The environmental impact assessment for coal-to-gas production has finally been approved, but the owners’ troubles have just begun

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The environmental impact assessment for coal-to-gas production has finally been approved; yet the owners’ troubles have just begun. Author/Source: Date: 2016-04-18 Clicks: 4 In mid-March, CNOOC’s coal-to-gas project in Datong, Shanxi, received approval from the Ministry of Environmental Protection for its environmental impact assessment after three years of delay. The project was approved by the **National Development and Reform Commission three years ago. CNOOC’s 4 billion cubic meter coal-to-gas project is located in the Datong region, which suffers from severe water shortages. With increasing environmental pressures, and given the low prices of oil and gas as well as the fluctuations in corporate revenue cycles, industry expectations regarding this project have changed significantly compared to before. There are still many variables regarding the future direction of the project. An untimely approval? The CNOOC Shanxi Datong Low-Grade Bituminous Coal Clean Utilization Demonstration Project (a coal-to-natural gas project with a capacity of 4 billion standard cubic meters) has finally received approval for its environmental impact assessment from the Ministry of Environmental Protection. It has been nearly 10 months since CNOOC submitted the environmental impact assessment documents for this project to the Ministry of Environmental Protection. According to the project approval process, once the environmental impact assessment is approved, it means that project authorization is also near. Contrary to the urgent desire in the past to see projects approved, this is considered an untimely approval. International oil and gas prices have dropped sharply, and due to concerns regarding the project’s prospects, insiders at CNOOC have privately expressed a desire for the approval of this project to be delayed. Personnel involved in coal-to-gas projects in Shanxi also said that the project team has recently issued instructions stating that no public statements regarding the project should be made. However, the approval issued by the Ministry of Environmental Protection clearly states that once the approval document for the environmental impact assessment report is granted, construction of the project may only begin after more than 5 years have passed, and the environmental impact assessment report must be submitted to our ministry for re-evaluation. 5 years is also a sufficient timeframe; during this period, the relocation of residents within the health protection zone surrounding the project must be completed, as well as the approval process for the project, tasks that generally take about a year to carry out. However, it is difficult for anyone to accurately predict how international oil and gas prices, as well as domestic gas prices, will change over the next 5 years. The oil and gas industry’s assessment of coal-to-gas technology can be summarized by the phrase “three noes”: it is not environmentally friendly, not economical, and unstable. Especially with international gas prices having dropped to an unacceptably low level and domestic natural gas prices still having room for further reduction, the prospects for CNOOC’s coal-to-gas projects are concerning. However, some experts have said outright, “Don’t worry; that is just an environmental impact assessment approval. Once all the required documents are in place, over 2,000 approvals will be needed (this claim is a bit exaggerated), and it will take at least three years to complete all the preliminary procedures.” Moreover, even after everything is arranged, construction may not start right away. ”Some have suggested that it should be handed over to Sinopec, which owns more coal chemical assets, but whether Sinopec is willing to take over cannot be determined by mere speculation from the outside world. The Shanxi coal-to-gas project was officially launched in 2009. It is a coal-based clean energy project carried out through cooperation between CNOOC Corporation, Datong City in Shanxi Province, and the Datong Coal Mining Group. The project includes two coal mines with an annual production capacity of 10 million tons each, as well as a coal-to-natural gas facility with an annual production capacity of 4 billion cubic meters. As agreed, the two coal mines are controlled by Tongmei Group with CNOOC holding a stake, while the coal-to-gas project is controlled by CNOOC with Tongmei Group holding a stake. Around November 2009, the project was submitted to the National Development and Reform Commission for approval. It was not until February 27, 2013, that the **National Development and Reform Commission issued a letter approving the initiation of preliminary work for the demonstration project on the clean utilization of low-metamorphic bituminous coal in Datong, Shanxi – in other words, the so-called \"approval document\" was granted. In August 2013, the CNOOC coal-to-gas project team basically completed the engineering feasibility study and design. In May 2015, the Ministry of Environmental Protection accepted the environmental impact assessment documents for this project. Coal-to-gas projects are waiting in line to get approved. Due to various factors that hinder the use of natural gas, its consumption has experienced low growth since 2014. According to statistics from the Economic Research Institute of CNPC, China’s apparent annual consumption of natural gas in 2015 was 191 billion cubic meters, representing a 3.7% increase year-on-year and marking the lowest level in nearly 10 years. However, compared to 2015, the projections for 2020 and 2030 show significant growth. It is estimated that domestic natural gas consumption in 2020 will be 290 billion cubic meters, with an average annual growth rate of 7.5% during the 13th Five-Year Plan period. It is expected to reach 480 billion cubic meters by 2030, with an average annual growth rate of 5.2% between 2020 and 2030, accounting for 12% of the total primary energy consumption. There are already signs of a recovery in natural gas consumption. **According to the operational update released by the National Development and Reform Commission, natural gas imports in January 2016 amounted to 7.6 billion cubic meters, representing a 22.6% increase; natural gas consumption was 22.3 billion cubic meters, with a significant rise of 17.6%. China currently has 55 coal-to-gas projects at various stages (including those that are already in operation, those under construction, as well as those in the planning or contract-signing phase), with a total production capacity of 241 billion cubic meters per year. Coal-to-gas projects in our country are concentrated in the northwest and fewer in the east. The table below shows the progress of some key coal-to-gas projects. http://img.yf116.cn/image/img/20160418/112373975768.jpg http://img.yf116.cn/image/img/20160418/11443984431.jpg The significance of coal-to-gas projects: Despite various opinions in the industry, coal-based energy companies still have a preference for coal-to-natural gas projects. Taking into account various practical conditions in China, coal-to-natural gas still has a rationale for its existence and development. Firstly, the market potential is large. When coal prices are between 400 and 500 yuan per ton, the production cost of coal-to-natural gas is around 1.8 to 1.9 yuan per cubic meter. In contrast, the price of imported gas at Chinese ports is generally above 2 yuan per cubic meter, and the price after it enters the pipeline network is over 2.48 yuan per cubic meter. Thus, coal-to-natural gas has a cost advantage of 0.5 yuan per cubic meter over imported gas; when compared with imported liquefied natural gas, this advantage increases to more than 1.5 yuan per cubic meter. Furthermore, from the perspective of production capacity, China is a country rich in coal but poor in oil and gas; its natural gas resources and production levels are very limited, while demand is growing at an extremely rapid pace. Second is the effective path for the transformation of the coal industry. China is the world’s largest consumer and producer of coal, which has long held a dominant position in China’s primary energy consumption. To ensure the rapid and steady development of the national economy, energy strategies that rely heavily on coal resources must still be adopted at this stage. However, since 2012, aside from global market fluctuations, due to the pressure to reduce energy consumption and emissions, as well as the slowdown of China’s economy and the continuous increase in its coal production capacity, China’s domestic coal market has entered a situation of overall supply exceeding demand. Meanwhile, with the introduction of environmental protection policies such as those aimed at air pollution control, and the advancement of projects to replace coal and oil with natural gas in various regions, demand for natural gas is set to increase even more rapidly. Against this backdrop, the transformation of the coal industry is particularly urgent. Developing coal-to-gas technology helps, on the one hand, to utilize the continuously increasing production capacity in the coal industry, and on the other hand, it enables centralized control of the pollution generated during the decentralized use of coal. Therefore, developing coal-to-gas technology is one of the effective paths for the transformation of the coal industry within China’s current energy structure. Third, it is necessary to ensure **energy security**. At present, China has a high degree of dependence on foreign sources for its natural gas supply; with the growing domestic demand, China’s bargaining power in the international energy market is relatively weak. If breakthroughs can be achieved in the field of coal-to-gas conversion and the production costs of coal-based natural gas can be successfully reduced, it will give our country more leverage when negotiating energy purchase agreements with other countries. Firstly, in terms of price, the reduction in the cost of coal-based gas helps to lower the prices of imported natural gas ； Secondly, in terms of supply security, should imported natural gas resources decline sharply, coal-to-gas conversion can serve as a supplementary measure to ensure the normal operation of society and the economy.