The coal-to-oil industry steadily overcomes challenges, nurturing new opportunities.

　　After 17 years, the Shenhua Ningmei 4-million-ton-per-year coal-to-liquids demonstration project produced oil products at the end of 2016. The commissioning of this single-unit facility—currently the world's largest coal-to-oil project—marks a significant milestone in China's coal chemical industry development and solidifies the country's position as a global leader in innovative coal-to-chemicals technologies.

　　However, the industry still harbors many doubts about the development of coal-to-oil technology: How efficient is the energy conversion process? How will water consumption issues be addressed in regions rich in coal but scarce in water, where coal chemical plants are located? What is the current level of carbon dioxide emission management? And at what crude oil price can coal-to-oil projects remain profitable? Most importantly, how far are we from achieving large-scale commercialization of this technology?

　　Yue Fubin, Director of the China Coal Economic Research Institute, believes that the development of the coal-to-oil industry in China is both objectively inevitable and essential. "The question now isn't whether or not to develop this industry—it's about how we should go about it."

　　Single-unit production capacity ranks among the world's largest.

　　From the start of preliminary work in 1999 to its official commissioning at the end of 2016, the Shenhua Ningmei 4-million-ton-per-year coal-to-oil project took a total of 17 years to achieve initial results.

　　In January 2004, when the National Development and Reform Commission approved Shenhua Ningmei Group to build a coal-to-liquids demonstration project, coal-to-liquids technology was still largely uncharted territory. To introduce the core technology for coal-to-oil production, Shenhua Ningmei Group engaged in challenging negotiations with South Africa’s Sasol company—but ultimately opted for China’s Sinopec Synthetic Oil Technology instead.

　　In 2013, the National Development and Reform Commission officially approved the project's construction. This project undertook 37 major national tasks focused on the independent localization of critical technologies, equipment, and materials. Through successful demonstrations of domestic production, it successfully developed a comprehensive set of large-scale coal-to-oil process technologies, overcoming significant challenges in engineering implementation, large-scale equipment manufacturing, and integrated systems engineering for complete sets of equipment.

　　Ningxia is a typical coal-rich province, with proven reserves totaling 27.3 billion tons, and coal accounts for more than 90% of its energy mix. The successful localization of the demonstration project has not only broken the foreign monopoly on core technologies, equipment, and materials used in coal-to-oil and chemical industries but also paved the way for developing a deep-processing coal industry model that aligns with China's national conditions—characterized by high technological content, high added value, and a long industrial chain.

　　"Project localization rates have exceeded national requirements. According to statistics on process technology and equipment units, the localization rate has reached 98.5%, while based on investment amounts, it stands at 92%. Originally planned to require an investment of 55 billion yuan, the project is now estimated to cost around 50 billion yuan—representing a 10% reduction in costs—thanks primarily to the successful domestication of core technologies," said Shao Junjie, Chairman of Shenhua Ningmei Group.

　　Energy-saving and consumption-reduction levels have improved.

　　A million-ton-scale coal-to-oil project typically requires four to five years to complete. Throughout this process, the construction of demonstration projects allows for the accumulation of extensive experience and helps overcome numerous technical challenges.

　　Regarding the conflict between coal resources and water resources, Jiao Hongqiao, Deputy Chief Engineer of Shenhua Ningmei Group, explained: "Currently, Shenhua Group operates both a million-ton-scale direct coal liquefaction plant and a million-ton-scale indirect coal liquefaction plant. The direct liquefaction plant was originally designed to consume 10 tons of water per ton of oil product, but after undergoing water-saving upgrades, its current consumption is now below 6 tons. Meanwhile, the indirect liquefaction plant was designed to use 6.5 tons of water per ton of oil product. Both facilities still have significant potential for further water conservation, and we plan to reduce water consumption by an additional 20% within a very short timeframe."

　　"From the perspective of water resource utilization, Yitai's coal-to-oil project has adopted new water-saving technologies, processes, and equipment, achieving a water utilization rate of 97%. Moreover, the cooling water is fully reused at an impressive rate of 98.7%. Currently, water consumption for every 10,000 yuan of industrial value added has been kept below 10 tons," introduced Zhang Jingquan, General Manager of Inner Mongolia Yitai Coal Co., Ltd.

　　Regarding the issue of energy conversion efficiency, according to the facilities operated by Yitai in Inner Mongolia, the direct liquefaction of coal can achieve a conversion efficiency of up to 58%, while indirect liquefaction reaches an efficiency of 43%. "These two figures already significantly surpass the typical conversion efficiency of around 40% seen in conventional thermal power plants," said Zhang Jingquan.

　　Regarding the issue of carbon dioxide emissions, Yue Fubin stated that coal-to-oil production generates emissions in a concentrated manner, making them easy to capture and collect. These captured emissions can then be reused as raw materials, effectively turning waste into valuable resources. "Developing coal-to-oil technology not only helps secure national energy independence but also addresses the current shortage of high-end petroleum products in China. From the perspective of the energy revolution, bypassing direct coal combustion and instead converting coal into oil as a raw material enables cleaner utilization of coal. From an industrial development standpoint, locating coal-to-oil projects in western China—where their completion and growth will inevitably stimulate economic and social progress in these regions—will further bolster regional development."

　　Economic efficiency still needs to be improved.

　　Currently, China has 9 coal-to-oil demonstration projects, with an annual production capacity of 7.4 million tons. Adding the previously approved but yet-to-be-built project with a capacity of 2.2 million tons per year, the total annual capacity will reach 9.6 million tons by the end of 2017.

　　During the 13th Five-Year Plan period, China will also see the gradual commissioning of several major coal-to-oil projects, including Yitai Ili’s 1 million-ton/year indirect liquefaction plant, Yitai Ordos’s 2 million-ton/year indirect liquefaction facility, Yitai Xinjiang’s 2 million-ton/year indirect liquefaction project, Shenhua Ningmei’s 4 million-ton/year (Phase II) indirect liquefaction plant, Shenhua Ordos’s 3.2 million-ton/year (Phase II) direct liquefaction plant, Yankuang/Enjie Yuheng’s 4 million-ton/year indirect liquefaction project, and Lu’an Changzhi’s 800,000-ton/year (Phase II) coal-to-liquids facility. Based on these projects, China’s annual coal-to-oil production capacity is expected to reach 28.1 million tons by the end of the 13th Five-Year Plan period.

　　“As local governments and enterprises become more proactive, coal-to-oil demonstration projects will gradually increase in number. In the process of developing coal-to-oil technology, it is essential to vigorously promote a mixed-ownership economy. Moreover, project development must avoid repeating the past mistakes of the coal industry—namely, its excessive fragmentation. Coal-to-oil enterprises should neither operate as isolated entities nor proliferate into numerous small-scale players; instead, they should consolidate into 3 to 5 large, integrated coal-to-oil conglomerates,” Yue Fubin pointed out.

　　The demonstration projects need to move forward, and the economic viability of coal-to-oil production is also drawing significant attention. According to calculations, the tax burden on diesel produced through China's coal-to-oil demonstration projects stands at 36.82%, while naphtha faces a tax rate of 58.98%. At current sales prices, under these tax conditions, coal-to-oil projects can essentially only "lose money but gain publicity."

　　Jiao Hongqiao believes that achieving an annual production capacity of 50 million tons—or even 100 million tons—within the coal-to-oil industry in the future is both in line with China's national conditions and highly necessary. He hopes the government will provide greater policy support to ensure the sustained, healthy growth of this industry.

　　During the 2016 "Two Sessions," the Ningxia delegation submitted the "Proposal on Requesting Tax Relief for the Indirect Coal Liquefaction Project of Shenhua Ningmei Coal." The proposal pointed out that, for the Shenhua Ningmei coal-to-oil project, the refined oil consumption tax alone accounts for 29.64% of the total costs, making it a critical factor hindering the smooth completion and operation of the project. Therefore, the delegation recommended that the central government consider providing appropriate tax relief. It is reported that this proposal has now been reviewed and approved by relevant national ministries and commissions, and is currently being submitted to the State Council for approval.