China expands coal-to-gas production to bolster energy security

China is aggressively expanding its coal-to-gas (CTG) industry to produce synthetic natural gas (SNG) as a strategic hedge against geopolitical instability and volatile liquefied natural gas (LNG) markets. By converting domestic coal into methane, Beijing aims to reduce its reliance on overseas shipping routes and pipelines that are vulnerable to maritime chokepoints, sanctions, and price fluctuations.

According to Rystad Energy, China’s CTG capacity is projected to reach 9.4 billion cubic meters per year by the end of 2026, with a target of 28 billion cubic meters by 2030. The Xinjiang province has become a primary hub for this expansion due to significantly lower coal prices compared to other regions. This cost advantage allows synthetic gas to be delivered to East China at prices generally below the average cost of imported LNG.

While the strategy bolsters energy security, it presents significant environmental challenges. The process is carbon-intensive and requires substantial water consumption, which may strain water-stressed regions in northern and western China. To mitigate these impacts, newer projects are incorporating technologies such as carbon capture, wastewater recycling, and electrolytic hydrogen integration to meet tightening environmental requirements.