August 17, 2008
Export Markets for U.S. Clean Coal Technology
By Cultice, Curt
U.S. Commercial Service unites U.S. firm with Chinese company in $100 million deal Larry Hunt knows the coal mining business as well as anybody. After all, he came from an Eastern Kentucky coal mining family, first working the mines with his father in 1962. In later years, Hunt developed expertise in the engineering sector and pursued innovative clean coal technologies. Now, Hunt's dream has come full circle, culminating in a $100 million agreement to help China address pressing air pollution needs with some of the most advanced clean coal technology in the world.
"The process actually pre-treats the coal prior to burning and removes about 90 percent of the contaminants" said Hunt, who now serves CCTI in a consultative capacity. The technology removes about 100 contaminants, most of which can be recycled into other products such as roofing tar, chemical building blocks and light hydrocarbons that can be used as fuel. "From an environmental standpoint, it's a giant step in helping reduce the air pollution in China, and that was a big selling point for the Chinese," he said.
The first plant in Shanxi, China's largest coal mining province, is expected to be outfitted by late 2009.
The agreement, estimated at $100 million for the first coal plant, is expected to lead to additional sales of this clean coal technology as China works to meet its energy needs and improve environmental conditions in preparation for the Olympics and beyond.
China, the world's largest coal producer and consumer, uses some 2.2 billion metric tons of coal a year - more than the United States, India and Russia combined. With an abundance of coal (much of it high-sulfur) and some natural gas, but only minimal oil reserves, coal accounts for two-thirds of China's energy supply. In 2007, China added 102 gigawatts of generating capacity, as much as the entire capacity of France.
The average person in China consumes less than one-fifth the energy of the average American, and as Chinese living standards rise, the U.S. Department of Energy estimates that China will triple its coal production by 2030. To meet this need, China expects to add hundreds of coal-fired plants over the next several years, fueling demand for clean coal technologies. Approximately one coal-fired plant comes on line each week within China.
According to the World Bank, 16 of the world's 20 most polluted cities are in China and, a study recently released by the Netherlands Environmental Assessment Agency, says China now leads the United States as the largest emitter of carbon dioxide. According to the study, in 2007 China's carbon dioxide emissions were 14 percent higher than those of the United States. In 2007, China also became the world's greatest greenhouse gas emitting nation, accordingto estimates by the International
China, the world s largest coal producer and consumer, uses some 2.2 billion metric tons of coal a year.
Energy Agency. A joint World Bank and Chinese Government study estimates that some 400,000 premature deaths occur annually in China due to airborne contaminants.
For example, Douglas Hague, CCTI's president and CEO, said that in many Chinese cities, on a still day when winds are not blowing, people have to work with masks, with virtually unbreathable air that causes dripping noses. It is not uncommon for drivers in such cities as Linfin, in Shanxi province, to drive with their lights on during the day to help navigate the pollution.
Hague said that China is also getting pressured by other countries to address environmental issues, as pollution such as acid rain travels downwind to other nations, including South Korea and Japan. The U.S. Environmental Protection Agency reports that on certain days, nearly one-quarter of airborne pollutants over Los Angeles can be traced to China. Predictions are it may well get worse.
To help address these environmental concerns, China's State Council recently announced a five-year environmental protection plan for 2006-2010. Its goals include the reduction of sulfur dioxide emissions by 10 percent by 2010.
CCTI was initially hesitant of entering the Chinese market, expecting the business climate to be too difficult to enter and navigate. Perhaps Hunt was skeptical because of previous business ventures gone awry. Back in 1990, the company pursued a potential deal with the Indonesian government, which was looking to export its coal reserves. The only problem was the coal was too contaminated for resale, as it didn't burn cleanly. That's when Hunt began pursuing his idea for pre-treating coal, trying to improve on an existing process that used heat. The pre-treating process required at least 13 hours to treat the coal, much too long for widespread use. Collaborating with the Indonesian government, Hunt made good progress on the research, but faced disappointment when then Indonesian President Suharto left office in the late 1990s, causing Indonesian support for the program to dissipate. Later, Hunt made substantial inroads with the Egyptian government before that deal was terminated as a result ofthe business climate following the events of September 11.
The company, however, knew it had a good thing going and with help from private investors, was able to perfect the technology. The technology works by transferring coal on conveyor belts into a giant "oven" where the coal is "treated" by a combination of heat and different atmospheric pressures that remove pollutants in six to 18 minutes. Last year, Hunt received a call from a Chinese government official who had learned of his coal technology at a coal expo held earlier that year.
Larry Hunt CCTI's founder who now serves the company in a consutant capacity, and Douglas Hague. CCTI's current president and CEO, worked toaether to secure the $100 million deal.
"We had begun warming up to the idea of exploring the Chinese market," said Hunt. "At the same time, China is only a recent WTO (World Trade Organization) member, so we knew that many of the laws there that support foreign companies' success in China were still in the embryonic stage-we were not pioneering in the general business sense, but following experience of others in that market."
During 2007, Hunt made several trips to China and participated in meetings with companies arranged by Chinese officials. Even so, he had yet to find the right Chinese partner with the expertise and know-how to work with CCTI's technology.
Deep into the search for a Chinese partner, one of Hunt's colleagues introduced Hunt to Bill Lawton, a trade specialist with the federal Commerce Department's Commercial Service. Lawton, who had also served in China as a commercial counselor, then arranged a meeting with Hunt at CCTI headquarters to assist with the firm's efforts in China.
During the meeting, Lawton briefed Hunt on the China market. Subsequent meetings were arranged to discuss market entry strategies. Shortly thereafter, it was decided that Lawton should accompany Hunt on another trip to China to help set the agenda. But first, Lawton laid the groundwork, providing counseling to CCTI representatives on business and cultural aspects of doing business in China. He helped the firm understand intellectual property protection issues and arranged a series of meetings with key Chinese government and business decision-makers, many of whom he had maintained contact with from his previous service in that country.
In China, Lawton presided over one particularly important meeting he arranged between Hunt and Shanxi POAR Group Co. Ltd., a Chinese enterprise engaged in activities that include design, production and operation in the environmental engineering and coal sector.
"Mr. Lawton introduced our company to Mr. Hunt of Clean Coal Technologies, and from the beginning, we all had the same purpose, bring clean air to China, which made it work," said Guo Lihua, CEO and general manager of Shanxi POAR Group. "I have lots of friends who've gotten sick as a result of the air pollution, so my first responsibility is to help make people healthy."
"Under our agreement, Clean Coal Technologies will supply the software and technology and we will build and operate the facility," said Lihua. "We're optimistic that if things go well, the Chinese Central government will help expand the technology throughout China."
With this foundation in place, CCTI negotiated a contract with SAIC and the Benham Companies LLC, to provide design-build and turnkey engineering services support for the project.
Lawton, who counsels U.S. businesses on environmental opportunities around the world, said U.S. firms have much to offer China, but that U.S. businesses need to do their homework first.
"To be successful, U.S. companies looking to do business in China need to understand the realities of how business is conducted in that country," Lawton said. "Americans need to remember the concept of 'Guanxi', or the importance of building long-term relationships with their potential customers. It's not just sales and service that counts, but a buyer's relationships with local government officials and other contacts that can really make or break a potential deal.""China was our top priority because of its high energy needs and demand for clean coal technology, and the Commercial Service was instrumental in bringing this to fruition," said Hunt. "We expect this deal to be only the beginning of a growing relationship that will boost our economies, help the environment and create new jobs in the United States and China."
Notes: CCTI is pursuing additional opportunities in China and Inner Mongolia, and recently signed several Memorandums of Understanding with new prospects through ongoing support from the U.S. Commercial Service.
The U.S. Commerce Department is leading a Clean Energy and Environment trade mission to China and India in September. For more information, visit
RESOURCES TO TAP CHINA'S COAL MARKET
William Brekke, Minister Counselor for Commercial Affairs at the U.S. Embassy in Beijing, cautions firms considering business opportunities in China "not to jump in without doing their homework first, but not to be too timid." He says that companies with some experience in international business elsewhere should follow common sense business practices, and offers the following advice:
* Do your research-There are a wide variety of government and private agencies offering assistance and information. The U.S. Commercial Service provides the industry expertise/information and services to cut your time to market. They run trade shows, provide customized personal assistance, and help U.S. firms locate suitable customers, suppliers and distributors.
* Be realistic-China can be a difficult market to crack, and for many it has taken several years to make a profit. Remember to be patient, do your homework and do not act too hastily. China's market is only going to grow, so time is on your side.
* Protect your intellectual property-Chinese laws and courts do not provide the type of protection available in the west, so retaining a lawyer familiar with the system is an important early step. Before you start doing business in China, be sure to register your company name, patents, and other important intellectual property (IP) owned by your company. IP protection is perhaps the single largest issue confronting foreign companies doing business in China today. The U.S. Government offers a wide array of IP protection resources, available at www.stopfakes.gov.
* Consider second-tier cities-In the mega-markets of Beijing, Shanghai and Guangzhou, competition is fierce due to the number of companies looking to establish and maintain a foothold there. Penetrating these markets can be daunting for U.S. companies that lack the resources of their larger competitors. To better enable U.S. small- and medium-sized businesses to enter the China market, the U.S. Commercial Service has identified 14 newly emerging cities with the qualities (for example, high growth rates and rising incomes, large populations, less competition, and so on) that are necessary for these companies to succeed.
* Carefully monitor production-Labor shortages and decreasing profit margins can tempt factories to cut corners. Whenever possible, closely monitor and/or set-up your own repair facilities to ensure that the machinery is working properly.
* Be especially sensitive to human resource issues-Chinese workers are not motivated in the same way as U.S. workers. Showing respect for individuals and their culture is as important as the wages you're paying.
* For more information, visit the U.S. Commercial Service at www.export.gov. At this site, you can access any of the 108 U.S. Export Assistance Centers, the China Business Information Service (1- 800-USA-Trade) in Washington D.C. and U.S. Commercial Service resources in American embassies and consulates in 80 countries. You can also look up the U.S. Commercial Service in China directly at www.buyusa.gov/China.
Commerce's Office of Energy and Environmental Industries (OEEI) provides information on U.S. business competitiveness, trade barriers, energy and environmental regulatory policy, and supports trade promotion activities. For more information, visit www.trade. gov/td/energy or contact Shannon Fraser at 202-482-3609; email: [email protected]
By Curt Cultice, Senior Communications Specialist, U.S. Commercial Service
Copyright PennWell Corporation Jul 2008
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