China has lots of coal and not much oil – so industry has turned to processes which liquefy coal in order to produce industrial chemicals such as olefins, ethylene and propylenes – used to make the kinds of plastic products we buy every day.
But this growing industry – along with China’s dash for coal power – threatens another resource the country doesn’t have in abundance. Water.
From March to July 2013, Greenpeace East Asia investigated one of the largest of these coal chemical projects in China, Shenhua’s Coal to Liquids Project, located in Ordos Inner Mongolia. Researchers found that through the direct coal liquefaction process. The Coal to Liquids project Shenhua was consuming 6.65 million tons of water annually, and that this was projected to rise 30.7 million tons of water by 2020.
On the ground investigations also revealed that the water demands of Shenhua’s project were met by the controversial extraction of groundwater from a water scarce region 100 kilometers away, and had had a direct impact on the livelihoods of over 2,000 households on 80,000 hectares of land. The most visible of these effects could be seen in the dramatic contraction of Subeinaoer Lake, whose surface area has decreased 62% from 2004 to 2011.
Taking into account other coal related operations, such as coal to gas, coal mining, and power plants, Shenhua’s project consumes 14.4 million tons of water today, and is expected to consume 53.6 million tons of water by 2020.
The massive amounts of water consumed is due to the heavy water intensity of the coal liquefaction process. For every ton of oil produced 3 – 4 tons of coal and 10 tons of water is required, and 0.7 tons of solid waste, 4.8 tons of wastewater, and 9 tons of carbon dioxide is emitted.
The rise of this industry isn’t just down to a lack of oil in China.
Lack of rail capacity to transport coal from the northwestern supply to the demand centers in the east has left coal production ‘stranded’ coal mines from power plants creating a market for coal to be used for chemical processes.
But – as the investigation showed - the drive to expand the coal to chemical sector has also faced serious environmental and financial headwinds.
First, coal chemical projects are extremely capital intensive with relatively long investment time horizons. Given that the government mandates very large capacity requirements for such projects, only companies who have significant investment capital can embark on these projects..
Third, and most crucially, the expansion of the coal chemical sector is constrained by China’s water scarcity - a concern raised by Greenpeace but also other organizations such as HSBC, Bloomberg New Energy Finance, and CLSA.
