Compared to modern industries such as high-tech and shiny retail
malls, foreign investment in China's coal industry may be seen as a
step into the past.
Yet more and more foreign companies have entered the coal and
related chemical sectors to tap into one of the nation's most
traditional heavy industries.
Foreign companies now interested in major projects include US
chemical giant Dow Chemical, Sasol Ltd from South Africa and
Thailand's Chia Tai Group, said Zhang Yuzhuo, deputy general
manager of Shenhua Group, the nation's largest coal company.
"Although foreign investment still accounts for a small part of
China's coal chemical industry, multinationals have quickened their
pace in the sector," said Zhang, who is also in charge of Shenhua's
coal liquefaction business.
The quick development of China's coal chemical industry has
provided a big incentive for foreign companies. According to a
draft of the medium- and long-term plan for the development of
China's coal chemical industry, China will invest more than 1
trillion yuan in development by 2020.
The nation will focus on the production of liquefied coal,
dimethyl ether (DME), coal-to-olefin (CTO) and coal methanol.
By the year 2020 China plans to produce 30 million tons of
liquefied coal and 20 million tons of DME; it aims to produce 8
million tons of CTO and 66 million tons of coal methanol by that
year.
The nation also plans to build seven coal chemical bases by
2020.
Constantly rising oil prices have prompted the development of
China's coal chemical industry, said Zhang.
"Coal chemical products will offer an efficient way to quench
China's thirst for oil. It is conducive to reducing China's
external dependence on crude oil," said Zhang.
Of all China's coal-related chemical enterprises, coal
liquefaction has accounted for the largest segment, said Zhang,
adding that many foreign companies have already begun
operations.
Big deals signed
Last year world energy giant Shell signed an agreement with
Shenhua Ningxia Coal Industry Co (Shenhua Ningmei) to jointly study
coal-liquefaction technology at a coal-to-liquid fuel plant in
Yinchuan, in Northwest China's Ningxia Hui Autonomous Region.
"If the three-year feasibility program goes smoothly, the new
coal-to-liquid fuel plant, with an investment of US$5 billion to
US$6 billion, will be one of the largest foreign-funded projects in
the country," said Zhang Wenjiang, chairman of Shenhua-Ningmei.
Lim Haw Kuang, executive chairman of Shell China operations,
said that as a leader in clean coal technology, Shell has proven
technology that converts coal to gas and then gas to liquids.
"We believe this technology is important to China, particularly
in large coal-producing areas such as Ningxia," he said.
The study is expected to be completed by 2009, with the plant
projected to yield 70,000 barrels of oil a day by 2012.
Apart from Shell, many other foreign companies have come to
China seeking opportunities with coal chemical projects. Last June,
South Africa-based Sasol, the world leader in producing fuel from
coal, joined hands with Shenhua Group to set up two coal-to-liquid
plants using Sasol's technology.
The two liquefied coal projects, one in Yulin in Northwest
China's Shaanxi Province and another in Northwest China's Ningxia
Hui Autonomous Region, will each produce 3.6 million tons of oil a
year.
Sasol will hold a 50 percent stake in each project. The total
investment in the two projects will be US$10 billion to US$14
billion. Construction could begin in 2013.
While Shell and Sasol have made the largest foreign investment
to date, other multinationals are working with Chinese companies to
produce coal chemical products.
Dow Chemical said it is exploring a CTO program in China, and
has signed an agreement with Shenhua to study the feasibility of
using coal gasification in a large-scale olefin plant.
"Coal chemical projects always require a lot of money, and high
standards for coal resources, water resources, environment and
technology," said Zhang.
Potential investment risks
The industry may show enormous promise to foreign
multinationals, but the sector has huge potential risks, analysts
said, noting their investment comes when China's coal chemical
industry is still in its infancy.
Zhang said that blind construction is unsustainable for the
healthy development of the industry.
In July the National Development and Reform Commission, China's
top economic planning body, issued regulations on the coal chemical
industry, urging local governments to tighten control over new
projects.
The government will not approve coal liquefaction projects with
an annual production capacity under 3 million tons, coal methanol,
or DME projects under 1 million tons and CTO projects under 600,000
tons.
(China Daily January 18, 2007)