China to Ban Small Scale Coal-to-Liquid Plants

China to Ban Small Scale Coal-to-Liquid Plants

PlanetArk CHINA

19th July 2006

BEIJING - China will ban small scale projects converting coal to liquids as excessive development of the fossil fuel pollutes the environment and strains water supply, said a government circular seen on Tuesday.

Beijing will not approve plants under 3 million tonnes per year (tpy) to process coal into transportation fuels, or projects under 1 million tpy to convert coal into methanol, a blending component for petrol, the National Development & Reform Commission (NDRC) said in a statement seen on www.gov.cn.

Plants under 1 million tpy to produce dimethyl ether (DME), a diesel substitute derived from coal, and projects to make olefins from coal under 600,000 tpy will also be banned, said the report published on July 14. Olefins are basic petrochemicals.

China is the world's largest producer of coal, which fuels about 70 percent of the energy needs of the world's fourth-largest economy.

The recent oil rally toward US$80 a barrel has spurred a wave of coal liquefaction projects, but unchecked growth of the sector would damage China's already deteriorating environment, analysts said.

"All these projects have never counted in the environmental cost. Once oil prices collapse, they would all be doomed," said Yan Kefeng, of Cambridge Energy Research Associates (CERA).

Coal-to-oil plants, for instance, produce large amounts of carbon dioxide. And all coal liquefaction projects are highly water consuming.

"Water resource would be a main deterring factor for the coal liquefaction sector. It's also a main deterrent to China's economic and social development," said the report, adding that water resource per capita in China's coal-producing areas is one-tenth of the national average.

The report said China already has 9 million tpy of methanol capacity and more than 10 million tpy being planned and proposed, a size set for overhang.

The chemical is used in some Chinese provinces to blend into gasoline, which are at record-high prices. But the liquid, already banned in some states in the United States, corrodes engines, said CERA's Yan.

REUTERS NEWS SERVICE