As China’s largest coal company said it will achieve coal-to-fuel production in 2008, China’s National Development and Reform Commission (NDRC) announced Saturday that it will issue rules as early as this year on coal-to-fuel projects to deter overcapacity and reduce the waste of water.


Shenhua Group’s massive Erdos coal liquefaction facility is considered a key state project to help China achieve oil energy security.


Zhang Yuzhuo, Shenhua’s Vice President of coal liquefaction projects, told the China (Taiyuan) International Coal and Energy New Industry Expo that 95% of the engineering has been finished on the first production line at Erdos. Zhang said the first line would use 3.45 million tons of coal annually to produce 1.08 million tons of liquid products including diesel oil, liquefied petroleum gas and naphtha (petroleum ether).


Chinese Premier Wen Jiabao has described the US$1.6 billion project as a major scientific and technological experiment, according to the official Chinese news service Xinhua. With a yearly production capacity of 5 million tons of oil, the project will be completed in two stages.


Shenhua has also worked with South Africa’s Sasol to set up two indirect coal-to-oil plants.


Xinhua said that China’s coal industry would be able to yield 50 million tons of oil products yearly by 2020 with the goal of helping to reduce China’s oil import rates from 60% to 45%. China’s coal liquefaction capacity is forecast to reach 18 million tons by 2020 as China is anticipated to spend as much as US$46 billion to meet that target. The International Energy Agency has forecast that liquefied products will comprise 29% of the daily 10-million-barrel capacity of all non-petroleum alternative energies by 2030.


CTL RULES TO BE ISSUED


Meanwhile Hou Shiguo, a deputy director in charge of industrial policies at NRDC, said Saturday that China will issue rules to govern the construction of projects that turn coal into chemicals and auto fuels.


Hou said the policy will include production targets and recommended locations for these projects. “There is great potential for coal-to-liquids production in China, as a population of 1.3 billion means an increasing demand for coal-based alternative fuels. Even so, investors need to be cautious about developing new projects as there are still risks.”


Coal liquefaction projects will be banned in areas where water is relatively scarce, Hou said. He added that China will also encourage companies to use coal rather than oil to produce fertilizers because of high crude oil prices.


Hou urged China to curb exports of oil products and boost imports to domestic suppliers. China Oil, Gas & Petrochemicals reported that nation’s CTL projects may require as much as 170 million metric tons of coal by 2020.


However, the government won’t approve coal-to-fuels projects without an annual production capacity of at least 3 million metric tons, according to NDRC.