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Shell, Shenhua to study china coal-to-fuels project
Last Updated(Beijing Time):2006-07-11 16:45

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. 

Economic Sense

"We want to better utilize our coal resources to sell higher-priced products,'' Yan told reporters at the Ningdong coal mining center."It makes better economic sense now to sell fuels instead of just raw coal.''

Construction of the two projects may start at the end of 2008, Yan said. The National Development and Reform Commission, China's top economic planner, has approved the plans, she said. Ningxia, China's sixth-largest coal production base, has proved coal reserves of about 31 billion tons. Potential reserves may total 202.5 billion tons.

Shenhua Ningxia aims to have the capacity to process 10 million tons of coal a year into fuels by 2020 and may build two more such plants by then, Wang said.

Credit Suisse Group, Switzerland's second-biggest bank, last week raised its Asian coal price forecasts because of increased demand from projects that will turn the commodity into liquid fuels.

Record Oil

Coal prices in 2010 may average US$45 a ton, compared with an earlier projection of US$39, Credit Suisse's Hong Kong-based analyst Trina Chen and Shanghai-based Mick Mi wrote in a July 6 report.

Crude oil futures on the New York Mercantile Exchange have risen 25 percent in the past year and reached US$75.78 a barrel on July 7, the highest since New York trading began in 1983. Coal liquefaction plants are viable as long as oil trades at US$30 a barrel, Credit Suisse said.

Shenhua Ningxia is building a separate coal-to-chemicals plant at Ningdong, in the province's east, Yan said. The plant, designed to turn 250,000 tons a year of coal into methanol, should be completed at the end of 2006 to start producing methanol early in 2007, she said. The plant cost 1 billion yuan(US$125 million).

The company plans to spend 10 billion yuan on a plant that will turn coal into polypropylene at Ningdong, which is scheduled to start operating in the first half of 2009, Wang said. Polypropylene is a chemical raw material.

 

Sasol Accord

Shenhua Group, China's largest coal producer, owns a majority stake in Shenhua Ningxia, and Ningxia Coal Industry Group the rest. Shenhua Group is the parent of Hong Kong-listed China Shenhua Energy Co.

Sasol and Shenhua Ningxia last month signed an initial agreement for an 80,000 barrels a day coal-to-fuels plant in Ningxia.

Xstrata Plc, the world's biggest exporter of coal used in power plants, said July 9 it agreed with most of its Japanese customers on a price for thermal coal sold under contract in 2007-07 that is near last year's record level.

Xstrata agreed with Japanese power utilities on a price of US$52.50 per metric ton for thermal coal supplied in the year started April 1. That compares with last year's average of between US$52 and US$54 a ton, which was a rise of about 20 percent from the previous year.

Shenhua Group is the parent of Hong Kong-listed China Shenhua Energy Co.

The U.S. has the world's largest coal reserves at 246.6 billion metric tons, according to BP's Statistical Review of World Energy. Russia's reserves of 157 billion tons are the second-largest, followed by China with 114.5 billion tons.

Source:Bloomberg 
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