Coal and oil are **equally important strategic resources. Although China is relatively rich in coal resources, as finite energy sources, they will eventually be exhausted. It is necessary to improve the efficiency of coal utilization and protect China’s coal resources. According to the heat equivalent conversion formula provided by the U.S. **Standard Bureau, the heat equivalent ratio of oil to standard coal is 1:1.4286. Based on this, in the direct coal-to-oil process, the utilization rate of coal’s thermal energy is 47.6%, whereas in the indirect method it is only 28.6%; in other words, 71.4% of the thermal energy is lost during the coal-to-oil conversion process. Therefore, in implementing coal-to-oil projects in our country, it is necessary to give full consideration to the efficient utilization of coal resources, with a focus on developing and promoting direct coal-to-oil conversion technologies. VII. Issues of technical risk and financial risk. Building a million-ton-scale coal-to-oil plant requires an investment of hundreds of millions of yuan. Coal-to-oil is a project with a high degree of technical integration; there are no operational industrial facilities in China that can serve as a reference, and even abroad, there are no industrial facilities available for reference regarding the direct coal-to-oil conversion technology. Countries and regions such as the United States, Japan, and Europe have already mastered the core technologies for coal-to-oil conversion, but due to the lack of industrial demonstration facilities, they have not reached the stage of industrial application. The upsurge in coal-to-oil projects across China provides a free platform that offers substantial benefits, enabling these countries to test the feasibility of coal-to-oil technology. VIII. Economic issues of coal-to-oil conversion. When comparing current oil and coal prices, building large-scale coal-to-oil projects can yield significant economic benefits, which is the fundamental reason why coal-producing provinces are eager to launch such projects. At the coal exhibition, Professor Lin Boqiang, director of the Institute of China Energy Economics at Xiamen University, questioned the economic viability of coal-to-oil conversion. He believes that coal-to-oil could be feasible as a strategic supplement on a limited scale, and it would also be beneficial for **. But if it is to be developed vigorously as an industry, it does not have much future. Coal itself is also a non-renewable resource, and its excessive consumption leads to rising coal prices; therefore, coal-to-oil conversion does not serve to address the issue of energy supply in a meaningful way.

Are coal-to-oil and coal liquefaction the same thing? Let me explain first: lol

The inherent properties of coal determine that it is certainly a scarce resource! To be honest, it will eventually disappear from the Earth, so now every grain of coal used must be counted carefully. Relying on coal as a source of energy without limits is nothing but a futile approach that isn’t worth promoting!

Replying to the fourth floor: Coal-to-oil refers to the process of synthesizing oil products from coal, and it is mainly divided into direct liquefaction and indirect liquefaction.

Back to the fourth floor: Coal-to-oil refers to coal liquefaction

Coal liquefaction refers to the conversion of coal into liquid chemicals, including synthetic oils and methanol. Coal-derived oils are divided into directly liquefied oils and indirectly liquefied oils.

Replacing one fossil fuel with another is certainly not a sustainable solution in the long term. But there is a rationale for this; on the one hand, it is a temporary measure taken into account for energy strategic security, and on the other hand, it certainly brings benefits to certain groups with decision-making power. Consider that, for coal chemistry, it is thermodynamically unreasonable to convert high-molecular-weight coal resources into CO and H2 and then synthesize various substances with higher molecular weights; yet this can only be regarded as an academic opinion.

I completely agree with what was said above. Coal gasification manages to break down the complex coal molecules into simple CO and H2, only to then require energy to recombine them into long-chain hydrocarbons. When these hydrocarbons burn, their long carbon chains are broken down again, which is highly inefficient from an energy utilization perspective. In my opinion, coal-to-oil should only be considered as a **strategic option, as a strategic technical reserve, rather than being used on a large scale. Academician Ni from Tsinghua University’s views are worth promoting; for coal liquefaction, it is sufficient to produce methanol or dimethyl ether – there is no need to create long-chain hydrocarbons.

Coal liquefaction, if used as a domestic fuel, should not be strongly encouraged; after all, the thermal efficiency of coal when converted into liquid fuels is low