Monday, November 27, 2006

Pouring Water on Chinese Coal Liquefaction.

China has put the brakes on, so to speak, its coal-liquefaction projects. The main fear is that there could be an over-run in the coal-chemicals industry. To curtail development of the process, the Chinese government has legislated not to approve coal liquefaction plants with a processing capacity of under 3 million tonnes of coal. Since such a plant would require an outlay of 30 billion yuan (about $4 billion), very few enterprises could enter this particular market. China is the world's largest coal producer and generates 75% of its energy from burning coal. Like the rest of the world, China is looking more closely at synthetic oil, in view of hikes in the price of imported oil. The plan is that China will rely mainly on its own oil production, in the region of 180 - 200 million tonnes per year, and imported oil (95.8 million tonnes in the first eight months of this year), with increasing future provision of synthetic oil from coal. It is reported that 30 projects are under detailed planning or are at the feasibility study stage, yielding a total production capacity of 16 million tonnes, at an investment in excess of 120 billion yuan ($15 billion). Insiders predict that by 2020, China will produce 50 million tonnes of oil from coal.
Shell Gas and Power Developments BV and the Shenhua Ningxia Coal Industry company (Shenhua-Ningmei) signed a joint agreement to study coal-liquefaction and the technical and commercial feasibility of launching a direct coal liquefaction plant with a daily output of 70,000 barrels (about 10,000 tonnes) of oil products and chemical feedstocks. South African based Sasoil has also joined as a collaborator with the Shenhau group, to build two coal-to-liquids plants using Fischer-Tropsch technology developed by and unique to Sasoil, which is the world leader in producing fuel from coal. The Fischer-Tropsch process was developed in Germany and kept the country in fuel during the oil-blockades of WWII; it has also fuelled South Africa during spates of political sanctions, and remains the principal source of oil in this country. One may conclude that the technology has a clear future in breaking the dependency of individual countries on imported oil, mainly from the Middle East... so long as there is enough coal available as a feedstock.
Coal liquefaction consumes massive quantities of water. Although part of the restriction to only "big" plants is intended to spread coal-to-oil production across the country, many regions of China, especially in the north and northwest, are already extremely short of water. Significant environmental discharges of effluent gases, waste (i.e. contaminated) water and industrial effluent are also attendant to coal liquefaction processes. The profitability of producing oil from coal depends on the prevailing price of crude oil on the world markets, and since this varies year on year, and it takes up to five years to build a coal liquefaction plant, there is an element of risk as to whether the plant will immediately return money or not. However, once we hit the Peak Oil production point, crude oil will become increasingly expensive. It is reckoned (in China at least) that the technology is viable so long as the world price is about $25 a barrel. Personally I doubt it will ever fall to anywhere near that again - it was three times that some time back, and not much less now. Hence, coal liquefaction will be attractive anywhere on economic grounds, even if the environmental picture is less so.
Water as a resource is under pressure in many parts of the world. It is therefore a central issue to estimate whether the water reserve of a region can support any new production processes, without detriment to the environment and to the people (and animals) who live there. It appears as a twist of nature that many regions that are potentially well provided with means for "unconventional" oil production are relatively short of water. So, there is plenty of coal in parts of Australia, Africa, China, India and North America, where supplies of freshwater are limited. As noted, coal liquefaction is intensive of water, in part to provide the hydrogen atoms to convert coal (mainly carbon) into hydrocarbons, and also to run cooling systems for the plants themselves. We hear much too, about producing oil from the Alberta Oil Sands (the name "tar sands" is more accurate), by cracking the bitumen they contain into oil for use as a fuel. The latter process relies heavily on gas to "crack" the bitumen into liquid hydrocarbons, but it also uses a lot of water. Indeed, water allocations made by Alberta to oil sands projects amount to 359 million cubic metres per year, which is twice the quantity of water used by the city of Calgary. The whole enterprise threatens the water supply (in terms of quantity and quality) to Saskatchewan and the Northwest Territories through the Mackenzie River system.
Most of the oil sands operations draw their water from the Athabasca River, which is a tributary of the Mackenzie, most of which is not returned to the river. Strip mining of the oil sands uses between 2 and 4.5 cubic metres of water to extract one cubic metre of synthetic crude oil. The water becomes heavily polluted and only 10% goes back into the river, with the remainder being stored in enormous holding ponds, among the biggest structures ever constructed by humans on Earth. The oil sands yielded over one million barrels per day in 2005, but it is believed that they may be exhausted by 2050. The story here is similar to conventional crude oil production, in the sense that initially the resource is relatively easy to extract from close to the surface, but the process becomes increasingly demanding as deeper levels are accessed. This is true of coal production too. The Energy Returned on Energy Invested (EROEI) for producing oil from oil sands is currently about 3, which is just about viable so long as there is sufficient gas available for the purpose. The point must come, and long before the resource is exhausted, when the investment of gas, water, environmental clean-up, etc. etc. no longer justifies the return.
It is a case of making hay while the Sun shines, and finally it may be water that proves itself as the limiting energy resource.

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