Is the development of coal-to-natural gas viable?

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China’s energy supply model, which is based on domestic sources with coal as the main component, will remain unchanged for a considerable period of time. As oil and natural gas resources become increasingly scarce, the importance of coal is rising. However, due to its natural properties, conventional coal conversion technologies impose a high burden on resources and the environment, and they also require significant transportation capacity. To meet energy demands and promote energy conservation and emission reduction, the development of coal-to-natural gas is an inevitable choice for the clean utilization of coal in the future. At present, the technology for coal-to-natural gas production is quite mature, with multiple industrial-scale coal-to-gas production facilities around the world operating steadily, resulting in low technical risks. Therefore, developing the coal-to-natural gas industry is an effective way to address the shortage of oil and natural gas resources in our country and to ensure energy security. It will help alleviate the imbalance between supply and demand for natural gas in our country and promote balanced socioeconomic development. However, the development of China’s coal-to-gas industry has always been controversial within the industry. Industry analysts point out that projects involving coal-to-gas conversion require enormous investments—often ranging from 10 to 20 billion yuan—and are characterized by high consumption of coal, water, and electricity. Even though natural gas is considered a clean energy source, coal-to-gas technology does not seem to be clean when considering the entire life cycle of the product. Under the current situation where **gas pipelines and markets are monopolized by large oil companies, the subsequent sales of coal-to-gas also present a problem. Furthermore, since 2015, the global economy has been in decline, international oil prices have dropped significantly, and natural gas prices have followed suit, with the growth rate of demand gradually slowing down. All these factors result in uncertain return expectations for coal-to-gas project investments, leading to a strong atmosphere of caution within the industry. This is also one of the main reasons why there are many project approvals but little actual construction, leading to slow progress. Problems in project operation: 1. Poor economic viability. In the cost structure of coal-to-gas production, coal accounts for 60%. Fluctuations in coal prices have a significant impact on the cost of coal-to-gas production, thus posing relatively high risks. Additionally, based on the operation of demonstration projects, the actual production cost of coal-to-gas is quite high; it is only lower than that of imported gas (which benefits from **subsidies). Therefore, coal-to-gas has virtually no advantage in terms of production costs. In terms of selling prices, currently the selling prices of pipeline transportation, LNG produced via liquefaction, and coal-derived gas are all higher than the local natural gas gate price, resulting in relatively low competitiveness. 2. There are issues with the selection of gasification technologies. The gasification technologies used in currently operational coal-to-gas projects mainly fall into two categories: pulverized coal pressure gasification technology and coal slurry gasification technology. Among them, pressurized gasification of coal dust is widely used, accounting for 89.48% ； The proportion of water-coal slurry gasification technology is 10.52%. Both technologies have their advantages and disadvantages, but problems have arisen to varying degrees during their application. The main problems associated with the pressurized gasification of coal dust are the difficulty in treating wastewater and environmental pollution, whereas the issue with water-coal slurry gasification is that the energy consumption of the gasification process does not meet the standards set for demonstration projects. Clearly, the application of a single gasification technology poses risks to project operations. 3. Water resources and wastewater discharge issues: Coal-to-gas projects consume large amounts of water, yet most of the current projects are located in areas with scarce water resources such as Inner Mongolia and Xinjiang. These areas have fragile ecosystems and weak soil self-purification capabilities. Moreover, most of them are severely desertified wastelands and deserts lacking bodies of water capable of receiving wastewater; thus, they have almost no capacity to handle the wastewater generated by the project. In recent years, there have been numerous incidents of industrial wastewater polluting deserts, causing many environmental problems. To prevent such incidents from occurring, companies are required to invest more in wastewater treatment in order to achieve zero wastewater discharge. However, zero discharge of wastewater is a global challenge; currently, there are no mature technologies available for application. This is the main issue that restricts project development and affects its profitability. Market analysis of coal-to-natural gas: The development prospects of coal-to-natural gas projects can be determined from the overall supply and demand balance in the natural gas market. Based on the previous analysis, the ratio of total natural gas consumption to total supply is rising year by year, with demand exceeding supply; therefore, coal-to-natural gas, as a supplementary source, holds great potential for development. The current production capacity of coal-to-natural gas is approximately 4 billion m3 per year, and it mainly comes from methane production projects that result from the co-production of oil from coal at Datang in Keshiketeng Banner, Inner Mongolia, Qinghua in Xinjiang, HuiNeng in Ordos, Guanghui in Xinjiang, and Jiehua in Yunnan. As of December 2014, there were as many as 116.2 (121.5) billion m3/year of projects under construction or approved for implementation (according to China Chemical Industry News), with these projects expected to enter the market gradually after 2018. Driven by society’s strong desire to improve the air quality, the use of clean energy will continue to increase; more and more cities and residents will turn to natural gas, and in the future it will become as common as electricity and water. This is undoubtedly a huge market. Economic analysis of coal-to-natural gas: Depending on the process technologies used in coal-to-natural gas projects, there are differences in terms of investment costs and economic benefits. Let’s use the 4 billion m³/year natural gas project as an example for the calculation. The project is planned to be built in a location in Ordos, Inner Mongolia, with GSP powder gasification and (MK+Lurgi gasification technology) being used for gasification ； The shift process employs a sulfur-tolerant shift technology with a low water/steam ratio ； Low-temperature methanol washing technology is used for desulfurization and decarbonization ； Methanation utilizes advanced foreign technology, with the total investment in project construction amounting to approximately 25.6 billion yuan. Annual output of the project: 4 billion m3 of natural gas, 80,000 tons of sulfur, 50,000 tons of liquid ammonia, 45,000 tons of crude phenol, 25,000 tons of ammonium sulfate, 80,000 tons of naphtha, 180,000 tons of diesel, and 2,000 tons of hydrogenation tail oil ； Annual coal consumption: 7.02 million tons of raw coal with a particle size of 5–50 mm, 4 million tons of raw coal with a particle size of 0–5 mm, and 830,000 tons of fuel coal ； Water consumption: 19.7 million tons. On February 28, 2015, the **National Development and Reform Commission issued a notice stating that the maximum price at the gate stations for new gas supplies used in domestic non-commercial purposes would be reduced by 0.44 yuan/m³, while the price for existing gas supplies would be increased by 0.04 yuan/m³, thereby achieving price harmonization. According to the notification, the price at the Ordos natural gas gate station is 2.04 yuan/m3; therefore, the estimated range for the natural gas price is set at (1.8~2.1) yuan/m3. Within this gas price range, the price of the raw coal corresponding to an internal rate of return of 11% for natural gas plants is calculated, while other economic evaluation parameters are determined in accordance with relevant regulations. It is possible to calculate the different gas prices and raw coal prices required to achieve an internal rate of return of 11% (see Figure 3). As shown in Figure 3, when the natural gas price remains constant and the coal price is below the value on the left side of the line, the project’s internal rate of return is higher than the industry benchmark rate of return, making the project economically viable. Conversely, if the project’s internal rate of return is lower than the industry benchmark, the project is not economically viable. Analysis of the Advantages and Disadvantages of Coal-to-Natural Gas 1. Advantages of Coal-to-Natural Gas The advantage of coal-to-natural gas lies in its contribution to energy conservation and emission reduction. Low-carbon development has become a new driver of international economic growth and a focus of competition, with the core objective being to establish a development model characterized by high energy efficiency and low emissions. Compared to coal-to-oil and coal-to-methanol processes, coal-to-natural gas has the greatest advantage in terms of carbon dioxide emissions; therefore, developing the coal-to-natural gas industry is the most effective way to achieve emission reduction targets, and it is in line with the requirements for the development of modern coal chemical industries. The high energy efficiency advantage of coal-to-natural gas: As an energy source, coal can be utilized through various methods such as direct combustion for power generation, conversion into oil, production of natural gas, methanol, and olefins. Among these methods, coal-to-natural gas has the highest efficiency, which can theoretically exceed 60%. Therefore, in terms of overall energy utilization efficiency, using coal to be converted into natural gas as a clean energy source is the most efficient way to save energy. 2. Problems with coal-to-gas projects: At present, China’s coal-to-natural gas industry is experiencing excessive and unregulated development. Document No. 69 issued by the Energy Administration, titled “Guiding Opinions on Regulating Demonstration Projects for Coal-Based Fuels,” calls for comprehensive planning, scientific layout, strict access controls, and steady progress in the industrialization of coal-based fuel demonstration projects. The main tasks involve carrying out industrialization demonstrations focusing on energy efficiency, environmental protection, water conservation, and the development of domestic technology and equipment. The principle of “starting with demonstrations and proceeding based on available resources” should be adhered to. However, no specific industrial policies or design standards have yet been established, and many issues still need further study. The selection of gasification technologies: The reliability of gasification technologies directly affects the safe and stable operation of coal-to-natural gas projects as well as corporate profitability. Coal gasification is the core technology in coal-to-natural gas production. Various coal gasification technologies each have their own advantages and disadvantages; there is no “one-size-fits-all” coal gasification technology. The choice of gasification technology depends on the properties of the feed coal and the product specifications. Table 3 lists the coal qualities and gasification technologies selected for coal-to-natural gas projects under construction or planned, as well as the main issues encountered. The pressurized gasification of coal technology is widely used in coal-to-natural gas plants. Its advantages include compatibility with a wide range of coal types, low investment costs, high energy efficiency, a high methane content in the feed gas, production of phenols and oils as by-products, and a 100% domestic production rate. With an annual production capacity of 1 billion m3 per production line, its investment level is the lowest among all coal gasification technologies currently available ； The disadvantages include the use of lump coal with a particle size of 5–50 mm as raw material; coal powder with a particle size smaller than 5 mm cannot be utilized, the steam decomposition rate is low, there is a large volume of phenol-containing wastewater to be treated, environmental protection pressures are high, and the processing capacity of each individual furnace is relatively low. Water resource issues: Compared with other energy and chemical products, coal-to-natural gas projects have the highest efficiency in energy utilization as well as water resource utilization. However, due to their large scale, they also consume a great deal of water. A coal-to-natural gas project with an annual production of 4 billion m3 requires about 20 million tons of water per year. This is quite difficult for water-scarce western regions rich in coal resources. The largest water-consuming component in coal-to-natural-gas projects is the circulating cooling water system; additionally, water used for production, leaks and spills, laboratory testing, domestic purposes, landscaping, etc., cannot be recovered. Therefore, the key to water conservation in coal-to-natural gas plants is to reduce the consumption of circulating cooling water. The most important and effective water-saving measures for circulating cooling water are the use of closed-loop cooling systems and the frequent adoption of air coolers ； At the same time, water conservation through measures such as the reuse of dewatering water from coal mines, urban sewage, and reclaimed water, improved design, optimized technologies, and enhanced corporate management has become a development trend to support the growth of large-scale modern industrial sectors. Issues with industrial parks: There is competition among industrial parks in terms of industrial orientation, and their scales are often unrealistic; the positioning of these parks is not based on objective conditions for industrial clustering. There is also disorderly competition in attracting investment. For example, a certain industrial park in China already has enterprises engaged in coal-to-oil, synthetic ammonia and urea, methanol, dimethyl ether, and ethylene glycol production. In its long-term plans, it aims to add a coal-to-gas project with an output of 12 billion cubic meters per year, and the construction and management of the transportation network associated with this project will present many challenges. Table 4 provides only an estimate of the transportation capacity required to support such a coal-to-gas project. As can be seen from Table 4, for an annual coal consumption of around 40 million tons, railway transportation would require 1.25 trains per hour (with 67 carriages per train). The generation of about 4 million tons of ash and slag per year would necessitate road transportation; currently, road transport is the common method for transporting such materials. Using vehicles with a capacity of 20 tons each, 25 vehicles would be needed per hour. Taking into account the time required for loading and unloading, as well as the transportation of certain raw materials and by-products during production, a very large transportation network would be necessary. Managing such a vast transportation network, as well as constructing it, presents insurmountable challenges. If the facility is located near a coal mine, coal transportation can be carried out using conveyor belts to meet production needs; however, the volume of ash and slag generated during production will ultimately become a bottleneck for the development of the facility and the enterprise. Therefore, the park must be planned systematically and with a comprehensive layout, and coal resources should be developed and utilized effectively in accordance with the principles of a circular economy. By taking advantage of economies of scale, projects can be expanded and strengthened, enabling the on-site conversion of coal resources. Economic benefits: Firstly, the development of China’s coal-to-natural gas industry is affected by changes in the international energy structure, particularly the tendency for oil prices to remain low in the long term; as a result, its economic competitiveness and financial benefits will be significantly weakened. A decline in oil prices will indirectly lead to a downward trend in natural gas prices in the future. Since June 2014, international crude oil prices have shown a severe downward trend, with limited room for further declines in the future. Coupled with the gradual increase in natural gas imports, it will further intensify competition in China’s natural gas market, leading to greater homogenized competition within the market. Secondly, **the environmental protection requirements and cost investment demands for coal-to-natural gas projects are increasing gradually. **Emission limits for nitrogen oxides and sulfur dioxide, as well as the requirement for \"zero discharge\" of wastewater, have been clearly specified. Environmental protection requirements are stricter than ever before, which leads to higher investment costs in environmental protection equipment and facilities. Based on the coal-to-natural gas demonstration projects that are already in operation, it is clear that there will be significant environmental pressures in the future, posing serious challenges to the economic viability of these enterprises. Once again, the implementation of a unified pricing mechanism for both incremental and existing natural gas volumes will eventually become a reality. This integration enhances market fairness while diminishing the competitive advantages within the natural gas market ； The deregulation of the prices at the user’s terminal will significantly increase the bargaining power of large downstream users in market transactions, which will inevitably force gas supply companies to further reduce their production costs in order to survive. With the commissioning of the China-Myanmar gas pipeline at the end of 2013, the signing of large-scale contracts for natural gas imports from Russia, and the gradual operation of import receiving stations along the coast, the supply of imported natural gas will increase significantly. Meanwhile, as China’s overall economic growth slows down, the growth rate of demand for natural gas also declines. It is foreseeable that in the future, there will be fierce competition among various gas sources, with particularly intense competition in the field of coal-to-natural gas. Suggestions for the development of domestic coal-to-natural gas projects: Over the past 10 years, the natural gas industry has not only experienced rapid growth but also developed a relatively complete industrial framework. The development and utilization of natural gas are not only of great significance for ensuring energy security in our country, but also play a vital role in improving the energy structure and promoting the development of clean energy. Our country **attaches great importance to the development of natural gas, always placing it in a strategic position within the national economic development framework; therefore, it is inevitable for our country to develop coal-to-natural gas technology. However, with profound changes taking place in the structure of the global oil market, falling oil prices and a slowdown in domestic GDP growth are leading to changes in the internal and external conditions governing the development of China’s natural gas market. In the future, the development of coal-to-natural gas in our country will face a situation where opportunities and challenges coexist; therefore, it is necessary to develop this technology in a scientific and rational manner. 1. Select the appropriate coal gasification technology – It is particularly crucial to choose the right coal gasification technology based on the quality of the coal ； The selection of process technologies for coal-to-natural gas projects is closely related to the characteristics of the coal used as feedstock; having a stable supply of raw coal for production is the fundamental guarantee for safe, stable, and environmentally sustainable coal-to-gas production in the future. Several coal-to-gas projects in the country have experienced problems such as gasifiers failing to operate properly or even being damaged, due to significant variations in the quality of the coal used as raw material. This has led to plant shutdowns and equipment modifications, resulting in substantial economic losses. Therefore, coal quality is the core issue of greatest concern in coal gasification technology. Based on the determination of coal quality, combined gasification technology represents the optimal choice. Taking the fixed-bed pressurized gasification technique for natural gas production as an example, this technology is already highly mature. To more effectively handle the refractory phenolic wastewater and biochemical sludge generated during production, as well as to make more rational use of pulverized coal in order to achieve energy savings, reduced consumption, and compliance with environmental standards, a combined gasification technique that utilizes two different gasification methods is a good option. The choice between pulverized coal gasification or coal slurry gasification techniques depends on the quality of the coal. For example: a certain type of coal has good thermal stability, favorable viscosity-temperature properties, a falling strength greater than 78%, a ash fusion point of around 1250°C, and a slurry formation mass fraction of about 60%. This type of coal is well suited for fixed-bed slag gasification and water-coal slurry gasification technologies. Taking an annual production volume of 4 billion cubic meters of natural gas as an example, assuming that 50% of the production is achieved through fixed-bed slag gasification and 50% through water-coal slurry gasification, with a ratio of 1:1 between lump coal and pulverized coal used as raw materials – lump coal being used for fixed-bed slag gasification and pulverized coal for water-coal slurry gasification as well as in boilers. The refractory phenolic wastewater generated during the natural gas production process using the fixed-bed slag gasification method can be used to replace part of the water required for making the slurry; the resulting biochemical sludge can be incorporated into the coal slurry as a raw material. This approach enables the resourceful utilization and harmless treatment of refractory phenolic wastewater and biochemical sludge, as well as the rational use of lump coal and pulverized coal ； This reduces the investment and operating costs for enterprises, and also leads to significant improvements in water conservation and environmental protection. 2. Plan rationally with water resources as the core: Tailor plans to local conditions, and scientifically verify the appropriateness of water resources and environmental carrying capacities ； The production of natural gas from coal consumes large amounts of water, and extensive coal mining also has a significant impact on fragile ecological environments. Currently, most of China’s coal-to-natural gas projects are located in western regions such as Inner Mongolia and Xinjiang, where coal resources are abundant but water resources are scarce. The development of coal-to-natural gas projects will have a significant negative impact on the already fragile local ecological environment. Therefore, areas facing severe water shortages must plan the development of coal-to-natural gas under the strict constraint of water scarcity. From the perspective of **energy strategic security and technical reserves, and taking into full account the carrying capacity of the environment and water resources, it is necessary to develop coal-to-natural gas production to a moderate extent by making use of the relatively abundant low-quality coal resources. With the upcoming implementation of China’s new environmental protection laws, **the policies regarding the development of coal-to-natural gas projects reflect concerns over environmental issues; there is a gradual shift toward cautious support for such projects. For example, the environmental impact assessments for Su New Energy and Yili Xintian coal-to-natural gas projects explicitly call for further analysis of issues such as water resources and environmental capacity. Therefore, the development of coal-to-natural gas projects must be planned carefully, based on scientific evaluations, and in accordance with available water resources. 3. Emphasize the efficient and clean utilization of coal. Fully understand the overall situation regarding coal-to-natural gas production, integrate and implement relevant **plans and policies, and carry out coal gasification in a planned, confident manner, so as to achieve the scientific conversion of coal on-site. At the same time, through continuous technological innovation and process optimization, as well as various measures such as energy conservation, consumption reduction, emission reduction, and water saving, enterprises improve the environment, reduce costs, and increase their internal rate of return, thereby achieving a win-win situation for the enterprise, **, and the environment, and enabling the comprehensive, clean, and efficient use of coal.