In 2008, China's first coal-liquefaction plant is set to begin its production of synthetic oil at an initial level of over one million tonnes (7.3 million barrels) each year. It is thought that this will rise to an annual output of 6 million tonnes by 2010, which is equal to almost 4% of the 163 million tonnes of oil imported into China in 2006, from a total of 346 million tonnes used altogether. This is a rise of 9.3% on the previous year, and assuming this upward increment might be maintained, demand for oil in China would match the current consumption of the United States by 2020; the combined thirst of these nations then consuming half the world's oil at current production rates. Since the production of conventional crude oil is thought to peak within 4 years, such massive increases in demand as are anticipated on economic grounds across the world can only be met through sources of unconventional oil; if at all.
The Shenhua Group Corporation Limited, which is a major coal producer in China, inaugurated the coal-liquefaction project in2004 in the city of Erdos in the Inner Mongolia Autonomous Region. The construction of three production lines are planned in its first phase at a cost of 24.5 billion yuan ($3.2 billion), of which the first will begin trial production at the end of 2007 and should be able to turn 3.45 million tons of coal into one million tons of oil. (I am quoting "tons" rather than "tonnes" from the supporting references). The production is anticipated to increase when the other two lines start-up in 2009, to 3.2 million tonnes of raw output ("oil-products"), rising to the 6 million ton grand total when the second phase is completed in 2010.
The Chinese plant employs direct-liquefaction, rather than indirect liquefaction. The difference between the two methods essentially is that the former reacts finely-powdered coal in a high-boiling solvent with hydrogen gas under pressure, while the second first reacts coal powder with a mixture of oxygen and steam to produce a mixture of carbon monoxide and hydrogen ("synthesis gas") and then converts this catalytically to liquid hydrocarbons using the Fischer-Tropsch process. Direct liquefaction is based on the Bergius Process, which earned Friedrich Bergius the Nobel Prize in 1931 for his work on high-pressure chemistry, shared jointly with Carl Bosch who (along with Fritz Haber) developed the high-pressure synthesis of ammonia from hydrogen and nitrogen. (I described the elements of both in "Coal Liquefaction" posted here on April 30th). Coal liquefaction methods kept Hitler's armies and air-force in fuel throughout WWII who otherwise would have been blockaded out of imported fuel long before 1945.
Before beginning the full-scale project in Erdos, Shenhua successfully operated a one-thousandth scale "model" in Shanghai. The technology demonstrates a commitment to the environment, by maximising overall efficiency, in that two neighbouring 100 MW electricity-generating plants have been built which run on "grease stain" (I am again quoting from the sources below, which I presume to mean "waxes", i.e. high molecular weight hydrocarbons which would be no good as gasoline or diesel fuels directly, although they can be broken-down catalytically to lighter "fuel" fractions). Out of the initial 1 million tonnes of oil-products synthesised in the first line of production at Erdos, 720,000 tonnes is diesel oil, which may be telling, in that diesel is the fuel of choice for heavy vehicles - trucks, buses, coal-mining machinery etc. - rather than cars which use the lighter, gasoline in spark-ignition engines. My feeling is that an emphasis is being placed on such kinds of essential "machines" as opposed to cars, even though the number of the latter is predicted to increase by around 20 million by 2020.
China has a lot of coal, which accounts for 84% of the nation's energy reserves, and many believe that coal-to-liquids production is the only way that China can achieve self-reliance in oil-supplies. This may prove true for many of the other world nations too. It is reckoned that 909 billion tonnes of coal are held in existing total reserves (155 years worth, but less if we start to turn significant quantities of it into oil), and probably 10 trillion tonnes in resources, albeit that much of it will prove hard to dig-out, for example the 3 trillion tonnes of coal recently discovered under the North Sea shelf off Norway. 30% of the world's coal lies in the US, there is plenty in South Africa and in Australia, and Europe also has a lot of coal, especially Germany and Poland. Many countries also have rich deposits of lignite ("brown coal") which is in fact far more amenable to liquefaction by direct methods, whereas anthracitic coal (as lies under South Africa, Australia, and the UK for that matter) works better with gasification/Fischer-Tropsch conversion to liquids and provides clean fuels with zero sulphur emissions.
All in all, I expect to see a huge installation of a variety of coal-liquefaction plants, amounting to hundreds of them placed around the world. There will be an enormous and frantic resistance to the inevitable loss of our present way of life that must follow peak oil, and this is the only truly demonstrated method for staving that off, in some amount. However, the inevitable environmental consequences of coal-to-liquids must be considered too, since about seven times the amount of CO2 results from making a barrel of synthetic fuel than is produced by refining conventional crude oil. Once the "carbon-costs" of burning the two kinds of fuel in engines is factored in, it turns out that CO2 emissions from coal-to-liquids fuels are about 50% higher overall.
(1) http://english.people.com.cn/20070330 By: Xinhua, "China to produce liquid fuel from coal in 2008."
(2) http://english.people.com.cn/20070330 By: Xinhua, "World's first coal-to-oil mass converter due to start operation this year."