Shell, Chinese firm plan $6bn coal-to-fuels JV

Royal Dutch Shell Plc, Europe’s second-biggest oil company, and Shenhua Ningxia Coal Industry Group agreed to study investing as much as $6bn in a China plant to turn coal into fuels and chemicals.

Shell and Shenhua Ningxia, a unit of Shenhua Group Corp, China’s biggest coal producer, will study the technical and commercial viability of building a 70,000bpd plant in northern China’s Ningxia province, the companies said in a statement yesterday.

Record oil costs are spurring China to build plants that can turn some of its coal reserves, the world’s third-largest, into auto fuels and raw materials for making plastics.

Sasol Ltd, the world’s biggest producer of motor fuel from coal, said last month China has the potential for at least 12 coal-to-fuel plants.

”We believe this technology is important to China,’’ said Lim Haw Kuang, chairman of Shell companies in China. The plant will contribute toward ”finding sustainable energy solutions’’ for Ningxia and China, he said.

Preliminary cost estimates for such projects run at between $5bn and $6bn, he said. Shell would invest in the plant and provide the technology, with the Chinese partner taking a majority stake, Lim said.

The plant may start operating by 2012, Wang Jian, Shenhua Ningxia’s general manager, said yesterday.

The venture with Shell is one of two that China’s government has approved for Shenhua Ningxia. Each of the two plants would be capable of turning 3.2mn metric tonnes a year of coal into fuels such as gasoline and diesel, Yan Guohui, the company’s general manager for coal-to-liquids projects, said on Monday.

”We want to better utilize our coal resources to sell higher-priced products,’’ Yan told reporters at the Ningdong coal mining centre. ”It makes better economic sense now to sell fuels instead of just raw coal.’’

Construction of the two projects may start at the end of 2008, Yan said.
The National Development and Reform Commission, China’s top economic planner, has approved the plans, she said. Ningxia, China’s sixth-largest coal production base, has proved coal reserves of about 31bn tonnes. Potential reserves may total 202.5bn tonnes.

Shenhua Ningxia aims to have the capacity to process 10mn tonnes of coal a year into fuels by 2020 and may build two more such plants by then, Wang said.

Source: Bloomberg