Producing oil from coal is a technology that has been around for a long time. Germany used it to fuel its tanks and aircraft during World War II and South Africa is using it today to provide about 30 percent of its gasoline and diesel supply.  China is now embracing it since they are the world’s largest producer and consumer of coal. But for the United States, the country with the largest coal reserves in the world, coal to liquids plants have been stymied because it is argued that its life cycle greenhouse gas emissions would be higher than that of conventional oil. So, U.S. coal producers in Montana and Wyoming are looking toward Asian markets for new coal sales and coal producers in West Virginia and Kentucky have increased their exports of coal for steel making.[i]

Department of Defense’s Energy Policy

Tom Hicks, Deputy Assistant Secretary for Energy in the U.S. Navy, said that the rising price of oil “dramatically impacts the military.” For every $1 a barrel increase in oil, the Navy and Marine Corps pay more than $30 million. So, it is no surprise that the U.S. military would like to find a more economic source of petroleum products.

Currently, there is a Congressional ban on the Pentagon’s using high-carbon alternative fuels. Section 526 of the Energy Security and Independence Act of 2007 blocks the Department of Defense from using coal-to-liquid fuels because the life cycle greenhouse gas (GHG) emissions from those fuels would be much larger than the GHG emissions from conventional petroleum. That puts a damper on Air Force plans to certify planes to run on synthetic fuels from coal, natural gas and biomass. While there are ongoing efforts in Congress to repeal this law, no repeal has been enacted as of yet.

For the past few years, the military has promoted alternative fuels from biomass, but so far these fuels are very, very expensive.  According to Undersecretary of the Air Force, Erin Conaton, biomass fuel is about 10 times the cost of military aviation jet fuel.[ii] Since the Energy Information Administration reports kerosene-based jet fuel to sell for just over $3 per gallon[iii], jet fuel from biomass according to this account would cost around $30 per gallon. Other estimates are much larger. For example, a blend of 50 percent camelina-based biofuel[1] purchased for the Air Force and Navy last year was reported costing $65 a gallon, making a 100 percent biofuel around $130 per gallon.[iv] Regardless, whether the cost is 10 times or 40 times higher, proponents of biomass fuels would like us to believe that costs can get down to $2 per gallon, but when and how are still an issue

China’s Coal-to-Liquids Project

China, unlike the United States military, has no problem  getting its petroleum products from coal. China’s largest coal producer, the Shenhua Group, is reaping huge profits from a coal-to-liquids project completed in late 2008 in North China. In just the first 3 months of this year, their profits reached more than 100 million yuan or $15.38 million from production of 216,000 tons of refined oil products. The project located in Inner Mongolia is the world’s first large coal-to-liquids plant. Last year, it operated for 5,000 hours and produced 450,000 tons of oil products. It is expected to reach one million tons of annual capacity.[v] With profits of that magnitude in only two years of operation, China has proven that coal-to-liquids is a lucrative business.  Meanwhile, the United States is shut out of that market for military use when it has the largest coal reserves in the world.

China’s Growing Use of Imported Coal

While China ranks third in coal reserves, behind the United States and Russia, its coal is low quality containing sulfur, fly ash and dust. Starting this July, China plans to blend cleaner burning imported coal with its domestic coal in six massive silos being constructed near an industrial port in northeastern China. The blended coal will meet tighter environmental regulations and burn more efficiently than domestic coal since it is of higher quality.[vi]

China’s Need for Coal is Enormous

China has been faced with electric power shortages since April due to high demand, high coal prices, and a drought in southern China causing low hydroelectric output. Precipitation in April was 50 percent less than the average level of past years, resulting in a 20-percent reduction in hydroelectric power generation growth. And, coal prices have doubled in the past five years in China, reaching $130 a ton for coal with high heat content. Statistics from the China Electricity Council indicate that electricity demand is already 12 percent higher than last year having reached 1,090 billion kilowatt-hours during the first four months of this year.[vii]

While China has more hydroelectric and wind generating capacity than any other country in the world, those power sources are reliant on water and wind availability and have not been able to fill the increase in China’s electricity demand. Unlike the United States, China does not mind satisfying its electricity demand with reliable coal generation, which represents 73 percent of China’s total generating capacity, and produced a whopping 83 percent of its generation last year.[viii]

According to the director of the power industry department of the China’s National Energy Administration, China is constructing 180 million kilowatts of new coal fired plants. In responding to the power shortages, he said, “The government will speed up the examination and approval of these projects and put them into use ahead of schedule.”

China is the world’s largest coal producer and consumer, consuming 3.5 times as much coal as the United States.[ix] And, rather than consuming U.S. coal at home, U.S. coal producers are looking to sell their coal to Asian markets since U.S. laws and regulations are either slowing or derailing new growth here.

Conclusion

China is on a fast track to meet its electricity demand, but not through hydroelectric power or wind power, where it leads the world in capacity, but through coal-fired generation. China is now the home of the world’s largest coal to liquids plant that is reaping in the profits. Yet, the United States fails to learn from China’s lead. The United States has banned the use of coal-to-liquids technology because the greenhouse gas emissions over its life cycle will exceed those of conventional oil. This is despite coal to liquids costs estimated at $45 to $65 per barrel.[x] Thus, U.S. military establishments will either continue to pay for imported crude oil or invest in biofuel technologies that have a long way to go before they will ever become competitive with conventional sources.