Coal is being overwhelmed by regulation and supplanted by subsidized competitors. Patriot Coal is the latest US producer to come off the rails, and thousands of miles away in country that not so long ago was building a coal-fired plant a week, Chinese coal producer Shenhua has also reported poor financials. Yet one firm, SinoCoking Coal, has embraced coal gasification and, in the midst of the ‘coaldrums,’ has reported a huge rise in income. Ross McCracken has more from the most recent selection from Platts Energy Economist.
Patriot Coal filed for Chapter 11 bankruptcy in May for the second time in three years. Hit by a surplus of coal on world markets and fierce competition from lower cost coal basins in the US, the long drop in coal prices has again taken its toll on the primarily Central Appalachian producer.
It is not the first producer in that region to hit the skids this year; mining costs in Central Appalachia far surpass other US coal producing regions, and CAPP producers are struggling to compete in export markets.
But it is not just US coal companies that face difficulties. China’s coal companies have for months been waging a bitter cost-cutting war to retain market share.
Shenhua Energy Co., one of China’s largest coal producers, reported that in first-quarter 2015 its commercial coal production fell 13.3% year-on-year from 79.9 million tons to 69.3 million tons. Its revenue for the quarter dropped 34.5% to Yuan 39,911 million ($6,434 million).
However, one Chinese coal company is bucking the trend. SinoCoking Coal and Coke Chemical Industries — listed on Nasdaq, incorporated in Florida, but operating in China — is unusual in reporting a 141% rise in first-quarter net income to $4,418,452, despite year-on-year revenue falling from $10.99 million to $10.86 million. Its gross profit margin rose to 37%, from 22%.
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The reason is that SinoCoking Coal has started gasifying coal and selling the resultant syngas. In addition, it expects soon to add to its above-ground syngas production capacity with the start-up of an underground coal gasification (UCG) facility, few of which exist anywhere in the world.
The impact on the company’s revenue structure has been huge. For the quarter ended March 31, SinoCoking derived 49% of its revenue from coke products, 4% from coal products and 47% from syngas products. This compares with 94% from coke products and 6% for coal products for the three months ended March 31, 2014.
SinoCoking’s long-term plan is to apply its gasification technologies to its other mines over the next two years. The company also plans to introduce the technology to other companies’ mines in Henan province, estimating that total syngas production could reach 21 MMcm per hour once full industrial scale is reached. This would be the equivalent of 184 Bcm of syngas a year. Although years from achieving this goal, China’s natural gas consumption in 2013 was 162 Bcm.
Clean and green?
The prospect that China’s coal industry has to change is recognized by the country’s major miners and they are keen to rebrand themselves as the producers of clean energy products. However, there is nothing particularly green or clean about coal gasification.
It does produce a cleaner burning fuel than coal, in the form of syngas, but that essentially moves the site of CO2 emissions from the generation plant to the coal gasification facility itself. In the Chinese context, this is useful because the government wants to reduce local air pollution as well as overall carbon emissions.
It is cheaper to remove CO2 pre-combustion, and UCG avoids a number of emissions heavy parts of the coal-to-power supply chain – for example, the mine itself and coal transportation. According to some studies, ash is completely eradicated from the process and the overall reduction in malignant atmospheric emissions is as much as tenfold.
But UCG cannot be a low carbon energy source unless the carbon dioxide produced during gasification is stored. Moreover, by using drilling techniques, rather than traditional mining, UCG in fact offers access to deep coal and therefore the possibility of vastly increasingly the world’s recoverable coal resource.
SinoCoking Coal makes two claims: first that its above ground facilities recycle CO2 to produce useful chemicals, which would require an unspecified additional source of hydrogen, and second that it is also integrating carbon capture and storage (CCS) into its UCG process.
Its UCG and CCS processes are developed and jointly-owned by its two technology partners – the Institute of Process Engineering of the Chinese Academy of Sciences and the North China Institute of Science and Technology. According to Wenjun Li of the coal-based Clean Energy Test Center at NCIST, the carbon dioxide and steam removed from the syngas are re-injected deep underground, where they further stimulate the coal gasification process and remain stored for decades.
This suggests that SinoCoking intends to reinject the collected CO2 back into the cavity produced from burning the coal underground. However, there is some doubt that the CO2 stream can simply be pumped back into the cavity. Speaking at the UCG Association’s London conference in March 2011, Ralph Schluter of DMT Germany said their research suggested that only up to 50% of the CO2 created in the process may be storable in the cavity created by UCG.
Peter Sallans, Technical Director for Australia’s Riverside Energy, said that pumping CO2 back into these cavities sterilizes the remaining resource. Other CCS projects generally put the CO2 into different geological formations. The point at which a UCG cavity could be used for storage would be decades after the energy and CO2 have been produced from it, according to Sallans.
Nevertheless, in the midst of the coaldrums, SinoCoking appears to have pulled off a major change in its financial fortunes, potentially opening up a new direction for China’s coal miners. Clearly, government support is critical to its success, but the concern must be that SinoCoking’s UCG plans are neither as mature nor as proven as its gasification processes. The danger is that UCG is deployed on a wider industrial scale, but the CCS ambitions are never fully realized.