China is to start construction of its largest dimethyl ether (DME) project with an annual output of three million tons to reduce rising oil consumption.

Coal-based DME is a clean-burning alternative to liquefied petroleum gas, liquid natural gas, diesel and gasoline.

Located in Ordos city of north China's energy-rich Inner Mongolia Autonomous Region, the project will cost 21 billion yuan (2.6 billion U.S. dollars), the Shanghai Securities News reports.

Compared with the current annual output of 120,000 tons of DME each year, the project will make a huge difference to China's alternative energy sector, said a statement from the National Development and Reform Commission (NDRC).

A pipeline will be built to transfer the DME from Ordos to the port city of Tangshan in north China's Hebei Province. This would then enable it to be shipped to provinces in east and south China which are crying out for energy sources.

The participants in the project include power giants China National Coal Group Corporation, China Petroleum and Chemical Corporation and the Shanghai-based Shenergy Group.

Facing oil shortages, China is speeding up efforts to develop an oil substitution program to reduce its reliance on oil imports and offset the effects of rising oil prices.

But as a sustained coal supply has remained a challenge for China, NDRC has banned any coal-based DME project with a design capacity lower than one million tons.

Source: Xinhua