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China puts brakes on some coal-to-gas projects

Dozens of new coal-to-gas projects have been proposed across the country, but the government wants to prevent inefficiencies and overcapacity

China's first coal-to-gas (CTG) project may have only come into production in December last year, but Beijing is already tightening its grip on the burgeoning sector's development. China' policymakers have pushed the development of GTG technology in recent years, which has sparked an investment boom that has seen dozens of new projects proposed across the country. Yet the government is now warning against blind development of the industry, in an apparent bid to head off the sort of overcapacity and inefficiencies that have plagued other industries such as oil refining and steel production.   

The National Energy Administration (NEA), an arm of the powerful National Development and Reform Commission (NDRC), has warned that some local governments are pressing ahead with projects without regard to environmental, water, technological and economic issues. As a result, China will ban small-scale CTG plants with a capacity of less than 2 billion cubic metres a year (cm/y), and will not allow new projects in provinces that are net coal importers. 

The State Council, China's most senior decision-making body, will now be tasked with approving new projects, rather than the NDRC, indicating the importance the government is placing on the industry. The NEA plans to release an overall plan to guide the sector's development soon, state media reported.

China's policymakers see CTG as a tidy solution to some of its most pressing energy and environmental problems. Piping gas into cities from CTG facilities in more remote parts of the country could help quickly reduce urban air pollution. At the same time it would help promote economic development in remote, and often politically unstable, regions with large stranded coal assets, such as Xinjiang province. More than half of the approved projects are in Xinjiang, while most of the rest are in Inner Mongolia. It would also deliver energy security and economic benefits by cutting China's growing dependence on costly natural gas imports. 

Wide deployment of CTG technology, however, would only serve to entrench and extend the country's coal reliance and would do little to cut carbon emissions, seen by many as the most important benefit of switching to gas in the first place. China could mitigate the continued coal-burn carbon emissions by putting Carbon Capture and Storage (CCS) in place at the facilities, but there is little evidence that will happen. Moreover, the environmental improvements seen by China's urban dwellers would be largely illusory, as the environmental burden would simply be shifted to more remote areas. 

Still, Chinese authorities are intent on pressing ahead. After a series of delays, China's first large-scale CTG projects came into production late last year and will continue to ramp up output this year. One was Xinjiang Qinghua Group's 5bn cm/y projects in Xinjiang, the other was Datong International Power Generation's 4bn cm/y project in Inner Mongolia, which will supply Beijing. 

If all goes to plan, there will be many more such projects. By the end of last year, the government had approved 17 projects with a total proposed capacity of 71.1bn cm/y, according to figures compiled by the World Resources Institute, a think tank. Only one of those projects, Inner Mongolia Huineng's project in Erdos, in Inner Mongolia, falls below the new 2bn cm/y threshold. 

Dozens more projects have been proposed, and China is targeting output of 50bn cm/y by 2020, a significant amount but half the 100bn cm/y shale-gas production target. The plants can cost as much as $1bn per billion cm/y of capacity, so meeting the target will require marshaling tens of billions of dollars of investment into the sector. Technological challenges and a lack of pipeline connectivity between the plants and urban demand centres, though, could slow development. 

Power and coal companies are pushing most of the projects forward, but China's oil majors are also keen on the sector. Sinopec received approval in September last year to build China's largest proposed coal-to-gas project, an 8bn cm/y plant in Xinjiang. The company also plans to build an 8,000 km, 30bn cm/y gas pipeline from Xinjiang to the southeast to carry the gas to market. It is also planning a smaller pipeline to transport gas to Beijing and its surrounding urban centres.   

China National Offshore Oil has received approval to build a 4bn cm/y facility in Inner Mongolia and is working alongside Datong Power to build another 4bn cm/y facility in Shanxi province, China's coal country.

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