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Originally published December 25, 2014 at 8:18 PM | Page modified December 25, 2014 at 8:35 PM

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China rethinking plans to build coal-to-gas plants

LOSING GROUND: Chinese officials are starting to cast doubts on the long-term future of its once highly-touted effort to build coal-to-gas plants. The country is considering a freeze on building new plants.


Seattle Times staff reporter

Support for this project

This series was supported by a Perry and Alicia O’Brien Fellowship at Marquette University in Milwaukee, Wis. The fellowship enabled Seattle Times reporter Hal Bernton to spend the academic year at Marquette reporting on this project and working with students from the Diederich College of Communications.

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China’s coal-to-gas industry has struggled through a difficult year that has spurred doubts among government officials about keeping this technology on a fast-track for development.

The plants turn coal into a cleaner-burning gas, which in urban areas can replace dirtier fuels and help combat smog, and more than 45 plants have been proposed for construction.

But in Inner Mongolia, one of the first plants to start operations failed to meet expectations, suffering technical problems and financial losses that soured investors.

There also has been more debate within China about the environmental trade-offs that would result from a large-scale expansion of the industry.

Coal-to-gas plants spew huge amounts of carbon dioxide that would significantly increase China’s greenhouse-gas emissions. They also require big volumes of water in scarce supply in western and northern regions where most of the plants would be located.

All of this has helped kindle more opposition to the industry among Chinese government energy planners.

“I think the sentiment has greatly changed. They have expressed a lot of skepticism,” said David Fridley, an engineer at the Lawrence Berkeley National Laboratory in California, who works in cooperative projects with senior staff at China’s Energy Research Institute.

That shift is reflected in a report released in September by the Chinese government on industries singled out for priority development in western China.

Coal-to-gas plants were included in a preliminary draft of that report but were dropped from the listings in the final document, according to Chi-Jen Yang, a Duke University researcher who has been tracking the industry’s growth.

“This is considered a major blow because investment will not be qualified for tax benefits, Yang said.

In December, a Chinese news service reported that the government also may freeze approvals for most of these projects during the five-year plan that runs through 2020.

Under the freeze, the government would allow only four plants already under construction to move forward, according to China Energy News, a state-run news outlet that offers a window into government policies.

Second thoughts about turning coal into gas are part of a broader rethinking of China’s energy future as the nation pushes ahead with hydropower, solar, nuclear, wind power, and improved energy efficiency to reduce reliance on coal.

Coal still provides more than 70 percent of China’s electricity.

But during the past two years, the rate of growth in China’ coal consumption has slowed dramatically.

In 2014, it is possible that China’s coal use may not grow at all, or even register a slight decline compared with 2013.

Through the year, the industry has battled low prices and surpluses. Last summer, things got so bad that coal-industry officials asked the government to help cut production to shore up sagging markets.

In November, China’s shift away from coal and other fossil fuels gained an international spotlight as President Xi Jinping and President Obama made a joint announcement in Beijing to combat climate change.

Obama set a new goal for cutting U.S. greenhouse-gas emissions by 2025. Xi said China had agreed to reach a peak in greenhouse-gas emissions by 2030 and have 20 percent of its energy by that year come from sources other than fossil fuels.

Mishaps

For major mining companies, turning coal into gas has offered the prospects for a huge new market that could help launch a rebound.

In May, The Seattle Times reported on the troubled startup of the Inner Mongolia plant, which was built by Datang International, a state-owned power company.

Since it began producing gas in late 2013, the Datang plant has suffered mishaps that have helped to bolster opposition to the gasification technology.

In January, the Datang plant had an industrial accident that killed two workers. The plant also had to shut down because of serious corrosion problems that Chinese newspaper reports attributed to the use of low-grade lignite coal. It restarted in the spring.

The plant’s troubles contributed to financial losses.

Last summer, Datang announced to investors that it was pulling back from coal-to-gas projects. Datang’s coal-to-gas projects, as well as coal-to-chemical projects will be restructured through the China Reform Corp, which was set up by the national government to handle financially troubled assets.

The day of the announcement, Datang’s stock price surged.

The Datang plant also has drawn scrutiny from Greenpeace, which has an office in Beijing and has been investigating the Chinese coal industry.

In November, Greenpeace released a report on the Inner Mongolia plant that turned up evidence of significant air and water-pollution problems.

The report was briefly covered by some Chinese media outlets, but their articles were quickly taken down from news websites, according to Marvin Nala, a Greenpeace staffer.

Datang officials have repeatedly touted the plant as achieving “zero-emissions” because of a big focus on water recycling.

In their site visits, Greenpeace found a series of large evaporation ponds brimming with polluted wastewater, and an unlined seepage pit filled with inky black water. Samples from the pit, tested in laboratories in China and England, found evidence of 15 hydrocarbon pollutants as well as heavy metals.

The Greenpeace report asserted that Datang’s zero-wastewater discharge policy is “merely a myth used in promotion,” and that the plant’s problems will be difficult to resolve.

Broader problems

The coal-to-gas plants’ setbacks this year are part of the larger challenges facing China’s coal industry.

For most of this century, the coal industry has been buoyed by runaway growth in demand from a rapidly industrializing nation. Today, China ranks, by far, as the world’s biggest consumer of coal and biggest generator of carbon emissions.

So what about the future?

U.S. coal exporters who plan to expand exports to Asia point to forecasts by Wood MacKenzie, a global financial analyst, which views the recent slowdown as temporary and predicts that China’s coal use could increase by 70 percent by 2035.

“We are still fairly bullish on overall consumption of coal,” said Andy Roberts, of Wood Mackenzie. “It is very difficult for us to find a way for China to meet its growth goals without more coal.”

U.S. coal producers hope such growth would strengthen Asian markets and enable them to turn a profit exporting western coal through British Columbia and new ports proposed for Washington and Oregon.

But other analysts are forecasting a prolonged trough in prices in Asian coal markets. That’s because they think China already has turned a corner on coal use, and the peak in consumption could come long before 2030.

In an unexpected development, it now appears likely that total consumption in 2014 will register a slight decline from the previous year, according to Lauri Myllyvirta, a Greenpeace staffer who has analyzed month-by-month data on China’s coal use.

Myllvirta says that a big year for hydropower projects helped China use less coal. But she also pointed to long-term trends that include increased energy efficiency in power plants and industrial facilities.

“They are really making some fundamental changes,” Myllvirta said. “This really shows a dramatic break from the past 10 years.”

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com



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