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.