Amid controversy, China accelerates the industrialization of coal-to-oil production

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Author/Source: Xinhua Net Date: 2009-3-24 -------------------------------------------------------------------------------- Following the successful trial production of Shenhua Group’s direct coal-to-oil project, Inner Mongolia Yitai Group announced on the 23rd that its 160,000-ton capacity indirect coal-to-oil demonstration project had also achieved successful trial operation, producing qualified products such as diesel and naphtha. This is China’s first large-scale industrialized indirect coal-to-oil facility to produce oil on a trial basis. 　　 The industrialization of coal-to-oil production in our country is accelerating. However, since the second half of last year, international oil prices have dropped sharply, and high coal prices have also increased the costs of oil production. What will become of the controversial coal-to-oil industry? 　　 Energy security will gain a new asset. The coal-to-oil conversion project of Yitai Group is located in Zhungeer Banner, Inner Mongolia, a region rich in coal resources. Since its commencement in 2006, nearly 2.7 billion yuan has been invested in this project. Li Yongwang, deputy director of the **Key Laboratory of Coal Conversion at the Chinese Academy of Sciences and the lead scientist of the ’863’ project on coal indirect liquefaction, said that the production of oil from this demonstration project indicates that significant progress has been made in China’s independently developed technology for converting coal into oil. 　　 Meanwhile, as an important part of the **energy strategy, the Shenhua Group’s coal-to-oil project located in Yijinhuoluo Banner, Inner Mongolia, has seen its first million-ton-scale demonstration production line begin operating after nearly three years of construction and testing. On December 31 of last year, this line started producing products such as diesel and naphtha, making China the first country to master million-ton-scale coal-to-oil technology. 　　 Constrained by its resource profile of abundant coal, limited oil, and scarce gas, the contradiction between oil supply and demand in China has become increasingly acute in recent years. According to data released by the General Administration of Customs, last year China’s net oil imports reached 199.85 million tons, a 12.55% increase on a year-on-year basis. The country’s dependence on imported oil reached 51.3%, both figures marking new highs. Experts expect oil imports to continue rising in the future. 　　 Of particular concern is the fact that in the more than 4 years prior to the outbreak of the international financial crisis, international oil prices continued to rise, reaching a record level of $147.27 per barrel. During this period, due to supply shortages, oil shortages occurred frequently across the country. 　　 “Promoting the industrialization of coal-to-oil conversion can open up new channels for liquid energy production, which is of great significance for ensuring **energy security. ”Zhao Shuanglian, **Deputy Head** of the Inner Mongolia Autonomous Region, said. 　　 Taking Shenhua Group’s direct coal-to-oil project as an example, the planned scale of the project is 5 million tons, of which the first phase includes three production lines with a capacity of 3.2 million tons. The first pilot production line that was successfully developed can, once put into full operation, convert approximately 3.5 million tons of coal per year, producing 1.08 million tons of products such as diesel and naphtha. 　　 The industry is taking shape. Affected by factors such as high oil prices and supply shortages, there have been repeated calls in recent years to develop the coal-to-oil industry in the country. **It was also proposed to advance the construction of coal liquefaction demonstration projects in an orderly manner during the 11th Five-Year Plan period, in order to lay the foundation for industrial development. 　　 It is against this backdrop that Shenhua Group’s direct coal-to-oil project was launched first. It is reported that once the first million-ton-class demonstration production line begins to produce oil, Shenhua Group will continue to fine-tune it; if everything goes well, two more million-ton-class production lines will be built in the near future. 　　 Zhang Shuangwang, chairman of Yitai Group, also said that after the successful trial operation of the 160,000-ton coal-to-oil demonstration project, efforts will be made to achieve full-scale production and operation at capacity within this year. Going forward, the facilities will be upgraded and a new generation of coal fractionation liquefaction technology will be applied, gradually increasing production capacity to around 600,000 tons, with plans to establish a coal-to-oil facility capable of producing 5 million tons per year. 　　 Progress on other projects is also fast. At the end of December last year, the small-scale coal-to-oil conversion test unit of Lu’an Mining Group produced oil products, and currently the 160,000-ton coal-to-oil conversion plant is also under intensive testing. At the same time, Yanzhou Mining Group and Xuzhou Mining Group are also planning coal-to-oil projects. 　　 In addition, other enterprises in more than 10 provinces such as Xinjiang, Shandong, Shaanxi, Guizhou, and Ningxia are competing to develop coal-to-oil projects, with each production line having a capacity ranging from over 100,000 tons to 1 million tons. According to some experts, by 2020 China’s coal-to-oil production capacity is expected to reach 30 million to 50 million tons. 　　 Li Yongwang said that the industrialization of coal-to-oil production in China is accelerating at present, and the industry has taken initial shape. 　　 Seizing opportunities under pressure: After the reversal in international oil prices last year, they plummeted all the way. To prevent and control risks, in September last year, departments such as the National Development and Reform Commission issued specific policies stipulating that, with the exception of the Shenhua Group’s coal-to-oil project, which could continue, and the Ningdong coal indirect liquefaction project in Ningxia, which was not approved and therefore could not begin operations, all other projects were to be halted. 　　 However, through persistent efforts, the **National Development and Reform Commission ultimately agreed to allow the coal-to-oil projects of companies such as Yitai Group and Lu’an Group to proceed. Some projects currently have follow-up plans, with capacities mostly exceeding 3 million tons, and some even exceeding 10 million tons. 　　 For the demonstration projects of direct and indirect coal-to-oil conversion, approximately 3.5 tons and 4.02 tons of coal are consumed per ton of oil produced, respectively. Compared to three years ago, coal prices have now more than doubled, and the cost of oil production has increased as well. Therefore, if any coal-to-oil projects come online in the near future, there will be significant pressure to achieve profitability. 　　 According to Li Yongwang, based on current coal prices, the cost per barrel for the indirect oil production demonstration project is around $50. With increases in scale, improvements to catalysts, and the adoption of new-generation coal fractionation liquefaction technologies, the amount of coal required per ton of oil produced will gradually decrease to around 3 tons. The investment needed for a production capacity of 10,000 tons will also drop by about 50%, from around 160 million yuan. As a result, the cost of producing oil will fall to approximately 40 dollars per barrel. 　　Furthermore, the companies undertaking coal-to-oil projects are all highly capable, possessing large coal mines, and also have strong competitiveness in coal and oil co-production. In the long term, as long as production reaches economic scale and the production chain is extended to manufacture products such as ethylene in order to increase added value, the prospects for the coal-to-oil industry are promising. 　　 Facing Controversies and Responding to Doubts: Regarding the view that coal-to-oil production should be halted at present and instead considered as a technical reserve, Li Yongwang and others argue that new technologies can hardly be put into industrial use without undergoing practical testing and repeated improvements. Furthermore, the process of advancing industrialization can also improve the level of research and development as well as equipment manufacturing, and it enables the training and development of talent. 　　 Some experts also criticize coal-to-liquid fuels for their high water consumption, low energy efficiency, and significant pollution during production. Li Yongwang explained that in coal-to-oil demonstration projects, the water consumption per ton of oil produced is between 10 and 12 tons, while when coal-based oil production reaches an economic scale, this figure can be reduced to between 6 and 8 tons per ton of oil. In comparison, the water consumption per ton of coal-derived methanol is about 15 tons, while that for coal-based ammonia synthesis is around 30 tons. 　　 At the same time, with the scale expanding to 600,000 tons and the application of staged liquefaction technology, the energy efficiency of indirect coal-to-oil conversion will increase from less than 40% in the demonstration phase to 43% to 45%, which is already on par with that of thermal power plants; it will further rise to around 55% after large-scale production. 　　 Furthermore, coal-to-oil projects in our country place great emphasis on environmental protection. By applying technologies such as recycled exhaust gas, waste heat recovery, and carbon dioxide capture, the carbon dioxide emissions of coal-to-oil demonstration projects are over 70% lower than those of thermal power plants. The Shenhua Group’s direct coal-to-oil project has also installed comprehensive environmental protection facilities such as oil sludge power generation and wastewater treatment, achieving nearly zero emissions of pollutants. 　　 The coal-to-oil demonstration project of Yitai Group is also equipped with systems for dust removal, wastewater recycling, sulfur recovery, and waste heat recovery. Standing inside the factory premises, the reporter could see almost no other exhaust gases aside from steam, and there was no unusual smell in the air.