Shenhua's coal liquefaction project to start operation in Sep

China's largest coal enterprise, Shenhua Group said the construction of its production line of coal liquefaction is well on track and is expected to produce the country's first barrel of oil converted from coal in September.

Shenhua started the Inner Mongolia-based project last year which is also the world's first production line of its kind. The project will involve more than RMB 10 billion (US$1.39 billion) and will be able to produce around 10 million tons of oil annually after completion in 2010, sources said.

The project will be profitable, Xue Ji deputy president with Shenhua's energy company said. Nearly 4 tons of coal can produce one ton of oil at the cost of around US$23, much lower than the international oil price of about US$100 a barrel.

However, a coal-to-oil project with a one-million-ton annual capacity will need 10 million tons of water; therefore, many courtiers were hesitant to put it into mass production.