The gas will power some of Beijing's central heating systems in the harsh winter months, replacing coal to cut harmful emissions of particulate pollutants.
When the pipes are fully pumping next year, Beijing will receive 4 billion cubic metres of synthetic gas a year - nearly half of last year's natural gas consumption - a step towards switching all the city's heating systems and industrial boilers from coal to gas.
But there is an ominous tinge to the seemingly green investment: environmental experts say the water-intensive conversion process could drain already scarce water resources in the country's drylands in the northwest, eroding land and causing more sandstorms.
"If water depletion continues … not only will the local people suffer, the environmental impact could be profound," Chinese Academy of Sciences ecology researcher Xie Yan says.
Nationwide, replacing dirty coal with cleaner natural gas is a key measure in reducing the choking smog that spreads over more than a quarter of the country and is inhaled by nearly 600 million people. Because of the country's limited conventional natural gas and abundant coal reserves, converting coal to natural gas seems a convenient choice.
Beijing's demand for natural gas is expected to rise rapidly, reaching 18 billion tonnes in 2015 and 28 billion tonnes in 2020, as all its heating systems and industrial boilers make the switch from coal to gas. Beijing Gas Group, which is fully owned by the municipal government, has invested in the coal-to-gas project in Inner Mongolia to meet the demand.
The coal-to-gas industry, which had been sputtering for several years, received a boost in September when the State Council released a national action plan to fight air pollution, giving the sector explicit support.
But ecological experts have voiced concern for the unintended environmental consequence of coal-to-gas plants. The conversion requires vast quantities of water not just for production, but also for cooling and the removal of contaminants. On average, one cubic metre of synthetic natural gas needs six to 10 tonnes of freshwater.
"Freshwater is a key raw material for turning coal to gas, so it's impossible to reduce water demand in such projects," Wen Hua, an associate at the US-based World Resources Institute (WRI), says.
To make things worse, the coal-abundant northwest, where the gas projects are based, already experiences chronic water shortages. Five provinces - Shanxi , Shaanxi , Ningxia , Inner Mongolia and Xinjiang - which possess 76 per cent of the country's coal reserves, have just 6.14 per cent of its total water resources.
Even so, the country's top economic planner has approved 18 coal-to-gas projects, most of which are in the arid and semi-arid regions of Xinjiang and Inner Mongolia. The State Council's plan states that the projects should follow the "most stringent" environmental standards.
But a WRI study released last month shows that 11 conversion projects are under way, slated for areas without major water reservoirs, meaning the projects will have to compete with local communities or other industries for water. And this could disrupt regional water security.
Sang Jianxin, a senior consultant at the China National Chemical Information Centre, estimates the country now has 40 such projects, most of which are still awaiting approval. Some, he claims, have already begun construction without approval because of lax supervision, and such unapproved projects could increase the ecological risks.
In particular, five of these plants are planned in the middle of the Mu Us Desert near Inner Mongolia's booming city of Ordos . The projects will require about 140 million tonnes of freshwater each year - about 10 per cent of the area's total water supply - according to WRI.
"Once they are put into operation, these plants could further disrupt water supplies for local farmers and herders," Wen says.
And the five plants are not Ordos' only water guzzlers. The city has 150 billion tonnes of coal reserves, which is about one-sixth of the national total. Its newly discovered oil and natural gas reserves, along with other industrial projects, cover nearly half of the city's terrain.
A struggle for water between the Mu Us Desert's community and power companies erupted in recent years after a similar water-intensive project converting coal to liquid fuel caused drastic drops in groundwater. A Greenpeace report in July said that the Shenhua Group-operated plant drained 50 million tonnes of groundwater from the water-scarce region since its operation began in 2006, shrinking a nearby lake by 62 per cent.
Farmers and herders who have lived near the luxuriant oasis for generations said their lives had been disrupted by the project as plants died from lack of water, the report stated. They accused the plant of discharging untreated wastewater into the nearby land, polluting the soil.
When residents petitioned to their local governments asking the giant coal company to stop extracting water, they were told to support the project as it could improve the local economy, the report said. The locals then tried to file a lawsuit against the company earlier this year, but courts in Beijing and Inner Mongolia rejected the petition.
Shenhua Group said it was investigating the damages claimed in the Greenpeace report, while the country's top economic planner said he had summoned the company for a talk over the issue, stressing all coal-to-chemicals projects go through strict environmental impact reviews.
Xie, the Chinese Academy of Sciences researcher, says the water depletion has already led to deforestation, shrinking of freshwater lakes and the disappearance of some wetlands. More dangerous, she says, is that some sand dunes in the area may grow, expanding the desert and encroaching into habitable land.
The Mu Us Desert has been one of the major sources of lacerating dust storms hitting the country's northern areas in spring, when the northwest wind prevails. China has, over the past decades, invested heavily in setting up green belts to prevent the desert from expanding and protecting the northern cities, particularly Beijing, from the sands.
"Such water-intensive projects could drain the water resources in deserts like the Mu Us and destroy the country's tree-planting efforts," Xie says.
WRI's Wen says the industries have yet to fully recognise the risks of water scarcity. "Even if the industries can turn a blind eye to ecological problems and potential social conflicts, they still have to face the possible economic losses as a lack of water supplies may force plants to stop production in dry seasons," he says.
The policy change from limiting coal-to-gas projects to encouraging them actually exposed a dilemma for policymakers trying to tackle the country's air pollution woes, he added.
"It's either dirty coal or cleaner fuels," he says. "But the latter may have other unintended consequences on the environment."