Coal-to-Chemicals Projects Boom in China
Western Firms Fight to Keep
Edge Among Asia Counterparts,
Ease Natural-Gas Dependence
By ANA CAMPOY in Dallas and SHAI OSTER in Beijing
December 31, 2007; Page A9
online.wsj.com
For years China has been a magnet for the chemicals industry, attracting European and American companies with its cheap production costs and growing market.
Now China has another attraction for the energy-intense chemical industry: vast supplies of coal that can replace oil and natural gas as raw materials for chemical production.
In the last two years, China has built nearly 20 plants that convert coal into a gas that can be used to make such things as plastic and pharmaceuticals, according to the Gasification Technologies Council, an industry trade group. The new plants draw on technology developed by companies such as General Electric Co. and Royal Dutch Shell PLC.
Now, Western chemical firms are getting in on the action. Celanese Corp. opened a plant this year that uses coal-based feedstock to make a chemical used in paints and food sweeteners. Dow Chemical Co. has partnered with Chinese energy company Shenhua Group Corp. to study a project to convert coal into plastics. Mining company Anglo American PLC is also looking at a coal-to-chemicals project. Suppliers to the chemical industry, such as Praxair Inc., are vying to open accounts with the new coal-to-chemical plants.
"Coal to chemicals is an opportunity that's literally exploding [in China] right now," says Timothy Vail, chief executive and president of Synthesis Energy Systems Inc., a company that builds coal-gasification plants.
Launching their own coal-to-chemicals projects in China represents one way Western companies are fighting to keep their competitive edge. In the past decade, chemicals makers based in Europe and North America have lost market share to their counterparts in Asia, where demand for chemicals is rapidly growing.
China's government, meanwhile, has orchestrated the buildup of the coal-to-chemicals industry in an effort to reduce the nation's growing dependence on imported natural gas. Using China's vast coal deposits to make chemicals and plastics provides a more reliable source of raw materials that can feed the expansion of China's main economic growth engine, its manufacturing sector. The new plants also replace older, soot-belching chemical factories that have earned the government a bad reputation for the pollution they create in Chinese cities.
Gasification technology, which uses high temperatures and pressure to break the molecular bonds in coal to produce gases that can be recombined into a variety of fuels and chemicals, has existed for more than a century. Germany gasified coal to fuel its planes during World War II. China has made fertilizers through gasification for decades. But there had been little incentive for the global chemical industry to gasify coal until prices began soaring for natural gas and oil.
North America has its own huge reserves of coal, sparking interest in gasification plants in that continent as well. But development has been slowed by concerns that the projects would contribute to growing emissions of the gases that cause global warming. Among fossil fuels, coal emits an especially large amount of carbon dioxide when being burned, and man-made carbon dioxide is one of the most prevalent gases that human activities are contributing to earth's rising temperatures. Gasifying coal to produce chemicals emits less carbon dioxide than does burning coal as fuel, but the process still ejects more carbon dioxide into the atmosphere than using natural gas would produce, says Eric Larson, a research engineer at the Princeton Environmental Institute.
The U.S. government doesn't yet limit nationwide the amount of global-warming emissions industry can release into the air. But the future prospect of such rules, along with coal's dirty reputation, has kept coal gasification from catching on in the U.S. on the same scale as it has in China, analysts say. "There is a stigma about coal because of its historical environmental and safety concerns," says Edward Glatzer, director of technology at Nexant Inc., a San Francisco-based consulting firm.
Some of the Western companies planning to jump into the sector in China, including Dow Chemical, are considering ways to offset or store the global-warming emissions their projects will generate. One possibility -- a process that would inject carbon dioxide deep underground for storage -- is a largely untested technology that is likely to be very expensive. In the meantime, gasification projects are getting speedily green-lighted in China without concern over emissions.
China is poised to surpass the U.S. as the No. 1 emitter of greenhouse gases in the world. Studies show that about one-fourth of China's global-warming emissions are released in the process of making the tennis shoes, toys, computers, shirts and other products that the country exports abroad.
While the Chinese government agrees on the need to reduce carbon emissions, it prefers to achieve that through increased energy efficiency and by using more alternative energy. It has no plans to cap carbon emissions because it believes such a move would limit economic growth.
Government officials have smoothed the way for gasification projects by fast-tracking permits and helping companies to secure capital, industry executives say. "In anywhere between 24 to 32 months they have [plants] built and operating," says John Lavelle, general manager of GE Energy's gasification business. "It's pretty remarkable."
Cheap labor and minimal regulations mean coal-gasification plants in China can be built for about two-thirds to one-half the cost of a project in the U.S. or Europe. Coal-to-chemical plants built in the last two years have expanded Chinese capacity by 1,575 cubic feet of gas a day that can be used as chemical feedstocks, according to the Coal Gasification Council. The plants slated for construction in the next four years will double that capacity.
Western companies involved in China's coal-to-chemical industry argue that coal gasification has the potential to be environmentally friendly. Because the gasification process separates out carbon dioxide, the global-warming gas can be more easily captured and stored once an affordable technology is developed. Dow, for example, says it is studying ways to sequester carbon dioxide -- or to offset its environmental impact by reducing emissions elsewhere through projects such as planting carbon-dioxide-consuming trees.
Celanese says it is committed to controlling greenhouse-gas emissions in all its operations, reducing them by 30% from 2005 to 2010. "Reducing emissions means you are more efficient," says David Weidman, the company's CEO and also a member of the board for environmental group the Conservation Fund.
Chinese companies aren't sweating the issue, say analysts at the China Petroleum and Chemical Industry Association. Only China's two biggest oil and chemical firms, the state-owned giant China Petroleum & Chemical Corp., known as Sinopec, and China National Petroleum Corp., parent of the listed PetroChina, are studying how to store carbon emissions.
--Ellen Zhu in Shanghai contributed to this article.
Write to Ana Campoy at ana.campoy@dowjones.com and Shai Oster at shai.oster@wsj.com
CHEMICAL ATTRACTION
• The News: Western companies are investing in coal-to-chemicals plants in China.
• The Background: European and U.S. firms are fighting to remain competitive amid competition from Asian companies.
• What's Next: Attempts to offset, store or reduce global-warming emissions generated by the projects. |
