China has an image problem when it comes to the environment. It's made public promises to do something about this, largely leaning on coal as the culprit. But that doesn't mean the largest coal consumer in the world is giving up on the fuel—it's just looking to use it in a new way.

Natural gas is cheap, right?
It's easy for U.S. investors to look at the price of domestic natural gas and think that the fuel will be the death of coal. However, the same trends taking place in this country are not taking shape around the world. We have cheap gas, but that doesn't mean everyone does.

For example, Royal Dutch Shell recently noted that "...some countries may be setting themselves up for dashed expectations" with regard to natural gas drilling. The CEO pointed to Poland as a country that drillers were once excited about, but that is now seeing companies leave the market. Even in the United States, Shell notes that "...we never talk about the basins that have not worked."


And while Shell hasn't given up on its natural gas assets, it has been fine-tuning its efforts. That's included write downs and asset sales so it can focus on the areas that have the best long-term potential. Shell, however, is basically pointing out that the world doesn't look to be at risk of an oversupply situation like the one now causing U.S. gas prices to hover near record lows.

Who done it?
And according to Peabody Energy , China is investing in "at least 20 coal-to-gas projects as international gas prices remained four to five times that of the U.S." That's right, four to five times the price of gas in the United States—no wonder China likes coal. But what is coal-to-gas?

Peabody is talking about a technology that takes dirty coal and turns it into a cleaner burning gas. It's the same process that Southern Company is using in its high-tech Kemper coal plant. Now it's true that Kemper is billions of dollars over budget, but that has less to do with the coal "gasification" process than the overall scope of the project and the fact that Kemper will be using largely untested carbon capture technology.

While carbon capture is the big headline grabber, turning coal into a gas is just as important for Southern. According to the company, the transport integrated gasification (TRIG) technology it's using reduces "emissions of sulfur dioxide, nitrogen oxides, carbon dioxide and mercury." At the end of the day, despite the heavy cost, Southern expects "CO2 emissions equivalent to a similarly sized natural gas combined cycle power plant."

Still upbeat on coal
That's why Peabody believes that China's air quality efforts will result in "lower emissions, but higher coal use..." In fact, management highlights that more coal will be used for "coal-to-chemicals and coal-to-gas" facilities located "outside of major cities." But, because electricity and gas are easy to transport, "the coal-based electricity and gas produced from coal will then be brought into the cities to supply energy."

That's really no different than what Southern is doing at its Kemper facility. However, as Peabody makes clear, turning coal into a gas and piping it into a city lets China keep its urban power plants up and running—it just has to switch them to burning cleaner coal gas. That puts this global coal giant in good position to benefit as China's demand continues to increase.

Longer-term, while Southern's Kemper plant is a leap forward for coal, Peabody is showing that China could turn into the clean-coal technology leader. That's because coal isn't competing with cheap gas in the country, or the rest of the world, and China needs as much low-cost power as it can produce. So while companies like Shell correctly see big potential for natural gas in the United States, that doesn't necessarily translate as well into other markets.

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The article 1 Harmful Industry that Could Change its Image originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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