Shenhua, Sasol project to start building next year

BEIJING (Reuters) - A coal-to-oil plant, developed by South Africa's Sasol, the world's biggest coal-to-oil producer and China's Shenhua Group, is expected to launch construction in October 2010, the official Xinhua News Agency said.

The total investment in the project, located in the northwestern region of Ningxia, was estimated at $7 billion, Xinhua said, up from the original plan of $5 billion.

The project is still going through a feasibility study, said Cui Hongming, chief engineer at Ningxia Coal Industry Group, a subsidiary of Shenhua, the country's largest coal producer.

The study results are expected to be submitted to China's economic planner, the National Development and Reform Commission, by the end of the year, Cui said.

The plant, one of the two coal-to-liquids (CTL) projects that got a green light from Beijing to proceed last year, is expected to convert 3.2 million tonnes of coal into oil products each year upon completion, equivalent to 80,000 barrels of oil output each day.

The other exception from the ban on CTL projects belongs to Shenhua Group. The plant, located in Inner Mongolia, went through a successful trial run earlier this year.

But several CTL projects appear to have escaped Beijing's tough ban, and are proceeding as planned, including those of Yitai Group and Lu'an Group.