China powers ahead

By Nao Nakanishi and Niu Shuping  |   2008-7-16  |     NEWSPAPER EDITION

AS world oil prices continue to skyrocket, China is about to unveil an alternative fuel source, write Nao Nakanishi and Niu Shuping.

With oil prices at historic highs, China is moving full steam ahead with a process to turn its vast coal reserves into barrels of oil.

Known as coal-to-liquid (CTL), the project of obtaining oil from coal and being fuel self-sufficient is enticing to coal-rich countries seeking to secure their energy supply in an age of increased debate about how long the world's oil reserves can continue to meet demand.

The United States, Australia and India are among those countries looking at CTL technology. And China is building a major complex on the grasslands of Inner Mongolia.

"The countries with large coal reserves like South Africa, China or the United States are very keen on CTL as it helps ensure energy security," says Yuichiro Shimura from the Mitsubishi Research Institute Inc in Tokyo.

In Erdos, Inner Mongolia, about 10,000 workers are putting the final touches to a CTL plant that will be run by the state-owned Shenhua Group, China's biggest coal mine.

The plant will be the biggest outside of South Africa, which adopted CTL technology due to international embargoes on fuel during the apartheid years.

"We cannot fail," says Zhang Jiming, deputy general manager at Shenhua Coal Liquefaction. "If things go smoothly, we will start with the expansion next year."

The plant will start operating later this year and is expected to convert 3.5 million tons of coal a year into a million tons of oil products, such as diesel for cars.

That is the equivalent of about 20,000 barrels a day, a tiny percentage of China's oil needs as oil consumption in the country is around 7.2 million barrels a day.