China's Lu'an Proceeds with CTL Plant Despite Ban

Lu'an Group, one of the top five miners in coal-rich Shanxi province, is pushing forward a coal-to-liquid (CTL) pilot programme despite a ban on most such projects due to Beijing's concern about uncertainties in the sector, state media said on Wednesday.

Lu'an, parent of Lu'an Environmental Energy Development Co, started two gasification furnaces of its 160,000 ton-per-year CTL plant on Monday and will begin to produce oil in the near term, the Shanghai Securities News reported, quoting Group Chairman Ren Runhou.

"We have received financial support of more than 20 million yuan from the Ministry of Science and Technology, and (our project) has no conflicts with the orders from the National Development and Reform Commission," Ren was quoted as saying.

China may allow Lu'an and another company to continue with projects that are under construction while freezing applications for new projects, the official Xinhua reported in a newsletter on Monday, citing Gu Zongqin, president of China Petroleum and Chemical Planning Institute.

Lu'an's two other 3 million-tonne-per-year CTL projects, one in Shanxi and one in Xinjiang, will definitely get support from the state if the current project goes into production smoothly, Ren added.

In a document dated 4 August, the National Development and Reform Commission (NDRC) ordered the suspension of all but two CTL projects due to high investment risks and technical uncertainties.

The two approved projects include one direct CTL plant built by China's largest coal producer, Shenhua Group, and another indirect CTL plant belonging to Shenhua's Ningxia Coal Industry Group and South Africa's Sasol Ltd.

Calls to the NDRC's media department were not immediately answered. China, the world's largest coal producer and consumer, began encouraging CTL projects a few years ago to help ease its dependence on imported oil, which now accounts for half of its needs.

But tight coal supplies and surging prices triggered the worst summer power shortages since 2004, and made water-intensive industrial projects in water-scarce northern China that divert coal less attractive to the government.

by Jim Bai, Reuters.