China Invests in Ukraine Coal Gasification

Thanks to a $3.65 billion deal with China Development Bank Corporation, Ukraine will gradually work towards the gasification of coal to reduce its dependency on natural gas by about 4 billion cubic meters, for a savings of up to $1.5 billion.

What this means, exactly, is that Ukraine will develop and use modern coal-water slurry fuel technology and construct new plants to gasify coal to allow it to reduce its consumption substantially and increase gross volumes of internal production. 

What's it all about-Russia, of course. Ukraine is on a relentless (though so far fairly unsuccessful) path to squeezing out from under the grip of Russia gas giant Gazprom.

Europe has been no help in this endeavor, dependent as it is on the massive pipeline infrastructure that runs through Ukraine and carries Russia gas to Western and Eastern Europe.

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So barring attempts to buy gas from elsewhere, and to gain more control over its own pipelines, a longer-term answer can be found in reducing the need for gas. For now, coal is the easiest remedy.

The deal signed with China Development Bank Corporation and Naftogaz Ukrainy includes four investment programs and a 19-year credit line, which will cost almost $2.4 billion just to service.

The deal is especially attractive to Ukraine because not only does it represent a massive savings on gas consumption, but it allows the country to put its own vast coal resources to work. We're talking about creating a market for the sale of around 10 million tons of coal annually.

Sweetening the deal, the $1.5 billion in savings will in part come from the 30-70% lower price of coal-water slurry fuel as compared to oil or gas in Ukraine.

The projects are two-fold: first, heat-producing facilities will be converted to use coal-water slurry as fuel; second, new plants will be built to enable the gasification of brown and bituminous coal in three regions: Luhansk, Donetsk and Odessa. While most of the media reports claim that Ukraine will be using Chinese coal-slurry technology, it's actually Shell's technology. 

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And it's not as dirty as it sounds. Coal-water slurry fuel (CWSF) means that coal particles are suspended in water, which reduces their harmful emissions (by 20-35%) and makes it explosion-proof. 

Coal gasification is indeed a trend to keep your eye on for 2013 and beyond.

In the US, cheap natural gas as a result of the shale boom has sidelined coal gasification-temporarily.

China, meanwhile, has moved forward with the idea. The main reason for this is that China's own vast shale gas reserves remain undeveloped due to the lack of technology and the only recent arrival of foreign companies (like Royal Dutch Shell and ConocoPhillips) on the Chinese shale scene.

In-situ coal gasification (UCG) is not new-in fact, it dates as far back as the 1800s. What is involves in the drilling of two wells in a coal seam: one supplying water and air or oxygen, the other serving as the exit channel for the gasified coal, which is a combination of hydrogen, carbon monoxide, carbon dioxide and methane. The process has a relatively low carbon footprint because it ensures that the most toxic elements of the coal remain underground.

So if the idea is old, and the shale revolution has kept it from surfacing, so to speak, why are we even talking about it? It's rather circular: At the same time that low gas prices have rendered coal gasification semi-irrelevant, the technological advancements that have spurred the shale revolution will also boost the prospects for coal gasification. Hydraulic fracking, horizontal drilling and seismic technology improvements will make it more economical to gasify coal.

By. Charles Kennedy of Oilprice.com