Water Grab: Shenhua Responds

By Calvin Quek 9 December, 2013

Greenpeace's Quek on why Shenhua's response to water grab allegations is a good start but questions still remain, Greenpeace's Quek on why Shenhua's response to water grab allegations is a good start but questions still remain, Greenpeace's Quek on why Shenhua's response to water grab allegations is a good start but questions still remain

Shenhua admits over-extraction has led to desertification & was ordered 2x by officials to rectify violations
Shenhua reduces project water intensity (10 m³ to 6 m³); Greenpeace still cautious due to future expansion plans
Some violations remain unresolved & other experts question viability of sector expansion given limited water

It has been 4 months since the July 23rd launch1  of “Thirsty Coal 2” report, where we profiled the coal chemical sector in China, focusing on one of the world’s largest coal-to-liquids projects (hereafter referred to as “The Project”), operated by Shenhua, and located in Ordos, Inner Mongolia, China. In that report, we highlighted the following environmental issues related to the Project.2 (Read Greenpeace’s earlier opinion here)

Summary of Greenpeace Thirsty Coal 2 Report

Since then there have been several new developments…

 

1) Mid-July 2013: Local environmental groups file public interest lawsuit against Shenhua

Local NGOs file Shenhua LawsuitIn July, local NGOs Friends of Nature and Nature University filed a public interest lawsuit against Shenhua’s Coal to Liquid Project over the groundwater extraction and wastewater discharge.5

This case was neither taken up by the Beijing Dongcheng District Court on August 30, 2013, nor by the Inner Mongolia Intermediate Court on September 9, due to technical reasons and deficiencies in the China’s existing civil procedures6.

2) 8 August 2013: Shenhua responds to water over-extraction allegations

On this day, Shenhua submitted the document “The Explanation of Water Resource Exploitation and its Ecological Impact”7 to Greenpeace. Data provided by Shenhua show the following8:

Extract from Shenhua Letter Response

  1. Compared with 2005, there was a clear drop in 2013 water levels at 5 water extraction sites.
  2. Compared with 2010, there was a clear drop in the size of areas with higher than average vegetation coverage.

During discussions between Greenpeace and Shenhua, although there were disagreements regarding the legality of the Project’s water extraction, Shenhua acknowledged that there was a significant relationship between the Project’s water consumption and the desertification of the region. See extract and Appendix: table 1 for more details.

3) 16 August 2013: Shenhua responds to water pollution and wastewater discharge allegations

On this day, Shenhua submitted the document The Explanation of Wastewater Discharge”9 to Greenpeace.

In response to the 1st case of wastewater discharge that Greenpeace highlighted in the July 23rd “Thirsty Coal 2” report, Shenhua confirmed that it had been ordered twice by local environmental officials on the 23rd April (Notice 2013[60], Yijin Horo Banner EPB) and 26th of April (Notice 2013[19], Ordos EPB), to rectify the incident’s environmental damage. In addition, Shenhua admitted that they had little experience in dealing with the waste water that comes as by product of the direct coal liquefaction process (See Appendix: Table 1 for more information).

Shenhua did not respond to the remaining two cases of wastewater discharge that Greenpeace exposed.

4) 5 September 2013: Shenhua announces lower water intensity target

Screenshot of Shenhua Announcement to Lower Water TargetsOn this day, Shenhua publicly announced10 that it was reducing the Project’s per ton water intensity of oil production to 6 m³, compared to 10 m³, which was the estimated water intensity level in the initial design phase.11

While it did not explicitly mention that Greenpeace’s investigation had led to this decision, the key points of the Shenhua’s press release suggest that this was so. The key points were as follows:

  1. Shenhua had been questioned by an environmental organization over its water intake at the Ordos Coal to Oil Project, and that it would reduce the Project’s per ton water intensity of oil production to 6 m³ by the end of October 2013.
  2. Shenhua had committed to cease extracting groundwater from the Haolebaoji region for the Coal to Oil Project’s 2nd and 3rd production lines in Phase I. Instead, Shenhua would draw water from the Shendong mine zones, and from the Yellow River.
  3. Shenhua had completed the construction of biological filters and water recycling equipment and was now in operation. However, wastewater pretreatment improvement facilities were still under construction, and were expected to be completed by October 2013

Greenpeace cautiously views regarding these latest developments

Greenpeace cautiously views regarding these latest developments. Although it is a welcome sign that Shenhua has announced its plans to reduce it water intensity, numerous outstanding issues remain.

 

  1. Water extraction at Haolebaoji to continue for first production line – Even though Shenhua commits not to extract water from Haolebaoji for the 2nd and 3rd production lines in phase 1, the Project will continue to extract water from Haolebaoji for the 1st production line in phase 1.
  2. Unclear how water will now be sourced – Shenhua has not provided details on how it plans to draw additional water from the Shendong Mining Zones, and from the Yellow River.
  3. 2 of the 3 Water Pollution Cases still unaccounted – Shenhua has yet to respond to 2 of the 3 cases of water pollution and illicit wastewater disposal that Greenpeace exposed in the July report.
  4. Water consumption will continue to be extremely high – Despite the fall in water intensity, total water consumption by the Project is likely to very high, taking into account the Project’s future capacity expansion and coal-to-gas development.12

Greenpeace - Future Devlopment of Coal to Gas

5) Coal to Gas development faces Environmental Constraints

The Project’s development of coal-to-gas facilities will also likely be bedeviled by both its high water-energy intensity and carbon missions

Water Constraints
From energy-water intensity perspective, the energy derived from coal-sourced synthetic natural gas (SNG) is 50 – 60 times more water intensive compared to energy derived from coal, shale gas, and natural gas, according to WRI17 (see WRI article on Syngas & Water here). In addition, the Project’s coal to gas facilities’ viability is also exacerbated by its location in an area that faces both baseline water stress and high seasonal water variability (See Appendix: Image 2).

Carbon Emissions Constraints
Coal-to-gas projects are also extremely carbon intensive, as studies by Tsinghua University18, the Chinese Academy of Sciences19, and Duke University20 have shown, with lifecycle greenhouse gas emissions significantly higher than current conventional coal-fired generation. (See below)

Lifecycle emissions & water consumption of SNG versus coal & shale gas

In conclusion …

Greenpeace continues to maintain a cautious position regarding Shenhua’s latest announcement, given the abovementioned reasons. Greenpeace continues to press the company for more information regarding its new plans to draw water from alternative locations, and to account for the water pollution issues which were highlighted previously.

the key question is whether the physical environment can support a large scale push into these sectors. Greenpeace’s assessment … suggest that it cannot

Ultimately, the push by coal companies to move into high value added products such as synthetic oil and gas, is to diversify revenue streams in an environment of softer coal prices, which make direct coal sales less profitable.

However, the key question is whether the physical environment can support a large scale push into these sectors. Greenpeace’s assessment, looking at the Shenhua Coal to Oil Project, and considering analysis21 by other experts, suggests that it cannot.

Greenpeace Shenhua Responds Quotes

Click here for the APPENDICES


Further Reading 

 


References

1http://scmp.com/news/china/article/1289422/greenpeace-report-accuses-shenhua-group-drastic-groundwater-drop
2 For more details, see Appendix: Image 1
3 Approximately 346.2mm/year
4 At the time of report launch, it was unclear how far groundwater levels had fallen. Field investigations revealed that numerous wells less than 30 meters had gone dry, and that new wells had to be dug to 100 meters to access water supplies.
5 http://news.youth.cn/gn/201310/t20131024_4079356.htm
6 According to Beijing District Court, although Article 55 of Civil Procedure Law of China provides that “Legally prescribed bodies and relevant organizations can file a lawsuit in the people’s court against behaviors that harm the public interest”, there is no judicial interpretation regarding the qualifications of the plaintiff who can bring environmental litigation
7 In Chinese:《关于水源地开采及其生态影响的情况说明》. Document is in Greenpeace’s possession. Inquiries for copies welcome.
8 For more details, see Appendix: Table 1
9 For more details, see Appendix: Table 2
10 http://www.yicai.com/news/2013/09/2990754.html
11 According to Shenhua, at the initial design phase, the Project’s estimated water intensity was 10 m³. In 2012, water intensity was 7.07 m³, and between January and April 2013, water intensity fell to 6.92 m³. Shenhua expects that upon the completion of improvements to the wastewater treatment project improvement, water intensity would decrease to 6 m³.
12 Please see Appendix 1: Table 3, where we have revised of our water consumption estimates in light of Shenhua’s new water intensity announcement
13 http://paper.people.com.cn/rmrbhwb/html/2012-04/12/content_1034485.htm?div=-1
14 http://www.wri.org/blog/china%E2%80%99s-response-air-pollution-poses-threat-water
15 http://61.134.118.34:8888/show.aspx?id=2475&cid=3
16 http://www.yicai.com/news/2013/09/2990754.html
17 http://www.wri.org/blog/china%E2%80%99s-response-air-pollution-poses-threat-water
18 http://www.sciencedirect.com/science/article/pii/S0301421512010786
19 http://www.sciencedirect.com/science/article/pii/S0301421513006253
20 http://www.nature.com/nclimate/journal/v3/n10/full/nclimate1988.html
21 See other assessments of the sector here:
KPMG: http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Pages/China-Chemical-Industry-201109.aspx
IEA clean coal centre: http://www.iea-coal.org.uk/documents/82606/7944/Coal-to-oil,-gas-and-chemicals-in-China-CCC/181
MC-Chemicals: http://www.icis.com/Articles/2012/01/30/9527520/chinas-coal-based-chemicals-are-a-trade-off.html

Calvin Quek
Author: Calvin Quek
Calvin Quek is Head of Greenpeace East Asia's Sustainable Finance Program and leads the organization's engagement of the financial community. Prior to joining Greenpeace, he worked at Citigroup as an Investment Research Analyst in Singapore and led Citigroup Singapore's CSR and Volunteerism Committee in 2008. Calvin has an MBA from Peking University and an MSc in Wealth Management from Singapore Management University.
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