Closed Loop
China continues its path towards self-sufficiency.
“Few would venture to deny the advantages of temperance in increasing the efficiency of a nation at war.” – William Lyon Mackenzie King
In northern China’s Inner Mongolia Autonomous Region, a sprawling petrochemical facility converts thousands of tons of coal per day into chemicals and fuels traditionally derived from crude oil. Commissioned in 2008, the Shenhua Ordos Coal-to-Liquids (CTL) plant was the first of its kind in the country. Leveraging chemistry perfected by the Germans a century ago, CTL technology is quite flexible, allowing for the production of diesel, gasoline, and precursor chemicals for plastics.
According to a recent Reuters report, China’s CTL industry consumed 276 million tons of coal last year, a staggering total that is expected to double within the next five years. If those plans are carried out, China’s CTL capacity would offset roughly 1.2 million barrels of oil per day. Not all of this coal is used to make oil products, though—an unexpectedly large share is being used to produce synthetic natural gas:
“The fastest-growing sector in the industry is expected to be coal-to-gas.
The capacity under construction is around four times what was built over the past decade, according to Reuters’ analysis of figures from Agora Energy China, the China National Coal Association and Guosen Securities.
That would more than double annual capacity to 19.5 billion cubic metres (bcm), equal to roughly a fifth of China’s LNG imports last year.
Most of the new plants are slated for coal-rich northwestern China, where 12 bcm per annum of coal-to-gas capacity is under construction, mostly for energy, with another 10 bcm planned, according to Guosen Securities.”
For a sense of scale, 19.5 billion cubic meters is equivalent to 1.9 billion cubic feet per day (bcf/d), roughly the capacity of Canada LNG’s new export facility in Kitimat, British Columbia.
There is, of course, little in the way of economic or environmental justification for these projects. Natural gas is in abundant supply globally, and LNG prices are at their lowest levels in years. Russia has begun construction of the Power of Siberia 2 pipeline, which will bring an additional 5 bcf/d of cheap gas into China. The capital intensity of CTL projects is huge, and the carbon footprint of coal-derived natural gas is substantially higher than drilling for it directly.
Instead, China is jumping through such elaborate hoops for one simple reason: economic insecurity related to domestic energy supply, driven by the trade war with the US. Entire sectors of the Chinese economy have been reoriented to eliminate the need for external sources of energy. In this context, news of a nuclear breakthrough can be viewed as analogous to China’s CTL investments:
“An experimental reactor developed in the Gobi Desert by the Chinese Academy of Sciences’ Shanghai Institute of Applied Physics has achieved thorium-to-uranium fuel conversion, paving the way for an almost endless supply of nuclear energy.
The achievement makes the 2 megawatt liquid-fuelled thorium-based molten salt reactor (TMSR) the only operating example of the technology in the world to have successfully loaded and used thorium fuel.
According to the academy, the experiment has provided initial proof of the technical feasibility of using thorium resources in molten salt reactor systems and represents a major leap forward for the technology.”
We have long been skeptical of the need for new nuclear technology, as existing reactor designs work perfectly well, and chasing new ones unhelpfully distracts from the urgent need to simply build a lot of what is already in hand. But what about this advance? Is this truly the game-changer many claim? Let’s head to China for a balanced assessment.