Japan also plans to provide China as well as other Asian nations with the
technology to liquefy coal as part of a broader effort to reduce global
dependence on crude oil, a report of the Nihon Keizai Shimbun, a Japanese
newspaper, said in June 2006.
-- High risk --
Industry officials have appealed for Chinese authorities and businesses to
stay cool about coal liquefaction.
"Although coal liquefaction promises to help ease China's oil shortage, huge
potential risks are involved in its mass production," said Professor Lin Boqiang
of Xiamen University.
Besides, unchecked growth of the sector would damage China's already
deteriorating environment, analysts said.
Coal liquefaction sets high standards for coal resources, water resources,
ecology, environment, technology and capital. Blind construction of such
projects is unsustainable alongside the healthy development of the national
economy, according to the NDRC.
Coal liquefaction soaks up water, and China -- especially its northern and
northwestern regions -- is short of water. To develop coal liquefaction would
intensify such inadequacy. Except for Yunnan and Guizhou provinces in Southwest
China, most coal-rich provinces run short of water.
In addition to its massive water needs, coal liquefaction discharges waste
gas, waste water and industrial effluent, creating significant environmental
risks.
The profit margins of coal liquefaction projects are closely linked to the
fluctuating international price of oil, which changes year to year. A coal
liquefaction project takes three to five years to build and operate.
"Coal-for-oil technology will be economic if the crude oil price is higher
than 25 U.S. dollars per barrel. In this sense, it will not face any risk in the
near term," said Zhou Fengqi, a researcher with the Energy Institute of the
NDRC's Macro-Economic Research Institute.
"But it is hard to tell whether coal liquefaction projects will certainly
profit. If the international oil price plummets in the future, the nation will
suffer a lot," said Zhou Fengqi.
Other industry experts worry that China's coal resources are not so rich:
verified exploitable coal reserves were 188.6 billion tons at the end of 2002,
but the average resource recovery rate was only 30 percent. Calculated at an
annual coal output of 1.9 billion tons, the reserves would last only 30 years.
"In fact, investment in coal liquefaction incurs a high risk when the
industry is still in its infancy. Coal liquefaction should spread only after the
success of trial efforts," said Professor Lin Boqiang.
The NDRC concludes that in the five-year period from 2006 to 2010, or the
11th Five-Year Development Program period for China, the coal liquefaction
industry should be developed smoothly and steadily.
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