China has raised the capital
threshold for projects converting coal to liquid fuel to prevent a possible
overheating of the coal-chemical industry, as the excessive development of
fossil fuels pollutes the environment and strains water supplies.
On July 7, the National Development and Reform Commission (NDRC), China's top
economic policy-making body, issued a circular requiring local governments to
tighten controls over new coal liquefaction projects before the completion of
the national development programme for the coal liquefaction industry.
The government will not approve coal liquefaction projects with an annual
production capacity under three million tons, said the NDRC circular.
One ton of coal-to-oil processing capacity needs an investment of 10,000 yuan
(US$1,250). Therefore, an annual capacity of three million tons requires an
investment of 30 billion yuan (US$3.75 billion), an astronomical figure for most
enterprises, said Li Dadong, an academic from the Chinese Academy of
Engineering.
Constantly rising international oil prices have prompted the coal chemical
industry to try to find alternatives to petroleum in China. Oil's recent rally
towards US$80 a barrel has spurred a further wave of coal liquefaction projects.
Coal liquefaction is a process that converts coal from a solid state into
liquid fuels, usually to provide substitutes for petroleum products. Coal
liquefaction processes were first developed in the early 20th century, but its
later application was hindered by the relatively low price and wide availability
of crude oil and natural gas.
Large-scale applications have existed in only a few countries, such as
Germany during World War II and South Africa since the 1960s. The oil crisis of
the 1970s and the threatened depletion of conventional oil supplies sparked a
renewed interest in the production of oil substitutes from coal in the 1980s.
However, the wide availability of inexpensive oil and natural gas supplies in
the 1990s effectively ended the short-term commercial prospects of these
technologies.
Coal-to-liquid fuel technology remains in its infancy in China, according to
the NDRC.
China is the world's second-largest energy producer and fifth-largest
producer of crude oil. Driven by high oil prices and fast economic growth rates,
China reached a record high in domestic oil production and consumption in the
first half of 2006.
In the first six months of 2006, China's domestic production of crude oil
totalled 92 million tons, up 2.1 per cent year-on-year. Domestic production of
processed oil reached 85 million tons, up 5.6 per cent, according to statistics
from the China Petroleum and Chemical Industry Association.
Over the same period, China's net crude oil imports reached 70 million tons,
up 17.6 per cent, and China's net import of processed oil reached 12 million
tons, up 48 per cent, according to customs figures.
China imported 47 per cent of its total oil consumption in the first half of
this year, sources from the Minister of Commerce said.
"China will continue to rely mainly on domestic energy supplies and its
annual oil production will stay anywhere between 180 and 200 million tons for a
relatively long period of time," said NDRC Vice-Minister Zhang Guobao.
(For more biz stories, please visit Industry Updates)
