Environmental impact assessment finally approved after three years; CNOOC’s coal-to-gas project faces repeated criticism?

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Environmental impact assessment finally approved after three years; CNOOC’s coal-to-gas project faces repeated criticism? Author/Source: Date: 2016-03-29 Clicks: 7 Could CNOOC’s coal chemical project, which requires an investment of up to 100 billion yuan, be launched at the wrong time? In mid-March, CNOOC’s coal-to-gas project in Datong, Shanxi, finally received approval from the Ministry of Environmental Protection for its environmental impact assessment after three years. The project was approved by the **National Development and Reform Commission three years ago. However, according to reporters from China Business News, the project is still in the preliminary preparation stage and has not yet begun construction officially. In response, a relevant official from CNOOC’s news office told a reporter from China Business News that they were aware of the matter, but the headquarters had not yet issued any official statements on it. Over three years, many fundamental conditions and market factors have quietly changed. Currently, CNOOC is facing the greatest performance pressure since its establishment, with its net profit for 2015 dropping by around 85% on a year-on-year basis. Industry experts believe that CNOOC’s 4 billion cubic meter coal-to-gas project is located in the water-scarce Datong region; with increasing environmental pressures, and given the low levels of oil and gas prices, it will be difficult to achieve profitability in the future. Environmental constraints: The location of the aforementioned project is the Zuo Yun Coal Chemical Industry Base in Datong City, Shanxi Province. The project utilizes local coal resources and employs coal gasification under pressure as well as pulverized coal gasification technologies to produce 4 billion standard cubic meters of coal-to-natural gas per year. In mid-March, the project received approval for its environmental impact assessment; public information from the Ministry of Environmental Protection indicates that the project meets the relevant construction requirements. In principle, the nature, scale, process, location of the construction projects, as well as the environmental protection measures outlined in CNOOC’s environmental impact report, are approved. In fact, as early as March 2013, the aforementioned project had already received an approval document from the **National Development and Reform Commission. But why was the environmental impact assessment approved only after three years? Liu Guangbin, an analyst at Zhuochuang Information, believes that in previous years, natural gas prices were high and demand exceeded supply; as a result, many companies invested in coal chemical projects. The biggest constraint on coal chemistry lies in environmental protection issues, and at that time there was a trend toward stricter policies. “A high coal content, low oil levels, and shortage of gas constitute a unique energy landscape in China. Coal chemical projects represent one way to utilize coal in a clean manner, and it now seems that there are signs of policy relaxation. ”Liu Guangbin said. Various signs indicate that CNOOC is accelerating the progress of the “North Line Project”. However, environmental safeguards have caused the project to struggle along. Previously, the Ministry of Environmental Protection held several expert meetings regarding CNOOC’s coal-to-gas project in Datong; the key reason for the prolonged delay was the issues related to environmental impact assessments. Environmental activist Gan Yiwei said, “Zouyun County, where the project is located, is a **-level ecological demonstration area. Although the site in question has been converted into industrial land recently, the Ministry of Environmental Protection believes that the location of the project is questionable.” ” Furthermore, high water consumption is also a challenge that CNOOC has to address. Data shows that the Datong region suffers from a severe shortage of water resources, with an average per capita water supply of 415.8 cubic meters, which is only 12% of the national average. This figure is well below the internationally recognized threshold of 500 cubic meters per capita, which indicates a severe water shortage. In fact, in order to overcome the severe water shortage and accelerate the development of coal chemical industries, coal chemical projects in Shanxi and its surrounding areas have begun to draw water from the Yellow River. According to the person in charge of the Water Affairs Bureau of Zouyun County, in July 2015, the Shanxi Provincial Development and Reform Commission approved the water supply project in Zouyun County as part of the northern branch of the project to transport water from the Wanjiazhai Water Control Project to Shanxi. This project enables an annual water supply of 36 million cubic meters, which is primarily used to supply water to CNPC’s projects as well as for industrial use and domestic needs in Zouyun County. ““The project to divert water from the Yellow River to the left bank is a prerequisite for CNOOC’s coal-to-gas project,” said the official. “The continuous extraction of water from the Yellow River will cause severe damage to the ecological environment in the middle and lower reaches areas. ”Ren Xiangchun, director of the Chongqing Liangjiang Volunteer Service Development Center, said. “Regarding the “Beiji Wei Ji” project ahead of its implementation, in addition to environmental concerns, the more serious problems facing CNOOC’s coal-to-gas project are the huge investment required and the unpredictable profits that can be generated. It is understood that coal-to-gas production is a key component of CNOOC’s transformation under its \"onshore strategy\". Liu Guangbin believes that CNOOC’s move is driven more by strategic considerations. “CNOOC’s natural gas projects are mainly concentrated in coastal LNG projects, and it has limited reach into inland areas. As for conventional natural gas projects, CNOOC finds it difficult to compete with the two major national oil companies; therefore, it has to seek alternative approaches by focusing on unconventional sources of natural gas such as gas produced from coal. ” Reporters have noticed that CNOOC is restructuring its coal chemical business, retaining only the coal-to-natural gas projects, while other technology-based projects such as coal-to-olefins and coal-to-methanol will be phased out. “The coal-to-gas project has actually become the last legacy of CNOOC’s strategy to move operations onto land. ”A senior official from a local natural gas company in Inner Mongolia said. In fact, CNOOC’s reduction in its new energy business is related to Chairman Wang Yilin’s focus on a strategy centered on traditional oil and gas resources. Maintaining the coal-to-gas business is also part of its oil and gas strategy. Regarding its strategies in coal-to-gas production, CNOOC has proposed the \"North Route Plan\", which consists mainly of three components: the CNOOC Datong coal-to-gas project with a capacity of 4 billion cubic meters, the Ordos coal-to-gas project with the same capacity, and the Mengxi coal-to-natural gas pipeline. According to the person in charge of the natural gas company in Inner Mongolia mentioned above, the investment required for coal chemical projects is astonishing. The investment for a coal-to-gas project with a capacity of 4 billion cubic meters is approximately 25 to 30 billion yuan. The three projects in Jungar require around 80 billion yuan, while the investment in the Mengxi gas pipeline needs more than 20 billion yuan; in total, this amounts to about 100 billion yuan. However, driven by low coal prices and optimistic prospects for the future natural gas market, domestic coal chemical projects remain highly popular. According to preliminary calculations by journalists, the total investment in coal chemical projects that are currently under construction or have been built without prior approval across the country amounts to a staggering trillion yuan. In Shaanxi province alone, there are 9 new coal chemical projects under construction, with a total investment of 300 billion yuan. **Dai Yande, deputy director of the Energy Research Institute of the National Development and Reform Commission, believes that in previous years, there were signs of excessive investment in the coal-to-gas industry. Enterprises should objectively recognize that the coal-to-gas industry still faces bottlenecks such as significant environmental protection pressures, project profitability being highly affected by coal prices, a lack of supporting pipeline infrastructure, and the absence of independent intellectual property rights for key technologies. According to industry insiders, if a coal chemical project is put into operation normally and operates well in a favorable market environment, it generally takes seven to eight years to recoup its costs. However, with current low prices for oil and gas and a sluggish situation in the coal chemical sector, this investment period will be extended. Several analysts say that CNOOC, which is continuously reducing its capital expenditures, will face considerable pressure due to the huge investment requirements associated with coal-to-gas projects. In 2016, as international crude oil prices remained low, coal chemical projects faced a critical test of survival. “Generally speaking, the break-even point for coal chemical industries is around $60 to $70. Currently, oil prices are hovering between $40 and $50, and over the next two years, a large number of coal chemical companies will face closure, while those that remain are also at risk of incurring losses. ”Xue Jing, an analyst at Gold and Silver Island, told reporters.