Credits: Istock
This week, the largest coal miner in China announced the start of another enormous project aimed at clearing up potential fossil fuel surpluses and providing feedstock for petrochemical manufacturers.
China Energy Investment Corp. announced that it will invest 170 billion yuan, or $24 billion, in the construction of an integrated plant that will convert coal into oil products in Xinjiang’s northwest. The facility will run on renewable energy, as is typical of initiatives of this kind, even though its inputs and outputs will be far from clean. In 2027, the first phase is expected to go online.
The plant in Hami City is only the most recent in a string of coal-to-oil projects approved in the mining hotspots of Inner Mongolia, Xinjiang, Shaanxi, and Ningxia in recent years. In its five-year plan until 2025, Hami alone has stated that it will approve projects worth 300 billion yuan, which could result in the consumption of 152 million tonnes of coal by the end of the decade.
China continues to be the world’s greatest producer of coal, pushing output to record levels that reached 4.7 billion tonnes last year despite its rapid deployment of sustainable energy. However, the primary use of the fuel to generate energy has hit a tipping point after being overtaken for the first time by wind and solar power plants.
In addition, coal miners are looking for alternative markets for their product because President Xi Jinping stated that in order for the country to reach its climate targets, consumption must begin to decline starting in 2026.
One issue is that China’s petrochemicals sector is in disarray; it was the victim of its own reckless expansion at the same time as the country’s economy was faltering and consumption fell. Profits from coal to oil fell 53 percent in the previous year, as reported by the China Petroleum and Chemical Industrial Federation.
Another is that robust margins depend on a widening gap between the cost of oil, which has dropped as Chinese imports have decreased, and the price of coal, which China has been effective in reducing. Oil industry as a whole continues to be severely impacted by Beijing’s larger attempts to decarbonise the economy, and it’s possible that Chinese demand for goods like petrol and diesel has already peaked.
With CEIC’s size enabling it to mine coal very cheaply, the Hami complex, which will be able to produce 4 million tonnes of oil products annually for processing into polymers like polyester, has a better chance of succeeding. Its state-of-the-art liquefaction technique has also been praised.
Yet there is still a risk associated with the timing. China’s capacity to convert coal into oil increased by 24% to 11 million tonnes in 2023 from 2019. This means that at a time when its clients are not doing well and pressure is building on industry to cut rather than increase national carbon emissions, the new facility will account for a sizeable portion of China’s output.