(Agencies-China Daily)
Updated: 2008-01-11 08:59

China's top coal company Yankuang Group has won initial governmental approval to build a 10 billion yuan ($1.38 billion) coal-to-oil project in Shaanxi Province.

Several technical experts sent by the National Development and Reform Commission (NDRC) have finished assessing the project in Yulin in the Northwest China province, Zhang Minglin, deputy general manager of Yankuang, told Bloomberg yesterday.

The NDRC hasn't yet given its final permission to start building the venture, he said.

The capacity of the project will reach 1 million tons of oil products a year, a source with Yankuang had told China Daily earlier.

Yankuang's Hong Kong-listed unit, Yanzhou Coal Mining Co Ltd, will take a stake in the project, Zhang said, without elaborating.

Yankuang may spend a further 50 billion yuan to expand the venture to 5 million tons a year by 2013, according to Zhang.

By 2020, coal-to-oil projects under Yanzhou Coal Mining Co will have the capacity of 10 million tons per year, said the company's website.

Coal already meets up to 70 percent of China's energy needs, mostly for the power and steel sectors. Oil imports have been increased to fuel China's booming economy, spurring the nation to look for technologies that can turn some of its coal reserves into fuel and other chemicals.

China's first direct coal-to-oil plant will start operation this year, according to China's largest coal producer Shenhua.

The project is based in Erdos in the Inner Mongolia Autonomous Region. Its annual output capacity is 1.08 million tons, and will consume 3.45 million tons of coal.

Shenhua launched the project in 2004. The company has joined forces with South Africa-based Sasol to set up two indirect coal-to-oil plants using Sasol's technology.

Experts estimate that by 2020, coupled with an annual capacity of 20 million tons of bio-oil, China's coal industry would be able to produce 50 million tons of oil products every year to help reduce the nation's oil imports.

But the government raised the threshold for coal-to-liquid fuel projects last year for fear that excessive development of the fossil fuel would pollute the environment and strain water supply.