- China plans to significantly expand coal-to-oil, gas, and chemical conversion in Inner Mongolia to strengthen energy security and reduce reliance on imported oil and gas.
- Despite a sharp fall in crude oil imports, China has met energy needs through reserves, while also pursuing greater domestic fuel production from coal.
- Coal conversion generates very high CO₂ emissions and consumes large volumes of water, potentially complicating China’s goal of carbon neutrality by 2060.
Inner Mongolia, China’s top coal-producing region, plans to build the country’s largest coal-to-oil, gas, and chemicals base to reduce dependence on energy imports.
As reported initially by Reuters, this push is accelerated by the Iran war, which has brought the question of Chinese energy security to the fore. Throughout the crisis, and for months before, China’s appetite for crude imports has been muted.
In May 2026, China’s crude oil imports fell 29% to 7.8 million barrels per day (bpd). Its seaborne crude imports fell to 6.5 to 6.6 million bpd – the lowest levels since 2016.
Instead, the country has relied on its reserves, slowed its industrial expansion, deployed electric vehicles (EVs) rapidly, and grown its renewable energy capacity. This coal conversion strategy falls within the latter.
The Inner Mongolia expansion does raise climate concerns, as coal conversion is a major source of carbon emissions. At Erdos, the first coal liquefaction plant in Inner Mongolia and the largest coal-to-liquids complex outside of South Africa, nine metric tonnes of carbon dioxide (CO2) are produced per metric ton of product. This could complicate China’s goal of carbon neutrality by 2060.
It’s also water-intensive. The process uses between 7 and 12 metric tonnes of fresh water per metric tonne of product, and Inner Mongolia produces about 1.25 billion to 1.28 billion tonnes of coal each year, according to Huang Zhiqiang, the number two official in the region. Though the Erdos plant is relatively water efficient, it still generates 4.8 tonnes of wastewater per ton of product.
On the whole, Inner Mongolia seems to reveal China’s dual-track energy system, which combines coal-based power security with the country’s renewable energy transition. Zhiqiang has said the coal-to-oil, gas, and chemical strategies are “in order to increase the domestic self-sufficiency of oil and gas.”
