30-03-04 China's first coal-to-oil project currently under construction in the Inner Mongolia Autonomous Region will use coal liquefaction technology from Shell to produce 1 mm tons of oil products upon operation in 2007. Shell Research has licensed its technology to the Shenhua Group, China's largest coal mining group, Shell China announced on March 30.
Shenhua Coal Liquefaction is currently constructing a coal-to-oil plant in the Ejin Horo Banner, in Inner Mongolia's Ordos. The plant is expected to be capable of converting 5 mm tons of coal to 1 mm tpy of oil products. The adoption of Shell's technology marks the formal abandonment of Shenhua in its efforts to build the world's first commercial coal-to-oil project using direct liquefaction technology.

Direct and indirect liquefaction of coal are the major two clean coal technologies in the world. The direct liquefaction method, so far existing only in the laboratory, breaks the large, complex components of coal into smaller compounds that form liquids with properties similar to petroleum.
The indirect liquefaction technology first heats coal to produce gas, and then recombines the gas molecules into liquid fuels using chemical methods. The South African company Sasol is the only company in the world that has ever been able to make commercial use of the indirect liquefaction of coal to oil.

Although it planned to utilize direct liquefaction technology when it first sought Chinese government approval, Shenhua was forced to suspend the development of the coal-to-oil project in Inner Mongolia late last year due to the impracticability of the technology in an industrial context, an official with the company told. The direct liquefaction technology tested by the company was from the US company Hydrocarbon Technologies.
"We did meet some problems last year so we needed to cool things down and re-orient our perspective. After all, this is a national project and has such a large scale," a spokeswoman surnamed Zou with the Shenhua Coal Liquefaction Corp. said in Beijing. "We will achieve more progress this year than last year," added Zou.

China imported a record-breaking 91 mm tons of crude oil last year, accounting for more than one-third total domestic consumption. The building of a coal-to-oil project is meant to lessen the country's dependence on conventional oil while curbing pollution caused by the increasing consumption of coal.
The licensing agreement with Shell for the Inner Mongolian project was signed in February 2004 and approved by the Ministry of Commerce. Shenhua had previously reckoned that RMB 20 bn ($ 2.42 bn) would be required to develop 3 mm tons of coal processing capacity a year as the first-phase development of the plant.

So far, China has received 10 licenses to use coal gasification technology from Shell. One of those licenses is for a 2,000 ton a day coal gasification plant in Yueyang, Hunan Province, being built by a Shell and Sinopec joint venture to supply synthetic gas as feedstock to a nearby fertiliser plant.
In January and February, Shell Research licensed its coal gasification technology to the Dahua Group in Dalian, Liaoning Province, and to the Yongcheng Coal and Power Group, Henan Province. Both companies will use the technology to manufacture synthetic gas as feedstock for new methanol plants.