China's coal region will expand coal to oil output as part of energy security drive

China's coal-producing region is planning to build China's largest 'base' for converting coal into oil and gas, chemicals, and other products to reduce the country's reliance on imported energy. The war with Iran has heightened China's focus on energy security.

Inner Mongolia is also China's leading producer of "renewable energy", making it a microcosm for the country's complex energy transition. Its reliance on oil and coal, as well as its relative abundance, are a microcosm for China's energy transition.

The process of converting coal to petroleum products, however, is a growing and significant source of carbon dioxide emissions that challenges China's climate targets.

At a Thursday press conference, Huang Zhiqiang (the second-ranking official in the region) said that they were'strengthening and scaling up the domestic production capacities of coal-to oil, coal-to gas and coal-to chemical projects to increase domestic self-sufficiency in oil and natural gas.

China's production of gas, liquids and chemicals from coal is small in comparison to the amount of oil?and gas it imports. China's coal-based production of liquids, chemicals and gas in 2024 will be enough to replace only 6% of China's gas and crude oil imports.

The production of olefin is increasing. In May, China’s Environment Ministry approved a demonstration project, worth 22.1 billion Yuan ($3.3 billion), to convert 800,000 tons of coal per year into olefin in Ordos in Inner Mongolia. Olefin, a building block of plastics and chemicals, is the most important component.

Profits for the coal-to-petrochemicals industry have surged since the Iran war ?as the use of cheap domestic coal puts it at an advantage over petrochemical competitors who rely on more expensive oil as a feedstock.

CARBON COSTS?Challenge Climate Goals

Huang didn't directly answer questions about how policymakers will address the?carbon cost?of this process. However, he said Inner Mongolia balances the utilisation of massive coal reserves and the growing development of renewable energies, which has risen to 53% the installed capacity of the region.

Documents from the government show plans to?promote green hydrogen in projects that convert coal into chemicals. Clean energy advocates caution this should not be used as a justification for further expansion of the sector.

Inner Mongolia produces between?1.25 and 1.28 billion tons coal every year, Huang stated, which is more than one quarter of China’s total. Two-thirds of that is produced in Ordos, where the government is building the coal-to-petrochemicals base.

(source: Reuters)