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A statement published by the Development and Reform Commission of the Ningxia Hui autonomous region has cast doubt over the future of the other proposed coal-to-oil plants involving foreign investors.
Creating synthetic fuels such as gasoline and diesel from coal has been widely studied in China, given its dependency on crude oil imports.
According to Dow Jones Newswires, potential oil output from the scores of plants with coal to liquids (CTL) technology that are currently under construction or on the drawing board in China could meet 10% of the country's total oil consumption.
But critics have said the technology uses too much water, and greenhouse gas emissions are higher than producing fuels at conventional refineries.
"China has also suffered a shortage of coal in recent months, prompting brownouts in cities as thermal power generators are forced to take capacity offline," said the Dow Jones report.
Widespread use of CTL technology could reduce the supply of thermal coal available to the market if coal production doesn't keep pace with demand, it added.
Home to the world's third largest coal reserves, China threatened to halt further coal-to-liquids (CTL) projects in June last year due to concerns about the cost of building and greenhouse gas emissions.
Shell, Total
At the time, China's official news agency Xinhua quoted an official from the National Development and Reform Commission as saying the country "may put an end to projects which are designed to produce petroleum by liquefying coal."
Oil major Royal Dutch Shell signed an agreement with Shenhua Ningxia Coal Industry Co., a unit of the Shenhua Group, to conduct a joint study for a coal-to-liquids project in northwestern China.
In addition to its plant in Ningxia, Sasol has also proposed a CTL project in Shaanxi province with Shenhua. Each facility has a planned capacity of 80 000 barrels per day of oil equivalent.
While other foreign companies looking to create synthetic fuels in China include Total SA of France, which said it was currently in talks with Chinese companies about possible CTL projects.
"If confirmed, China's new policy on CTL projects will deal a blow to foreign investors seeking access to the country's growing market for transport fuels," Dow Jones said.
Sasol and the Shenhua Group plan to jointly produce motor fuel from coal in China in 2016.
At a cost of R5bn to R7bn each, the CTL plant capex will each hold a half of the projects' equity.
Sasol CEO Pat Davies has said that for as long as the crude oil price hovered above $80 a barrel, it is economically competitive to liquefy coal to motor fuel while Shenhua said its CTL technology would be profitable as long as the international oil price was over $40 per barrel.
At 15:30 shares in Sasol were 2.48% or R10.33 up at R427.33 on the JSE.
- I-Net Bridge
