State-owned Shenhua Group's Ningxia affiliate has teamed up with Royal Dutch Shell and South Africa-based Sasol to build two coal-to-liquids plants in the northwestern autonomous region with an investment of up to US$12 billion.
The plants will help enhance energy security and enjoy good market prospects because of soaring oil prices, analysts said.
Shenhua Ningxia Coal Industry Company, a subsidiary of the biggest coal company in China, yesterday signed a joint study agreement with Shell Gas & Power Development BV to build a facility to convert coal into oil products such as petrol and diesel.
The new plant, to be set up at the Ningdong coal production base, will cost US$5-6 billion, said Lim Haw Kuang, executive chairman of Shell Companies in China.
The study is expected to be completed by 2009, and the plant will be able to yield 3 million tons of oil a year, or 70,000 barrels per day (bpd) by 2012, Shell said.
The plant will use Shell's indirect coal liquefaction technology, which turns coal to gas and then liquefies it into fuels.
The plants using the technology will break even if global oil prices hover at US$25-27 per barrel, said Qi Tongsheng, vice-governor of Ningxia Hui Autonomous Region.
Analysts say global oil prices are unlikely to drop below US$40 per barrel in the near term.
The agreement on the study followed a memorandum of understanding inked in February between Shell and Shenhua.
Lim said the Chinese company would take a lion's share in the new venture, but Shell's stake was also "fairly big," without elaborating.