China's Coal Industry Has a Big, Dirty Secret

Bloomberg

2 days ago

Exactly a century ago, two German chemists patented a process to transform coal into liquid fuels. Following its discovery in 1925, the Fischer-Tropsch synthesis eventually became infamous: The Nazis used it to fuel their war machine, and apartheid South Africa turned to it to offset the impact of an oil embargo in the 1980s.
Its last — and huge — user is China.
Largely unnoticed, the size of this obscure corner of the Chinese coal industry has reached gargantuan proportions: It consumes about 380 million metric tons of coal as a feedstock for chemical and liquid fuel production, according to the International Energy Agency. To understand its size better, it helps to think about the segment as if it were a country. As such, it would rank as the world's third-largest consumer, only behind the rest of the Chinese coal sector and India, but ahead of the US, Japan and other top coal-consuming nations like Indonesia and Turkey.
It's not a little dirty secret — it's a big one, with significant implications for global climate and energy policy. The longer China remains addicted to coal, the more difficult it will be to decrease carbon dioxide emissions. Despite its huge progress in green energy, from electric cars to solar panels, the Asian giant consumes more coal than every other country on the planet combined.
Crucially, the Chinese coal-conversion industry is set to expand even further, potentially offsetting declines elsewhere in the country, including a reduction in coal demand to produce cement and steel. 'We expect a growth between 5% and 10% in the coming years,' Carlos Fernandez Alvarez, head of coal at the IEA, tells me. Unfortunately, the sector is a black hole, as China publishes scant statistical information about it.
For decades, China has converted some of its coal into chemical products and liquid fuels in what scholars call the 'traditional' coal chemical industry. The starting point was almost always metallurgical coal, converted into coke, and further transformed into ammonia-based fertilizers and acetylene-based chemicals. Yet over the last two decades, China has built a second layer, typically referred to as the 'modern' coal chemical industry, based on new variations of the old Fischer-Tropsch process plus sophisticated new methods, including methanol synthesis to produce petrochemical goods, such as olefins, used in turn to make plastics.
The modern part of that processing was largely experimental in the early 2000s. Commercial-scale projects mushroomed in the 2010s, and, after a brief hiatus, more have emerged in recent years, particularly in the Chinese heartland, where the bulk of the country's coal fields are located far from coastal cities. By now, its scale — which dwarfs all other countries' coal-to-chemicals production — and growth is surprising even veteran industry observers. Look at some modernized plants and coal is nowhere to be seen: It's mined underground almost directly beneath the chemical facilities, carried by conveyor into the furnaces where it's gasified and transformed. From there, it goes into your plastic water bottle or synthetic fabric clothes. 1