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 $5 billion to $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.

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