KEY POINTS
- China Energy Investment Corp. to invest $24 billion in a coal-to-oil plant in Xinjiang.
- The project is part of China’s broader coal-to-oil strategy as renewable energy overtakes coal in electricity generation.
- Coal-to-oil capacity is growing despite economic challenges and decarbonization efforts.
In an effort to diversify the country’s coal use and manage a possible coal surplus, China Energy Investment Corp. (CEIC), the leading coal producer in the country, announced a $24 billion investment in a new coal-to-oil facility in Xinjiang. In 2027, the facility is anticipated to come online.
Expanding coal-to-oil projects amid energy transition
The new facility in Hami city is a part of China’s larger plan to make creative use of its vast coal reserves, especially as the nation transitions to cleaner energy sources like wind and solar.
Renewable energy sources have surpassed coal in terms of electricity output, despite China’s persistent efforts to achieve record coal production. In important mining regions including Xinjiang, Shaanxi, Ningxia, and Inner Mongolia, the Hami project is the latest in a long line of coal-to-oil projects.
It is anticipated that Hami alone will approve projects using up to 152 million tons of coal by the end of the decade. Even if the facility runs on renewable energy, its activities and products, such as oil products for petrochemicals, will raise environmental issues, particularly as China strives to meet its climate targets by reducing its carbon footprint by 2026.
Navigating economic and market challenges
There are dangers associated with China Energy’s coal-to-oil conversion. Slowing consumption brought on by a poor economy has hurt the nation’s petrochemicals industry, and the coal-to-oil sector has seen a steep decline in profitability.
According to Mining.com, profits from coal-to-oil fell 53 percent last year, which was made more difficult by Beijing’s efforts to decarbonize and lessen its need on oil processing.
However, CEIC’s Hami plant, which specializes in polyester and other products, hopes to produce 4 million tons of oil a year. The corporation may have a competitive advantage over smaller operations due to its extensive operations and usage of cutting-edge liquefaction technology, which enables it to extract oil at reduced costs.
A strategic gamble amid transition
Despite declining demand, China’s coal-to-oil capacity has increased by 24 percent in recent years, adding substantial output.
A significant portion of this growth will come from the Hami project at a time when the global energy landscape is moving away from fossil fuels and the Chinese economy is under increasing strain.
CEIC maintains its optimism by relying on its low-cost production capabilities and technical advancements.
The company’s capacity to adjust to economic difficulties and China’s larger initiatives to cut carbon emissions, however, will determine its long-term success in this market.
