Hydrocarbon Technologies, a Utah subsidiary of Headwaters Incorporated, announced that the $2 billion project with Shenhua Group, China's largest coal company, would eventually produce 50,000 barrels of clean-burning gasoline and diesel fuel per day.
"We are excited about the many opportunities created by this landmark agreement with Shenhua Group because we believe direct conversion of coal to liquid fuels is one of the most significant coal innovations in the last 50 years," said Headwaters Chairman Kirk Benson. "The HTI Coal Process is being considered for multiple projects and our technology is in a good position to be selected."
According to the U.S. Energy Information Administration, China is both the largest producer and the largest consumer of coal in the world and has been grappling with an oversupply situation caused by world consumption "declining significantly" during the past several years.
The Chinese government has addressed the oversupply issue, and the resulting softening of world prices, by closing mines and looking at power plant projects and export opportunities.
"China has expressed a strong interest in coal liquefaction technology, and would like to see liquid fuels based on coal substitute for some of its petroleum demand for transportation," the EIA said in a research note.
China, which is also a net oil importer, is currently the third-largest consumer of oil in the world and is expected to overtake No. 2 Japan in the coming decade with a projected demand of more than 10 million barrels of oil per day by 2020.
The HTI process breaks coal down into small molecules that when enriched with hydrogen, form oil molecules that can be refined into diesel and gasoline fuel.
The coal liquification project launched Wednesday will be built 80 miles south of Baotou in Inner Mongolia, close to Shenhua's reserves in the Shengdong Coalfield. The plant will require about 4,300 tons of coal per day when it begins production in 2005.
Shenhua, which owns a 15-percent stake in the HTI liquification technology, plans to build two other similar plants in the area.
In addition to this initial facility, Shenhua Group, a 15-percent owner of the technology, intends to construct three additional direct coal liquefaction plants in the Shengdong Coalfield of China, which spans Shaanxi Province and Inner Mongolia.
HTI President Theo Lee said the project would provide a long-term revenue stream for the company, and would also pay dividends to the United States in the form of a new source of domestic oil.
"Shenhua Group has exhibited foresight in utilizing China's vast coal resources to provide the country's future energy needs in an efficient and environmentally safe manner," said Lee. "In addition to providing an export opportunity for United States goods and services, the...HTI Coal Process will provide the United States with a commercially proven clean fuels technology that supports this country's drive toward energy independence."