Royal Dutch Shell Plc, Europe's second-biggest oil company, and Shenhua Ningxia Coal Industry Group agreed to study the feasibility of spending as much as US$6 billion on a China plant to turn coal into fuels and chemicals.

Shell and Shenhua Ningxia, a unit of Shenhua Group Corp., China's biggest coal producer, will study the technical and commercial viability of building a 70,000 barrels-a-day plant in northern China's Ningxia province, the companies said in a statement today.

Record oil costs are spurring China to build plants that can turn some of its coal reserves, the world's third-largest, into auto fuels and raw materials for making plastics. Sasol Ltd., the world's biggest producer of motor fuel from coal, said last month China has the potential for at least 12 coal-to-fuel plants.

"We believe this technology is important to China,'' said Lim Haw Kuang, chairman of Shell companies in China. The plant will contribute toward ``finding sustainable energy solutions'' for Ningxia and China, he said. Preliminary cost estimates for such projects run at between US$5 billion and US$6 billion, he said.

The plant may start operating by 2012, Wang Jian, Shenhua Ningxia's general manager, said today.

The venture with Shell is one of two that China's government has approved for Shenhua Ningxia. Each of the two plants would be capable of turning 3.2 million metric tons a year of coal into fuels such as gasoline and diesel, Yan Guohui, the company's general manager for coal-to-liquids projects, said yesterday.

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