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Future of China's CTG industry uncertain

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World Coal,

The development of China’s coal-to-gas (CTG) is in doubt as the Chinese government looks to regulate the industry more tightly, a recent industry briefing (subscription required) from The Economist Intelligence Unit (EIU) said.

The past few years have seen a flurry of CTG projects announced in China as the government aims to raise gas consumption to 400 – 420 billion cubic meters by 2020 in an effort to reduce air pollution. CTG is slated to supply at least 50 billion cubic meters of this demand but with two CTG project online, three under construction and an additional 11 with project approval, The EIU estimates that more than 200 billion cubic meters of CTG production may be in the pipeline.

This has raised concerns about overcapacity and the environmental impact of such projects in what is a loosely regulated industry, while the changing economics of CTG have seen one leading developer, Datong, divest its two domestic projects: Kaqi in Inner Mongolia and Fuxin in Liaoning.

“The government is therefore looking to regulate the fledgling sector more closely,” writes The EIU with the powerful National Energy Administration (NEA) recently ordering provinces to curb their “irrational” development of CTG and other coal-to-liquids (CTL) projects. New regulations will also stop construction of CTG projects with output of below 2 billion cubic meters per year and CTL projects of less than 1 million tpa.

“The upshot will be to pour coal water on the sector in the short term”, concludes The EIU. “Tighter oversight, together with Datang’s divestments, will cause concern among other investors […] China’s goal of producing 50 million cubic meters at CTG plants by 2020 is therefore in doubt.

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