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Shell commits to coal in China oil joint venture

By Richard McGre­gor
12 July 2006
FINANCIAL TIMES

Roy­al Dutch Shell and a Chi­nese part­ner yes­ter­day com­mit­ted to a for­mal study of a coal-to-liq­uids facil­i­ty in Chi­na’s west­ern Ningx­ia province, a project that would rep­re­sent one ofthe largest for­eign invest­ments in the coun­try if it pro­ceeds.

Mr Lim Haw Kuang, the exec­u­tive chair­man of Shell in Chi­na, said at a cer­e­mo­ny to launch the project that a plant of the size envis­aged by the part­ners would cost Dol­lars 5bn (Pounds 2.7bn) to Dol­lars 6bn to build.

The study will take three years.

A Shell spokesman said that this fig­ure was only a pre­lim­i­nary esti­mate and should not be tak­en as a guide to the final cost of such a project.

The Shell joint ven­ture is part of an invest­ment surge into CTL plants in Chi­na, dri­ven by the con­junc­tion of the coun­try’s abun­dant coal, ris­ing ener­gy demand and record oil prices.

Just under 30 coal-to-oil projects are in the detailed plan­ning or fea­si­bil­i­ty stage in Chi­na, accord­ing to a report by CSFB, the inter­na­tion­al bank, with a pro­ject­ed out­put equiv­a­lent to 10 per cent of the coun­try’s present oil demand.

The cost­ly, cap­i­tal-inten­sive CTL plants are gen­er­al­ly con­sid­ered to become eco­nom­ic with the oil price above Dol­lars 35 to Dol­lars 40 a bar­rel, some­thing that the indus­try thinks increas­ing­ly is a good bet.

Coal is Chi­na’s “real­strate­gic (ener­gy) reserve”, said the CSFB report, because it could all be sourced local­ly rather than import­ed.

Chi­na also has anoth­er 30 coal-to-methanol plants under con­struc­tion or going through the approval process as well.

Shel­l’s part­ner in the Ningx­ia project is a unit of the Shen­hua Group, Chi­na’s largest coal com­pa­ny, which is grow­ing rapid­ly onthe back of the boom in Chi­na in demand for tra­di­tion­al fuels.

State-owned Shen­hua has already announced plans to trans­form from a mere coal min­ing com­pa­ny into a pro­duc­er of pow­er, oil, chem­i­cals and methanol.

Shell, which is a leader in liq­ue­fac­tion tech­nol­o­gy, has licensed its tech­nol­o­gy to 15 projects already in Chi­na and has one plant with Sinopec, part of Chi­na’s lead­ing petro­chem­i­cals group, under con­struc­tion.

“We have proven tech­nol­o­gy that con­verts coal to gas and then gas to liq­uids — we believe this tech­nol­o­gy is impor­tant to Chi­na,” said Mr Lim.

The pro­posed Shell-Shen­hua plant in Ningx­ia would pro­duce the equiv­a­lent of about 70,000 bar­rels a day, about equal to 1 per cent of Chi­nese oil demand, now slight­ly more than 7m bar­rels a day.

The tech­nol­o­gy to turn coal into gas and oil was invent­ed in the 1920s by the Ger­mans, who used it to pow­er their mil­i­tary dur­ing the sec­ond world war.

More recent­ly, it was refined by South Africa in the 1980s when the coun­try was under apartheid-era sanc­tions.

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