China has halted all coal liquefaction projects nationwide, except two involving the Shenhua Group, the National Development and Reform Commission (NDRC) said on Thursday.

Of the two exceptions, one was the under-construction coal-to-fuel project of Shenhua Group; the other was the Ningdong indirect coal liquefaction project jointly planned by the Shenhua Ningxia Coal Group and the South Africa-based Sasol Ltd.

The latter cannot start operation before receiving official approval.

"The move aims to control the business risk of the country's coal-to-oil industry, which is still in an experimental stage," the NDRC said.

The commission also called on local governments not to approve any new coal-to-oil projects.

Coal provides up to 70 percent of the country's energy needs, mostly for the power sector and steel industry. As the price of oil continues to rise, some local governments and enterprises have started coal-to-oil projects, mostly in coal-rich areas in the northern regions.

In response, the NDRC said: "Coal liquefaction is a technology-, talent- and capital-intensive project, but most domestic enterprises lack advanced technologies, management experience and equipment."

In 2006, the NDRC issued a circular urging for the "healthy development" of industries turning coal into oil or oil substitutes such as methanol and alkene.

It then raised the threshold for coal liquefaction projects to a minimum annual output capacity of 3 million tonnes for fear of excessive production.

Shenhua, China's biggest coal company, is expected to produce the country's first barrel of liquid fuel from coal this month using a self-developed technology known as direct coal liquefaction.

(Xinhua News Agency September 4, 2008)