"So you dig up the coal, and you put it into a magic box and diesel comes out the other end. At scale. That's what they're doing." This is a conversation about China's preparation for war, ie coal-to-liquids, that every Australian needs to hear. From the perspective of Australia's geo-strategic situation, it's utterly terrifying. Which isn't how it sounds, spoken in dulcet North American tones of @Dr_Keefer and @DoombergT, who are hyper-intellectual energy savants. They make the conversation sound delectable. To be clear, Keefer and Doomberg disparage these coal-to-liquid conversions as completely non-economical. But in the same breath, they are completely confident (and probably right) in their explanation of why China is doing this: "Nobody in their right mind would build giant capital intensive dirty carbon-intensive coal to chemicals facilities. They make less than no economic sense. They only make national security sense. And that's why China's doing it." Now I'm not as sure the economic margins are as wide as they make out. Australia has better coal than almost anywhere. And brown coal in particular, which we have in stupendous volumes, might be a better candidate for syncrude conversions than black coal. Which is different to the Fisher Tropsch they describe from syngas. There have been private efforts at that here that have landed in a mess of green and red tape. But odds are it still won't be cheaper than the cheapest imports, at least around $50/barrel. But the terrifying thing for Australia is that if war is coming to Asia, as these guys think it might be, we actually don't have a choice. If China's doing this because they're preparing for war, we'd better do the same. Because we can't prevent that war from coming if China might be getting ready to start it: "China has taken a dramatically different approach [to Europe] with a different political economy, and really built in the assumption that coercion and blockade are in its future. Potentially, you know, if they take Taiwan, that's one of the ways to punish China for it." Doomberg goes through the numbers, and points out that China has loads of their own coal, and get most of their primary energy from that. (What they import of ours is a tiny top-up.) Managing their import dependence on oil and gas is something that's actually achievable, with a bit of a bias towards electrification, some stockpiling, and.... massive conversions from coal: (describing China's behaviour) "Let's go ahead and buy and extra million barrels a day of oil for all of 2025 and stick it underground. Right. Right. And let's stockpile an enormous amount of coal. And let's invest in a wave of coal to chemical facilities so that we can make diesel for our military from our moutains of coal. Even though it's wildly capital inefficient and super carbon intense, clearly the Chinese Communist Party is optimising for things other than economic efficiency...." GULP. This is a conversation that oil-rich Canadians and Americans can have on a Chesterfield with cigars and whiskey. Laughing down their noses at those pariahs in history who have faced economic isolation like the Nazis in WWII and apartheid South Africa, who were forced to these coal conversions. (Keefer and Doomberg imbibed that humour, I didn't see the whiskey or cigars ;-) But for Australians, this is not that conversation. We can't abstain or retire from a war in Asia the same way Americans can. And it doesn't matter that we're not a pariah. Isolation, due to war, could be our fate regardless of our intent. It's not enough to wish one doesn't start. We're like the surfer who's taking a breather, and headed another 30m out from where the big sets break. Only to hear the siren from the beach sounding the shark alarm. Completely isolated... facing a lethal threat. If China's getting ready for war, then we have to get ready for war. Concern for economics might be a luxury belief for those who are sufficiently geographically abstracted from the conflict. Which includes Americans and Canadians. But that's probably not us. At least not now, with the majority of our fuels (and every other thing we consume) produced in or shipped through Asia. The fact that we don't want to start a war might allow us to avoid the odium of being an international pariah. But it doesn't allow us to avoid the cost, mess or inefficiency of unconventional fuel conversions. What China foresees in its national-security outlook is something we must also foresee. And if that's war, we'd be stupid to ignore their preparations. And if that means using an abundance of coal to make up for a shortfall in oil, what else would a rational actor do in Australia's shoes? We're such mugs. We've had our heads in the sand. Betrayed by an inept and gullible political class. Link below for this must-listen episode.
