Before anyone says don’t waste your time because it’s all gloom there as well as in the big coal exporting countries such as Australia it needs to be quickly said that a small silver lining has indeed been found on a coal-colored cloud – and in an odd spot to boot.

Chemicals is the one-word explanation for the new-founded optimism for coal that is contained in what at first seemed to be a deeply boring report by a Hong Kong-based team of research analysts at the big US investment bank, Citigroup.

In a monumental 60-page document that took The Hog back to a time when he visited the Sasol coal-to-liquids processing centre in South Africa some 30 years ago, Citigroup detailed how China would start consuming vastly more coal than it currently does in chemical production over the next 10 years.

Just how much more coal will be consumed in the production of a range of complex chemicals can be measured by a single number: $US100 billion – the amount to be invested in Coal-to-Chemicals technology over the next seven years.

If that seems a surprisingly large number that is because it represents roughly what is being spent on the production of LNG in Australia, or shale gas in the US. It serves as a measure of the size of the Chinese chemicals industry, which needs all sorts of building blocks, ranging from methanol and methane, to olefins and synthetic oil.

As he digested the Citigroup report The Hog was taken back to his eye-opening visit to Sasol in 1984 and the discovery of a world of coal and coal liquids built on technology first developed in Germany decades earlier as a way of overcoming an oil shortage.

Back in the 1930s, and into the war-torn ’40s, Germany relied heavily on the Fischer-Tropsch process that can turn coal, gas, or biomass into yield liquid hydrocarbons, especially synthetic fuel and oil.

South Africa, which became almost as cut off from liquid fuel supplies as Germany during the depth of the Second World War, relied heavily on the coal-to-liquids operations of Sasol to keep its cars and trucks on the road.

Visiting Sasol back in ’80s was bit like visiting a war zone. The refinery itself was so heavily guarded a helicopter ride turned into an adventure when the pilot refused to fly too close because the South African army was not averse to firing off a few warning shots to anyone getting too close.

Reading the Citigroup report on China’s coal-to-liquids rush was much easier. No surface to air missiles could be found anywhere in the 60-page document.

What was found, however, was the seed of a brilliant idea that could one day represent the “get out of jail free” card for the coal industry.

Citicorp, without going overboard, reckons the Chinese government’s desire to protect vital liquid fuel reserves for transport use is actively encouraging the development of its C-to-C industry.

The $US100 billion investment target for C-to-C is expected to be met between now and the year 2020 with a significant effect on the coal, gas and olefins market. For those wondering what olefins are, they are the stuff that make up the modern chemicals industry yielding products such as propylene and ethylene which, in turn, yields multiple products from golf balls to rubber ducks.

While Fischer-Tropsch lies at the heart of most coal-to-liquids processes there are technologies evolving that make more efficient use of coal, Citigroup said.

“In our deep dive analysis we estimate that coal conversion will account for 55% of incremental Chinese coal demand over [the period] 2013 to 2017, 20-25% of olefins capacity by the end of 2017, and 15% of gas capacity by 2020,” the bank told clients in its report on C-to-C.

Boiled down, the rise of the C-to-C industry will cause the use of coal as a feedstock for conversion to chemicals to rise from 1% of Chinese coal use today to 9% in 2017.

Whether that coal for chemicals is produced by domestic Chinese coal mines, which seems likely, or by imported high-grade coal from Australia, is irrelevant because it simply means that coal is carving out a new market as an oil substitute – and that has to be good news, even if too late for the 10,000 Aussie coal workers looking for new jobs.