Asia Times Online :: China Business News - China gets a spurt of new energy

BEIJING - To help ease its oil shortage while reducing its increasing reliance on oil imports, China is putting effort and money into research and development (R&D) for new sources of energy, in addition to speeding up its ambitious coal-to-liquid (CTL) fuel projects, intended to convert the country's abundant coal resources into liquid fuel. There are now signs that the Chinese government is increasing its support for biomass energy, and development of fuel ethanol as a kind of biomass energy is entering a rapid-growth stage. Due to the peculiarities of renewable energy, to industrialize production of various kinds of renewable energy, including fuel ethanol, needs policy support from the government, especially during the

preliminary stages. China's 11th Five-Year Plan for Social and Economic Development (2006-2010) clearly stipulates that the production capacity of fuel ethanol will be expanded over the next five years. In a national conference on financial affairs held in Shaoxing, Zhejiang province, early this month, Vice Minister of Finance Zhu Zhigang stressed it was now an important task of his ministry to give financial support to R&D and practical application of various kinds of renewable energy, such as biomass energy, solar energy and wind power. It is worth noting that in his talk, Zhu mentioned biomass first. Previously, China had always put wind power first in government documents concerning renewable energy development. This indicates that as the wind power industry matures, China is shifting its focus of official support for renewable energy to biomass energy. The Ministry of Finance (MOF) will establish a special fund for development of renewable energy, and the MOF and the National Development and Reform Commission (NDRC), China's top economic planning body, are promulgating specific rules on the operation of the fund, according to informed sources. The MOF and NDRC have listed biomass energy as the No 1 target to support. Biomass energy includes ethanol, biogenic diesel fuel (biodiesel), biomass power generation and methane. NDRC officials think that China has mature and large-scale production facilities for alcohol, and therefore possesses the technical foundation for developing fuel ethanol. China began to develop fuel ethanol in the late 1990s by making use of surplus grain. In the 10th Five-Year Plan period (2001-2005), China constructed fuel ethanol plants built to use stale grain as the raw materials in Henan, Anhui, Jilin and Heilongjiang provinces, with a combined annual production capacity reaching 1.02 million tonnes. Ethanol-based fuel is now available on markets across five provinces and in 27 prefecture-level cities in another four provinces. Ethanol fuel now accounts for a significant percentage of China's total oil consumption. The NDRC submitted a report to the State Council in May this year, suggesting promoting the use of ethanol oil in the three municipalities directly under the central government - Beijing, Shanghai and Tianjin - as the next step to increase the usage of renewable biofuels. Previously, the NDRC had organized an appraisal meeting, which concluded that developing 6 million tons of biofuel ethanol in the "11th Five-Year Plan" period would not threaten China's grain security. However, if ethanol fuel developed rapidly, it could use grain as the sole raw material, NDRC sources said. Low-cost crops should also be developed as raw materials. Experts estimate that the domestic supply of sorghum, cassava and sugarcane can meet the demand for raw materials to produce 30 million tons of fuel ethanol at present. In fact, China has launched ethanol production with sorghum as raw materials in Heilongjiang, Inner Mongolia, Shandong, Xinjiang and Tianjin on a trial basis. The experimental projects in Heilongjiang are capable of producing 5,000 tonnes of ethanol a year at present. Though China has industrialized production of fuel ethanol with grain as the raw material, fuel ethanol production with sorghum as a raw material is still in the testing stages. The production cost of fuel ethanol is high at present. The cost is about 4,500 yuan (US$563) per tonne with stale grain as the raw material, and some 4,000 yuan per tonne with sorghum or cassava as raw materials. Under such circumstances, fuel ethanol is only profitable when oil prices rise above 6 yuan per liter. China appropriates 1.5 billion yuan in financial subsidies to fuel ethanol production each year at present. Therefore, biological fuel costs and the possibility of a decline in oil prices will be the main curbs to the development of biofuels. In the meantime, China is also speeding up its CTL projects. China's largest coal producer, the state-owned Shenhua Group, has joined hands with Sasol to set up two CTL plants in Northwest China, Shanghai Securities News reported over the weekend. Sasol, based in South Africa, is the world leader in producing fuel from coal. The multinational has produced fuel in South Africa equivalent to more than 1.5 billion barrels of oil. The two firms have signed two agreements. One was to proceed with a feasibility study for an 80,000 barrels per day potential CTL project in Shaanxi province. The other similar one is for a 80,000 barrels per day CTL project in the Ningxia Hui Autonomous Region. The initial pre-feasibility studies of the two projects have confirmed that all the key drivers are in place for establishing a viable CTL business in China using Sasol's unique Fischer-Tropsch technology, said the Xinhua news service. Each plant is expected to cost more than US$5 billion. They could be brought into operation by 2012 if the CTL projects go ahead, newspapers Sasol as saying. Coal accounts for more than 84% of China's energy reserves, and experts have said that boosting CTL projects in China was the most practical way for the country to achieve self-sufficiency in oil supply. (Asia Pulse/XIC)