SHENZHEN (ResourceInvestor.com) -- Shenhua Group, China's largest coal company, disclosed last week that it has made a “breakthrough” with its coal liquefaction technology that will allow it to advance the project to commercial status.
It’s not new technology having been perfected to some degree by South Africa’s Sasol [SASOY] which makes synfuels from vast coal reserves available in the country. Sasol had been co-operating with Shenhua on the technology which the Chinese group was initially going to buy for $1 billion.
Shenhua is relying on a “direct hydrogenation process”. According to an insider associated with the company, Shenhua had planned to invest 2.03 billion Yuan on the project in 2004, but ended up only expending 760 million Yuan.” One insider said.
After months of tests, the 6 tonne per day PDU installation at the Shanghai R&D centre successfully produced oil on 16 December, 2004. One expert from Beijing Coal Institute said, “The success clears the obstacles of commercialization.”
Due to the technology breakthrough, Shenhua plans to establish all the detailed project designs, installations and constructions this year in Ordos city, Inner Mongolia where the direct hydrogenation project is proceeding. Ordos became the largest coal producer in 2003 exceeding by 20 million tons the output from Datong city in Shanxi province.
Zhang Yuzhuo, assistant general manager of Shenhua Group and chairman of the board of Shenhua Coal Liquefaction said, “Shenhua is preparing to accomplish capacity of 30 million tons of oil production annually by 2020 using coal liquefaction technology.”
According to the programming, the Ordos direct hydrogenation project will set up the first product line in 2007 and consume 9.7 million tons of coal to make 3.2 million tons of oil products. The annual capacity will increase to 5 million tons in 2010, 15 million in 2015 and finally 20 million in 2020.
A partnership from Shenhua and Ningxia Coal Group (NCG) has held 12 negotiations with Sasol. In 2003, SASOL intended to transfer the technology to China but the $1 billion transfer price was a deterrent.
Now the companies are considering a 60 billion Yuan investment in China to collaborate on the technology.
According to the draft Sasol investment protocol, Shenhua will build a coal liquefaction plant in the Yulin area, Shaanxi province, whilst NCG would do the same in Ningxia province.
Some officials of Ningxia province revealed that Shenhua may make be a joint venture partner with NCG in its project. Not long ago, senior mangers of Shenhua reviewed NCG’s coal base in east Ningxia and showed strong investment interest, suggesting a merger may be in the offing.
Coal liquefaction technology in the US, Germany and Japan is mature and expensive mainly because of coal mining labour costs. However, the technology has proven competitive where coal is cheap and plentiful such as South Africa, which invested in synfuels because it lacked domestic oil sources.
China’s coal costs are much lower than in South Africa which has increased hopes for successful commercialization. The technology also has a strategic element because it helps diversify energy sources and dependence.
However, Li Dadong, an academic at the Chinese Academy of Engineering, estimates that coal liquefaction needs a 100 million Yuan investment to produce 10 thousand tons of oil by contrast with only 10 million Yuan to enlarge the capacity of existing refineries in eastern China by the same amount.
Professor Zhu Deren from the China National Coal Association disagrees saying the total costs including exploration and mining are cheaper than building a conventional refinery.
“Once large-scale facilities are put into production the cost will fall sharply.” Li Yongwang, researcher of Shanxi Coal Institute added.
