Gasification is a process through which coal can be transformed
into power, chemicals, hydrogen and transportation fuels, capturing
the resulting carbon by-product from the coal for sequestration or
for enhanced oil recovery.
Currently, the main markets for gasification, as judged by
analysis of current and planned projects, are:
- Electric Power
- Liquids fuels (or coal-to-liquids, primarily transportation
- Gaseous fuels (synthetic natural gas or hydrogen H
, for example)
Figure 1. World Gasification Capacity and Planned Growth - by
Source: U.S. Department of Energy
Compared to other technologies that either produce the same
products or use the same feed stocks, gasification has several
advantages that make it an attractive technology both now and for
According to the U.S. Department of Energy, the major advantages
Product flexibility -
A variety of commodities can be produced from synthesis gas
(syngas), the primary product of gasification. Prominent among
these are methanol, and ammonia, both of which are important as
key building blocks for further chemical synthesis.
Low Emission -
Gasification systems can achieve dramatic lower emissions levels,
as the syngas produced is at higher temperature and pressure,
which allows for easier removal of sulfur (SO
), nitrous oxides (NO
) and lends itself to efficient carbon dioxide (CO
) removal as well.
- Several gasification plant designs have been developed to
accommodate various grades of coal in addition to waste and
biomass. The main feedstock could be lignite coal, the lowest end
of coal with high moisture content, which is typically burned in
power plants for electrical production.
- Steam produced by the gasification process can often be
effectively integrated to meet a chemical plant needs, increasing
efficiency. Integrated gasification combined cycle (IGCC) power
plants offer efficiencies better than other coal power
The coal chemical industry can be divided into traditional coal
chemical and new coal chemical industries. The former mainly
includes production of synthetic ammonia, coke, calcium carbide and
other sub-sectors, while the new coal chemical industry produces
petroleum substitutes, including ethylene glycol, oil, olefins,
Figure 2. New Coal chemical industry supply chain
Source: Prophecy Coal Corp.
Of the "coal-to-" processes, coal-to-chemicals is potentially
the most stable, having been demonstrated by several projects to
Many chemicals are high-value products, and gasification provides
the option of using relatively inexpensive coal to produce them.
Modern coal chemical products such as those listed above are also
the commodity products from traditional petrochemicals, with the
same product quality and downstream usage. Bank of China securities
estimated that when oil prices are above $60/barrel, modern coal
chemical are feasible from a project economics point of view.
On July 18 2012, WTI oil climbed above $90/barrel for the first
time since May, which provides good opportunities for the
development of a cost competitive coal chemical industry, and then
to realize the supplement and partial substitute for oil
Coal-to-chemicals technology is seeing a large market growth,
especially in China, indicating confidence in the technology. The
quickly growing Chinese economy has given rise to a number of
coal-to-chemical facilities. According to the U.S. National Energy
Technology Laboratory, there are currently 34 such facilities in
operation, with six slated to come online and many planned for the
Some pilot projects (including those of China Shenhua) are already
able to run on a large scale. According to the China International
Capital Corporation (
) point of view, coal-to-oil conversion is more likely to be just a
technologically strategic move, and investors should not have high
expectations for massive production in the near term.
: Coal-to-natural gas will likely be an important alternative to
LPG and conventional natural gas because of the advantages. 1)
Higher energy conversion efficiency of coal-gas; 2) water
consumption is relatively small in the coal chemical industry.
The production of chemicals from coal through gasification has
already carved out a share of the chemicals market. One important
example is the production of methanol, of which 9% worldwide is
produced by gasification (Gasification, Higman C., Van der Burgt
Three Drivers for New Coal Chemical Industry Development
Abundant coal resources, providing the low price coal
Due to insufficient oil and natural gas, coal is and will remain
Mongolia's primary energy resource. According to the Ministry of
Fuel and Energy Mongolia, the country has abundant coal reserves
over 150 billion tons (the world's third largest) and can produce
cost competitive coal by large-scale open-pit mining.
Figure 3. Preliminary estimates of production volumes from the
major mines in Southern Mongolia
Source: World Bank report - Southern Mongolia Infrastructure
Surging demand for energy and chemical products
Forced to import virtually all of its refined oil products and
frequently facing chronic fuel shortages, Mongolia plans to start
building an oil refinery early next year in an effort to meet
domestic demand and reduce dependence on neighboring Russia for
In the meantime, Mongolia faces growing demand for chemical
products imported from China and Russia, like ammonia-based
fertilizers and methanol, for direct use and as a building block in
other chemical syntheses.
Government policy and support
According to the Fuel Policy and Regulation Department of the
Ministry of Fuel and Energy Mongolia, the government coal policy is
"aimed to provide national security and sustainable development of
Mongolia by introducing economic and environmental friendly clean
coal technology and production such as coal liquefaction, coal
gasification and coal-chemical industry development."
The Mongolian government has been intending to limit fossil fuel
imports for quite some time, and instead, to increasingly utilize
its abundant domestic coal deposits. As a primary measure, the
Mongolian government intends to build a coal-to-liquids plant in
Mongolia to produce synthetic fuels from coal. In April 2012, the
Mongolian government signed a Memorandum of Understanding (
) with Germany's ThyssenKrupp Uhde to implement a Coal-to-Liquid
). The project's total cost is estimated to be EUR1.7bn (USD
2.1Bn), and the plant's annual production capacity will be 1
million tonnes of gasoline and diesel, and 275,000 tonnes of liquid
gas using 6 million tonnes of brown coal, according to Eurasia
Challenges for Development
Carrying more than 90% of freight, the Mongolian railway system
is 1815 km long, of which 1,100 km are the main lines linking
Russia to China. With the additional new prospect of transporting
significant mining output to China, there is some concern that the
existing single track railway linking Russia to China through
Ulaanbaatar might not have sufficient capacity. The Government of
Mongolia has been seeking to build a strong logistics network to
enhance the country's competitiveness, and has been taking steps to
enhance trade facilitation.
Most cutting-edge chemical production technologies are more
complex than that found in the traditional petrochemical industry.
New coal chemical technology has been developing rapidly in recent
years, but have not fully matured as yet. According to CICC,
experiences from the operational performance of demonstration coal
chemical projects in China, show the technology is getting more
mature in such order: coal to ethylene glycol->indirect coal
liquefaction ->coal to natural gas-> coal to olefins.
Figure 4. Worldwide commercial coal chemical projects
Coal chemical production requires a great amount of coal and
water. Mongolia has tremendous coal resources, but an uneven
distribution of water -- the north has significant sources, while
the south is desert. All surface water in Mongolia is covered by
ice for about six months a year, and so groundwater is the primary
source of water supply for major urban and industrial centers.
Having adequate groundwater is crucial in coal chemical plant
capacity design and site selection.
Figure 5. Current China coal chemical projects unit consumption
by products (tons/tons, tons/'000 Mn cubic meters)
Indirect coal liquefaction
Coal to olefins
Coal to ethylene glycol
Coal to nature gas
The coal chemical industry is rather capital intensive and
dependent on economies of scale, with most application project
capital cost amounting to billions of dollars.
Figure 6. New coal chemical industry forecast capital cost per
(US$ Mm/'0000 tonnes, US$ Mm/'000 million cubic meters)
Source: China Sealand Securities
Without enough domestic funds to develop the coal chemical
industry, Mongolia needs to attract the financial strength of
international coal and chemical companies to tap into in this
North American investors can share the gain of the new coal
chemical industry emerging in Mongolia by gaining the exposure to
the stock of the publicly listing companies that have dedicate
themselves to the coal chemical development in Mongolia. Such
companies include ThyssenKrupp Uhde (TYEKF.PK), KBR (
), Fluor (
), GE Energy (GE), Siemens Energy (SI) and Prophecy Coal Corp.
(Declare: I have no positions in stocks for the companies listed
above, and no plans to initiate any positions within the next 1
Mongolia's burgeoning coal chemical industry is in an inevitable
trend of development, and it is one that will take full advantage
of the country's abundant coal resources, reduce its imports of
energy and satisfy the surging demand for chemicals from China and
Healthy and orderly development is needed for this industry,
giving full consideration to the resources and environment carrying
capacity, with a steady to moderate push into the development
process to achieve the goal of economic benefits and environmental
Leo Liu is a private investor and currently holds the position
of Investor Relations Officer with Prophecy Coal Corp. (PRPCF.PK)
and Prophecy Platinum Corp.
The views expressed in this article are those of the author and may
not reflect those of Prophecy Coal Corp. Neither Prophecy Coal
Corp. nor the author can guarantee accuracy of all information
provided. This article is strictly for informational purposes only.
It is not a solicitation to make any exchange in precious metal
products, commodities, securities or other financial instruments.
Prophecy Coal Corp. and the author of this article do not accept
culpability for losses and/ or damages arising from the use of this
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
Business relationship disclosure:
I am a private investor, and I currently hold the position of
Investor Relations Officer with Prophecy Coal Corp.
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