New liquid energy sources

Coal accounts for more than 70 percent of the energy mix in China, which has abundant coal reserves but poor oil and natural gas resources.

Over the past five decades, China has tapped several large oilfields, such as Daqing and Shengli. But discoveries and production can't keep up with demand. With rapid economic growth, China became a net oil importer in 1992 and has increased oil imports every year since.

According to Liu Keyu, vice president of the China Petroleum Economy and Technology Research Institute, China's oil consumption reached 389.3 million tonnes in 2008, up 5.1 percent from the previous year. But during 2008, net oil imports approached 200 million tonnes, up 9.2 percent.

Thus, a little more than one half of oil consumed had to be imported.

Liu warned that China, which was expected to continue raising its oil imports, would meet increasingly tough energy-security challenges.

High and volatile prices are among those challenges. During the four years before the financial crisis erupted with full force in late 2008, world crude prices soared. Prices reached a record high of US$147.27 per barrel on July 11, 2008. These high prices meant that many areas of the country lacked enough oil.

Price changes affect the economic viability of CTL projects, but the issue of energy security persists.

In 2003, when world oil prices were high and supply was tight, Chinese companies crowded into CTL projects. The central government called for a series of pilot CTL projects during the 11th Five-Year Plan period (2006-2010) to lay the foundation for industrial-scale production.

"It is very important to promote industrial-scale coal liquefaction," said Zhao Shuanglian, vice-chairman of the Inner Mongolia Autonomous Region. With CTL projects, "we can turn coal mines into oil fields to ensure energy security for China."

Take the Shenhua direct CTL facility. The project, which will have an annual capacity of 5 million tonnes, will be implemented in two stages.

In the first stage, there will be three production lines with combined annual capacity of 3.2 million tonnes. The first pilot production line, which proved successful in the December trial, will be able to convert 3.5 million tonnes of coal annually to 1.08 million tonnes of diesel oil and naphtha, equivalent to a 100 million-tonne oilfield in annual output.

According to Zhang Xiwu, board chairman of Shenhua Group, if everything goes smoothly with the first 1 million-tonne pilot production line, the business will build two more lines of about the same size, for a planned total of 3.2 million tonnes.

Speed up industrial-scale output

Li Yongwang said technology and demand in China had matured enough to support CTL projects. The country had also independently developed direct and indirect CTL technologies.

Li Shuangwang, board chairman of Yitai Group, said the business would continue to run trials and make improvements, given the success of its trial run.

"We'll work to get the production operating stably in September. After that, we will officially turn it into a fully-loaded operation. We will upgrade the equipment and apply new-generation liquefaction technology to lift output to 600,000 tonnes a year.

"If it goes smoothly, we will expand the coal-to-oil base to an annual output of 5 million tonnes in three stages," said Li.

He said the Yitai Group also planned to extend the industrial chain by cracking naphtha from the CTL facility into ethylene, which was a higher value-added product.

The other CTL projects are also moving ahead. Lu'an plans to expand its 160,000-tonne indirect CTL facility into a 3 million-tonne project, if it conducts a successful trial in the near future. Ultimately, it intends to develop a coal-to-oil base with a gross annual output of 15 million tonnes by 2020.

Yanzhou Mining Group and Xuzhou Mining Group, in eastern China, also plan CTL projects.

Yanzhou began work on a 1 million-tonne indirect CTL plant in February 2006 in Yulin City, Shaanxi Province. It has conducted environmental reviews and is awaiting approval from the National Development and Reform, China's top planning agency. The Yanzhou project would have two stages, each with annual output of 5 million tonnes, the group said.

Also, about 10 provinces or autonomous regions, including Xinjiang, Shandong, Shaanxi, Guizhou and Ningxia, are planning CTL projects.

Taking all these plans into account, industry analysts estimate China will have an annual CTL capacity of 30 million tonnes to 50 million tonnes in 2020.