Sasol, Shenhua to jointly make auto fuel from coal in China

South Africa's Sasol, the world's biggest producer of motor fuel from coal, and China's top coal company Shenhua Group will jointly produce motor fuel from coal in China in 2016, a Sasol official said Friday.

Feasibility studies of two Coal to Liquids (CTL) projects in northwest China, jointly invested by Sasol and Shenhua, are going smoothly and expected to be completed by the end of 2009, said Sasol's chief executive officer Pat Davies at a press conference in Beijing.

The two projects, one in Shaanxi Province and the other in Ningxia Hui Autonomous Region, will each be able to produce 80,000barrels per day, or 3.4 million tons annually of diesel, naphtha, liquefied petroleum gas (LPG) and jet fuel.

A Sasol CTL project usually costs 5 to 7 billion U.S. dollars. Shenhua and Sasol will each hold a half of the projects' equities, said Sasol's general manager Lean Strauss.

Davies said he expected the long-term crude oil price to hover around 80 U.S. dollars per barrel, in which case it was economically competitive to liquefy coal to motor fuel.

The major concern for Sasol in China was the government price curbs on refined oil products, said Strauss.

"We have been discussing the problem with the Chinese government and we expect a price more closely linked to the international market," he said.

With surging oil demand and the world's third largest coal reserves, China has heard more voices on turning coal into oil products as world crude oil prices rocket.

China's National Development and Reform Commission (NDRC), the country's top economic planner, issued a circular in 2006, urging for the "healthy development" of industries that turn coal into oil or oil substitutes such as methanol and alkene.

It raised the threshold for coal liquefaction projects to a minimum annual output capacity of 3 million tons for fear of excessive production.

A major coal producer with government permission to make trial of coal liquefaction, Shenhua is expected to produce China's first barrel of liquid fuel from coal in September using self-owned technology known as direct coal liquefaction.

Chen Liming, Sasol China executive vice president, said Sasol and Shenhua's technologies should not be compared simply as the latter was yet to be industrialized.

A Shenhua source said the company's CTL technology would be profitable as long as the international oil price was over 40 U.S. dollars per barrel. Chen didn't disclose the cost of Sasol's CTL technology.

The feasibility research of Shenhua and Sasol's joint projects was launched in 2006 and would cost 300 million U.S. dollars, Strauss said.

He said the Front End Engineering Design (FEED) and the Final Investment Decision (FID) would be made within two years after the feasibility studies were finished.

Shenhua has another coal liquefaction project with the energy giant Royal Dutch/Shell Group.

Listed in Johannesburg and New York, Sasol has a current market value of 38 billion U.S. dollars.