Today, we’re thrilled to sit down with Christopher Hailstone, a seasoned expert in energy management and utilities, with deep insights into renewable energy, electricity delivery, and grid reliability. With China’s coal-to-gas and coal-to-chemicals industries experiencing unprecedented growth, Christopher offers a unique perspective on how this modern “alchemy” is reshaping energy security and industrial landscapes. In our conversation, we explore the innovative processes behind converting coal into valuable resources, the economic and political drivers fueling this boom, the regional focus of these projects, and the broader implications for China’s energy future and environmental goals.
Can you walk us through what’s meant by “Chinese alchemy” when we talk about turning coal into gas and chemicals?
Absolutely. The term “alchemy” here is a bit of a metaphor for the almost magical transformation of coal—a traditional, dirty fuel—into cleaner, more versatile products like synthetic natural gas, liquid fuels, and chemicals used in plastics. At a basic level, the process involves heating coal to extremely high temperatures to produce synthetic gas, or syngas, which is then converted into various end products like methanol or olefins. What makes it unique to China is the sheer scale and government backing. No other country has the combination of abundant cheap coal, state-driven investment, and a pressing need to reduce reliance on energy imports, which has turned this into a national priority.
What’s fueling the rapid expansion of these coal conversion industries in China right now?
Several factors are coming together to drive this boom. First, China has an abundance of cheap coal, especially with prices hitting four-year lows recently, which makes the economics of conversion more attractive. Then there’s significant state support—think easy access to loans for state-owned enterprises and policy incentives that prioritize energy security. On top of that, there’s a real concern in Beijing about dependence on imported oil and liquefied natural gas (LNG). The fear of disruptions, whether due to geopolitical tensions or maritime blockades, pushes the government to invest in domestic alternatives like coal-to-gas, even if they come with high costs or environmental trade-offs.
How does China’s scale in this industry stack up against other countries, historically or currently?
China’s scale is unmatched today and even dwarfs historical examples. In the past, only isolated regimes like Nazi Germany or apartheid South Africa turned to coal conversion at a significant level, mainly out of necessity during sanctions or war. But their capacities were a fraction of what China is building now. Currently, other coal-rich nations like India or Indonesia have explored similar technologies but haven’t scaled up due to shaky economics and lack of state-driven momentum. China, by contrast, processed 276 million tons of coal into chemicals and fuels last year alone, and if planned projects go ahead, capacity could double in five years. It’s a league of its own.
What economic conditions are making coal-to-gas and chemicals a viable option in China at this moment?
The economics hinge on a few key variables. High oil prices—above $70 a barrel in recent years—make coal-derived products competitive compared to oil-based alternatives. At the same time, low coal prices, like we’ve seen this year, boost profit margins; for instance, coal-based olefins are generating margins of 800-900 yuan per ton right now, compared to losses for oil-based options. But it’s a fragile balance. If oil prices drop significantly, as some forecasts suggest for next year, many projects could become unprofitable, leading to cancellations or delays. The industry’s viability is very much tied to these global price swings.
Why are so many of these new coal-to-gas plants being built in northwestern China, like Xinjiang?
Northwestern China, including regions like Xinjiang and Inner Mongolia, is coal-rich, which makes it a natural hub for these projects. Transporting coal long distances is costly, so building plants near the mines cuts logistics expenses. Additionally, these are less-developed areas, and the government sees these projects as a way to drive economic growth and infrastructure investment there. It aligns with broader national goals of balancing regional disparities while addressing energy security. Most of the capacity under construction—around 12 billion cubic meters per year of coal-to-gas—is in this region, with more planned.
How does the output from coal-to-gas projects compare to China’s imported natural gas, and what does this mean for energy independence?
The numbers are striking. If all projects under construction come online, China’s coal-to-gas capacity could reach 19.5 billion cubic meters annually, which is about a fifth of last year’s LNG imports. Cost-wise, coal-derived gas is currently almost a third cheaper than imported LNG, at less than 2 yuan per cubic meter compared to 2.87 yuan before additional costs. This gap makes a strong case for reducing reliance on foreign gas, enhancing energy security. While it won’t fully replace imports, it’s a significant step toward hedging against supply disruptions, especially in a tense geopolitical climate.
What’s your forecast for the future of coal-to-gas and coal-to-chemicals in China, given the environmental and economic challenges?
I think the future is a tightrope walk. On one hand, the push for energy security and the current economic conditions will likely keep driving growth in the near term—capacity is set to double, after all. But there are major hurdles. These projects are incredibly carbon-intensive; coal-to-gas emits nearly three times more CO2 during conversion than when the gas is burned. With China already behind on its 2025 carbon intensity targets, pressure from climate goals could curb expansion if Beijing prioritizes emissions over security. Economically, a sustained drop in oil prices could also derail projects. My forecast is cautious optimism for the next few years, but long-term, the industry’s fate will depend on how China balances these competing priorities—geopolitical needs versus environmental commitments.
