China’s Massive Coal-to-Liquids Expansion

Coal, it turns out, is an infinite chemical wellspring, being converted into everything from plastic, to diesel, jet fuel, gas, methanol and fertilizer. There is no way, just no chance, that China will leave this bounty locked underground. And why are we? 

The idea of converting coal to liquid fuel sounds like an expensive exotic chemical reaction that is barely used. If people have even heard of it, it’s mainly because the Nazi’s were so desperate for liquid fuel to power their tanks and armored cars, they converted coal in a large plant that became a wartime target in World War II. It produced 92% of Germany’s air fuel, and 50% of its petroleum. Who knew, those Messerschmidts were coal powered? Later South Africa used it in the 1980s in response to an oil embargo, and they still do.

Quietly China has developed a giant coal-to-liquids industry to reduce its strategic vulnerability to an oil shock or a wartime embargo, and the volume is astounding.  Accurate numbers are hard to obtain, but the IEA estimates that every year China is converting 380 million tons of coal into fuel, ammonia and fertilizer.

To put that in perspective, Australia is now the second largest exporter of coal in the world, and China is converting more than we export through coal-to-liquids and coal-to-chemicals.  This is also more than the USA uses.

China’s coal production is 4,800 million tons each year. Something like 8% of  that converted to something else, like petrol, gas, plastic water bottles, synthetic clothes, and fertilizer for food crops.

And they also make diesel.

China’s Coal Industry Has a Big, Dirty Secret

by Javier Blas, Bloomberg, 2nd June 2025

Largely unnoticed, the size of this obscure corner of the Chinese coal industry has reached gargantuan proportions: It consumes about 380 million metric tons of coal as a feedstock for chemical and liquid fuel production, according to the International Energy Agency. To understand its size better, it helps to think about the segment as if it were a country. As such, it would rank as the world’s third-largest consumer, only behind the rest of the Chinese coal sector and India, but ahead of the US, Japan and other top coal-consuming nations like Indonesia and Turkey.

People may think that Coal-to-liquids is only something worth doing if the price of oil is high, but that all changes if you care about energy security. And China clearly does.

The modern part of that processing was largely experimental in the early 2000s. Commercial-scale projects mushroomed in the 2010s, and, after a brief hiatus, more have emerged in recent years, particularly in the Chinese heartland, where the bulk of the country’s coal fields are located far from coastal cities. By now, its scale — which dwarfs all other countries’ coal-to-chemicals production — and growth is surprising even veteran industry observers. Look at some modernized plants and coal is nowhere to be seen: It’s mined underground almost directly beneath the chemical facilities, carried by conveyor into the furnaces where it’s gasified and transformed. From there, it goes into your plastic water bottle or synthetic fabric clothes.