Shen Hua Group Corporation Limited plans to put three liquefied coal projects into production in 2011and 2012 with a capacity of producing 10 million tons of petroleum a year.

The three projects, in Yulin city of West China's Shaanxi Province and two in Yinchuan, capital of northwestern Ningxia Hui Autonomous Region, will each be able to produce 3.2 million tons of petroleum a year or 75,000 to 80,000 barrels per day, said Zhang Yuzhuo, vice president of Shen Hua.

Zhang told Xinhua that the Chinese government has given permission to Shen Hua to cooperate with South African Sasol on feasibility research of the Yulin project and one of the projects in Yinchuan.

Shen Hua recently signed a memorandum with Shell to research Shell's coal liquefaction technology in the other project in Yinchuan, said Zhang.

Although Zhang could not provide an estimate of the cost of the three projects China has said it would invest 400 million to 500 billion yuan in liquefied coal projects by 2020.

Zhang said, Shen Hua now owns the proprietary intellectual property rights for direct coal liquefaction technology.

The three projects, planned to be jointly invested by Shen Hua and Sasol or Shell, will use the indirect liquefaction technology of the two foreign investors.

With current oil prices continuing to hit new highs, the three projects foresee rate of return of over 12 percent as the cost of raw materials accounts for only 5 percent of the total cost, said Zhang.

Three tons of coal can produce one ton of oil from both the direct and indirect coal liquefaction method.

Zhang said the cost of producing coal by direct liquefaction will not exceed US$30 per barrel, adding that environmental protection costs will account for over 15 percent of the total investment.

Investment will mainly come from Shen Hua's own capital channels and the foreign investors, said Zhang.

Zhang said that Shen Hua plans to cooperate with China Petroleum and Chemical Corporation (Sinopec), China's largest oil processor and distributor.

He did not exclude the possibility of cooperating with China National Petroleum Corporation (CNPC), China's largest oil producer, and other foreign investors.

The final agreement with Sinopec has not yet been signed.

The National Development and Reform Commission (NDRC), China's economic planning institution, issued a notice in July it would not approve any other coal liquefaction projects.

Requiring high investment and containing high risks, coal liquefaction projects should move ahead step by step to ensure a mature technology is developed, said Zhang.

According to Zhang, China's annual liquefied coal could reach 50 million tons in 2020, equaling 20 percent of the total imports, said Zhang.

(Xinhua News Agency August 2, 2006)