Sinopec (NYSE: SHI) Invests $11 Billion on Coal-to-Gas

Brian Hicks

Written By Brian Hicks

Posted April 10, 2013

Sinopec Group (NYSE: SHI), the second biggest energy company in China and grandest by revenue is set to build the country’s largest coal-to-gas converting project in the world. It will invest $11.3 billion to develop the project, which will be off the ground and in full production in 8 to 10 years.

This is a crucial time in development for China, which must meet a rising demand for natural gas. China is already the world leader in coal production, but as the nation’s population continues to skyrocket and the alarming concern for air quality is sounding off, coal just isn’t the safe, clean-burning energy resource that natural gas is.

The reason natural gas has become such a hot commodity is because it burns cleaner than other hydrocarbon fuels that are so widely used for energy production. Compared to coal, it produces nearly half the amount of carbon dioxide.

With the ability to convert coal to gas, China would be able to harness one of its greatest natural resources and convert it into gas, lowering carbon dioxide emissions and in turn providing the people of China with a healthier air supply.

Coal to Gas

The process works in 3 stages. First is the gasification, as high pressures and temperatures are centralized in gasification towers that are usually about 200 to 250 feet tall, where the coal is turned into a mix of CO2, sulphur, and methane gas.

coal plantOnce it reaches this point, it is then sent through a purification and methanation process. According to Reuters, the coal-to-gas conversion rate is around 30 percent.

The process is similar to the method that produces oil from coal in some other facilities around the world.

The gasification and purification stages are typically developed domestically. The final stage, methanation (when carbon dioxide interacts with hydrogen to form methane gas), is generally supplied by foreign development.

The coal-to-gas production facilities will be in Zhundong, China, in the northwest region of Xinjiang, and will have a max production capacity of 8 billion cubic meters, or a little more than 280 cubic feet (bcm) of gas, annually.

Production for the project will start at two nearby mines in Zhundong, which will provide the coal to be transported to the newly built coal-to-gas facilities. The mines each have the capacity to produce 15 million tons every year.

The end product—the natural gas—will then run along Sinopec Group’s 30 bcm/year pipeline that runs from Xinjiang to Guangdong province in south China and to Zhejiang province in east China.

The Xinjiang-Guangdong-Zhejiang pipeline, running 4,925 miles, gives Sinopec a significant advantage in China’s gas distribution market.

Chinese Coal

The ability to convert coal to gas marks a significant step in China’s ability to provide a cleaner-burning source of fuel, and while China does produce more coal than anywhere else in the world, because its demand is so high, it is also the world’s biggest importer of the resource.

The U.S., second only to China in production, reaps the benefit from this demand, as domestic use in the states has tapered off with the nation’s own growing desire for a cleaner burning fuel. U.S. natural gas prices also saw a ten year low in 2012, making it that much more attractive to put to use and sending coal into the background.

The U.S. coal production is still in overabundance, and while its use is most definitely shifting away domestically, the demand in places like China grows higher and higher as massive populations push production to its limits.

The U.S., in fact, has the world’s largest coal company—Peabody Energy (NYSE: BTU)—which last year exported more coal by volume than in any other year of its existence.

It may be headquartered in St. Louis, Missouri, but the company has offices in China, Australia, the UK, Singapore, Indonesia, and Germany.

CONSOL Energy Corp. (NYSE: CNX) is unique in that it produces both coal and natural gas. This focal point allows CONSOL to provide roughly two-thirds of U.S. power generation. At the same time, it has a major terminal in Baltimore, MD where it can load coal onto ships, and from there it can be sent to coal importers around the world.

There’s just no stopping the production of coal.


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