CCC/181 ISBN 978-92-9029-501-3

February 2011

copyright © IEA Clean Coal Centre

Abstract

This report provides a review of the Chinese energy security concerns, since imports are providing an

ever increasing proportion of the oil and gas used compared to domestic supplies. Due to the relative

paucity of Chinese oil and gas reserves, the government has adopted a policy of diversification by

securing supplies via overland pipelines and by tankers from various sources. At the same time, due to

its abundant coal availability, China has initiated very significant industrial development and

demonstration programmes to establish certain coal transformation processes. These cover coal-to-oil,

gas and key chemicals, namely olefins, dimethyl ether and ethylene glycol. These programmes are at

the stage where some very large industrial-scale projects are being constructed while for coal-to-oil, a

major demonstration and three industrial pilot units are already operational. As such, over the next few

years, China could establish first user advantage for many such processes. However, it is not at all

certain that the originally perceived deployment of commercial-scale technologies will follow. For

example, concerns have been raised regarding excessive use of coal and water to produce quantities of

product that will not significantly reduce the projected import levels of oil. At the same time,

chemicals made from coal may struggle to be competitive with imported materials produced from low

cost gas supplies. Consequently, the state government has reined in both the scope and the pace of the

originally expected developments. While some technologies may proceed beyond the demonstration

stage, the very large investments necessary to establish significant capacity may not represent the best

use of Chinese financial capital. Consequently, the future of all these coal transformation projects will

depend on how China deals with the increasing challenges of balancing economy, energy and

environment, as part of its aim to establish sustainability of its long-term development while, at the

same time, addressing shorter term issues such as matching supply and demand.