Coal Is Fueling China’s Next Energy Power Play

Coal is inarguably one of the big winners from the energy flow disruption in the Middle East. Consumption is up strongly as gas becomes hard to come by and expensive to buy. Power supply security has overtaken any emission concerns. Yet it is not only in power generation that coal has regained popularity. Coal is also increasingly being used as feedstock for chemicals, notably fertilizers.

Recently released data from China showed that coal production in the world’s top consumer had dipped in the first four months of the year. Imports were also down, and power generation from coal declined, extending a trend that began in 2025. The figures would suggest China is reducing its use of coal, but in fact, coal consumption is still going strong in the Asian powerhouse—the commodity is simply being used for more than power generation and metals smelting. China is using coal to make everything from gas to petrochemicals—and now India is planning to do the same.

Earlier this week, Reuters reported that PetroChina was developing a project for the extraction of gas from coal rock, eyeing output of 30 billion cu m by 2035. The extraction technology is very similar to that used in shale formations, the report noted, adding that China is the only country where hydraulic fracturing is being used for so-called rock gas extraction.

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In separate news, China’s coal-to-chemicals industry got a major boost from the Middle East war. The sector’s stocks jumped by 30% between the end of February and mid-March, Reuters reported at the time, with investors rewarding the energy industry’s ability to use coal for the production of fertilizers and other petrochemicals without actually using petroleum.

With oil prices surging on the closure of the Strait of Hormuz, coal has become a valuable substitute, not least because even with a price rise—and coal prices have risen—it remains cheaper than the liquid alternative. Indeed, Reuters reported in mid-March that Chinese coal prices had in fact fallen since the start of the war. It is little wonder that India wants to replicate China’s success in coal-to-chemicals.

Dependent on imports for over 80% of its oil consumption, India has found itself in a rather vulnerable position amid the biggest energy crisis in history. Yet India has abundant coal reserves it can use for more than power generation—and that is exactly what it is doing, Bloomberg’s Javier Blas reported this week.

Many net-zero campaigners from political circles like to point out that homegrown energy is a guarantee for energy security. In that, they are correct, even though when they say homegrown energy, they mean energy harvested with equipment imported from, among others, China. And China uses coal to make that equipment. The fact remains, however, that using your own resources to produce energy, fertilizers, and other chemicals is certainly a better choice than importing in and depending on a market over which you have no control with regard to either prices or supply.

China’s coal-to-chemicals industry is a unique one, Bloomberg’s Blas noted in his report, and that means it would be challenging for India to replicate China’s success. One reason for this is that Indian coal is different, the energy columnist reported, and will be harder to convert into chemicals.

The other reason is that China has spent some 20 years improving the extraction technology. India plans to invest $4 billion to jumpstart a coal-to-chemicals industry, but that may not be enough, Blas says, as companies engaged in that activity would need more support to make their products competitive once the war in the Middle East ends and natural gas prices retreat to pre-war levels—whenever that may happen.

Still, the Modi government eyes 75 million tons of coal getting turned into fertilizers and other chemicals, as well as plastics, in 2030, to enhance reliance on locally sourced goods and reduce its passive import bill. It will provide funding for processing facilities and guarantee the local supply of the feedstock—and boost the world’s demand for coal even further than the war already has, further eroding net-zero plans.

Bloomberg’s Blas reported that China’s coal-to-chemicals industry consumes 380 million tons of coal annually. If it were a country, he noted, that industry would be the world’s third-largest coal consumer. And now India wants to build its own gargantuan coal-consuming industry.

Last year, China produced 4.2 billion cubic meters of rock gas. This is just the beginning if production growth plans materialize. The coal-to-chemicals industry is growing and, evidently, inspiring other countries to go local as well, with no concern for the implications of such trends for emission reduction. The coal-to-chemicals industry developments in Asia show quite clearly that the top priorities in energy will always remain reliability and affordability, with emissions a distant third in times of tight supply and high prices.

By Irina Slav for Oilprice.com

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