FROM THE WALL STREET JOURNAL
REUTERS NEWS SERVICE
July 12, 2006; Page B7
YINCHUAN, China — Royal Dutch Shell PLC and a unit of China’s top coal producer moved a step closer to a major coal-to-liquids project that could involve an investment of $5 billion to $6 billion, the two companies said.
Shell, a leader in liquefaction technology, and Shenhua Ningxia Coal Industry Co. — a unit of Shenhua Group, parent of listed China Shenhua Energy Co. — said they had agreed to pursue a three-year study of a plant in the remote western Ningxia region, after which they would make a final investment decision.
The plant will produce three million tons a year, or about 70,000 barrels per day, of liquid fuel. That is equivalent to about 1% of China’s overall oil demand.
“The total investment for a project of this kind would be around $5 billion to $6 billion,” said Lim Haw Kuang, Shell’s executive chairman in China.
The liquefaction project, which already has the Chinese government’s blessing, was proposed in a memorandum signed in February. If approved, it could start production in 2012, an official said.
Shell will have a minority stake in the venture, with its partner guaranteeing coal supplies. Mr. Lim believes oil prices will remain high enough to keep profits flowing.
“Today’s assessment is that it will be highly unlikely to be less than $30” a barrel, he said. At such prices, “this project will be very economically robust.”
The project also could offer an entry point for Shell into China’s tightly guarded retail market, with the two partners looking at setting up outlets for their fuel.
China has stepped up efforts to tap its coal reserves — the third-largest in the world — to ease its growing insecurity over rapidly rising oil imports.
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