If the hidden factors are included in the cost, will China's development of coal chemical industry still be economically viable? In December 2006, the National Development and Reform Commission of China announced a coal chemical development plan that aims to expand the scale of coal chemical projects and develop coal liquefaction technology. Some demonstration projects are already under construction or have already been put into operation. This clear signal means that the government decided to include coal liquefaction technology as an important part of its strategic petroleum security. At present, the plan has yet to be approved by the government. I sincerely hope that without careful measurement of potential risks and costs, the Chinese government should not rush to put such a large-scale coal liquefaction plant into practice. Coal liquefaction technology seems to be a magic wand that solves the problem of China's oil supply. Once a decision is made, whether it is for China or the world, success or failure will be significant and far-reaching.
The coal liquefaction technology has a long history, that is to say, it allows coal to be converted into a series of different liquid oil products, used as a substitute for gasoline, diesel oil, or liquefied petroleum gas, and it can also provide some raw material components of several chemical products. The South African Sasol Company with mature technology has spared the national economy from the oil embargo. Shell is also one of the few companies that has successfully commercialized it. Both are coal indirect liquefaction technologies, which first convert coal into gas and then liquefy. The other is coal direct liquefaction technology, which directly converts coal into liquid oil. This technology is more advanced and one of the alternatives, but it has not yet been successfully commercialized in any country.
Coal liquefaction plants require a lot of investment, they are capital-intensive industries and they are extremely costly. Its barrel oil costs between $30 and $40, making the industry profitable. Of course, the specific figures are also highly related to the cost of coal.
It is easy to understand that China will launch a large number of coal liquefaction technologies. China's coal reserves rank behind the United States and Russia, ranking third in the world. At the same time, oil reserves are not optimistic. Rapid economic development means the need for large amounts of petroleum derivatives. The dependence on China’s oil imports is 45%. If we follow this rate of development, the dependence on oil imports will rise to 70% by 2020. Petroleum is a vital raw material for the transportation industry and industry. High import dependency for China means high costs and high risks. Once oil prices rise, it means that more foreign exchange reserves need to be purchased to purchase imported oil; once the supply is interrupted, there is a huge risk for domestic economic activity. In this context, coal liquefaction projects are not
Oil supply security is also of great benefit to reducing import dependence.
If you are short-sighted, there is no lack of truth in these judgments. If you think too far, you must count external costs and risks. As a result, the cost of coal liquefaction projects is too high and the return on investment is not clear. These external factors and risks are: opportunity costs, carbon dioxide emissions, water consumption, and coal reserves.
Opportunity costs refer to whether it can be more effective and cheap to solve China's energy problems if it is used elsewhere. According to the current draft, by 2020, China will invest 130 billion US dollars, with an annual output of 130 million tons to replace liquid oil products. This is equivalent to China's 1/10 demand for liquid oil products and 10% for paraffin. Paraffin is one of the important chemical raw materials. If these huge investments are actually put into practice, they must answer the following questions: If these funds are used to develop urban transport systems, such as transforming them into electric drives, or improving the energy efficiency of transport industry and agriculture, are they better choices? Or, at a time when the price of oil is rising, it is more economical to develop coal chemical industry than to directly use foreign exchange reserves to buy imported oil.
At present, a large amount of greenhouse gases are produced both in the production and consumption of transportation fuels. The CO2 emitted during coal liquefaction to produce oil is equivalent to twice the CO2 released during the manufacture of traditional oil products. In the past five years, the rapid growth of greenhouse gas emissions has been a problem for China and the world. Many international agencies and national governments all hope to cooperate with China and invest in the development of clean energy technologies. If the coal liquefaction project is put into practice, it will undoubtedly run counter to the original intention of these efforts and damage China’s prestige. And if the cost of storing and capturing carbon dioxide is included in the cost, its economics are less attractive.
The construction and operation of coal liquefaction plants also require a large amount of water supply. However, in regions with abundant coal reserves in China, it is the northern regions where precipitation is scarce or where there is severe shortage of water. In fact, the problem of water shortage in the North is more serious than China's oil security. Therefore, while the government must solve the water problem, it must also weigh how it does not affect other economic activities and avoid further damage to the environment. Therefore, costs also include the cost of water supply and recycling.
The last issue is coal reserves. Coal has always been at the heart of China’s commercial energy supply structure. Coal accounts for about 80% of the power materials, and the proportion in the commercial energy structure exceeds 65%. Although the current coal reserves appear to be adequate, there are still three issues that have to be considered. First, how confident are the government's self-confidence data on this coal reserve? In the past seven years, coal consumption and production have doubled. If coal is used to develop coal chemical industry, China will face the danger of accelerating the depletion of surplus coal reserves. By then, China will become a coal importer. Second, even if these figures are true, do large coal companies still have insufficient coal reserves to develop coal chemical industry while coping with rising coal demand? Thirdly, China's large coal mines are not optimistic about the level of management, safety and environmental protection. Can the government standardize the coal industry in a very short period of time?
Therefore, since the feasibility of coal liquefaction has not yet been successfully demonstrated in China, the government must perform due diligence and carefully evaluate costs and benefits to see whether this large sum of money may be used for other purposes.
The coal liquefaction technology has a long history, that is to say, it allows coal to be converted into a series of different liquid oil products, used as a substitute for gasoline, diesel oil, or liquefied petroleum gas, and it can also provide some raw material components of several chemical products. The South African Sasol Company with mature technology has spared the national economy from the oil embargo. Shell is also one of the few companies that has successfully commercialized it. Both are coal indirect liquefaction technologies, which first convert coal into gas and then liquefy. The other is coal direct liquefaction technology, which directly converts coal into liquid oil. This technology is more advanced and one of the alternatives, but it has not yet been successfully commercialized in any country.
Coal liquefaction plants require a lot of investment, they are capital-intensive industries and they are extremely costly. Its barrel oil costs between $30 and $40, making the industry profitable. Of course, the specific figures are also highly related to the cost of coal.
It is easy to understand that China will launch a large number of coal liquefaction technologies. China's coal reserves rank behind the United States and Russia, ranking third in the world. At the same time, oil reserves are not optimistic. Rapid economic development means the need for large amounts of petroleum derivatives. The dependence on China’s oil imports is 45%. If we follow this rate of development, the dependence on oil imports will rise to 70% by 2020. Petroleum is a vital raw material for the transportation industry and industry. High import dependency for China means high costs and high risks. Once oil prices rise, it means that more foreign exchange reserves need to be purchased to purchase imported oil; once the supply is interrupted, there is a huge risk for domestic economic activity. In this context, coal liquefaction projects are not
Oil supply security is also of great benefit to reducing import dependence.
If you are short-sighted, there is no lack of truth in these judgments. If you think too far, you must count external costs and risks. As a result, the cost of coal liquefaction projects is too high and the return on investment is not clear. These external factors and risks are: opportunity costs, carbon dioxide emissions, water consumption, and coal reserves.
Opportunity costs refer to whether it can be more effective and cheap to solve China's energy problems if it is used elsewhere. According to the current draft, by 2020, China will invest 130 billion US dollars, with an annual output of 130 million tons to replace liquid oil products. This is equivalent to China's 1/10 demand for liquid oil products and 10% for paraffin. Paraffin is one of the important chemical raw materials. If these huge investments are actually put into practice, they must answer the following questions: If these funds are used to develop urban transport systems, such as transforming them into electric drives, or improving the energy efficiency of transport industry and agriculture, are they better choices? Or, at a time when the price of oil is rising, it is more economical to develop coal chemical industry than to directly use foreign exchange reserves to buy imported oil.
At present, a large amount of greenhouse gases are produced both in the production and consumption of transportation fuels. The CO2 emitted during coal liquefaction to produce oil is equivalent to twice the CO2 released during the manufacture of traditional oil products. In the past five years, the rapid growth of greenhouse gas emissions has been a problem for China and the world. Many international agencies and national governments all hope to cooperate with China and invest in the development of clean energy technologies. If the coal liquefaction project is put into practice, it will undoubtedly run counter to the original intention of these efforts and damage China’s prestige. And if the cost of storing and capturing carbon dioxide is included in the cost, its economics are less attractive.
The construction and operation of coal liquefaction plants also require a large amount of water supply. However, in regions with abundant coal reserves in China, it is the northern regions where precipitation is scarce or where there is severe shortage of water. In fact, the problem of water shortage in the North is more serious than China's oil security. Therefore, while the government must solve the water problem, it must also weigh how it does not affect other economic activities and avoid further damage to the environment. Therefore, costs also include the cost of water supply and recycling.
The last issue is coal reserves. Coal has always been at the heart of China’s commercial energy supply structure. Coal accounts for about 80% of the power materials, and the proportion in the commercial energy structure exceeds 65%. Although the current coal reserves appear to be adequate, there are still three issues that have to be considered. First, how confident are the government's self-confidence data on this coal reserve? In the past seven years, coal consumption and production have doubled. If coal is used to develop coal chemical industry, China will face the danger of accelerating the depletion of surplus coal reserves. By then, China will become a coal importer. Second, even if these figures are true, do large coal companies still have insufficient coal reserves to develop coal chemical industry while coping with rising coal demand? Thirdly, China's large coal mines are not optimistic about the level of management, safety and environmental protection. Can the government standardize the coal industry in a very short period of time?
Therefore, since the feasibility of coal liquefaction has not yet been successfully demonstrated in China, the government must perform due diligence and carefully evaluate costs and benefits to see whether this large sum of money may be used for other purposes.
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