The Chinese Government will soon issue an industry policy to regulate the coal-chemicals sector, after a circular last month ordered local authorities to tighten their grip on the approval of new coal-to-petrochemicals projects in China.

Industry insiders familiar with the situation said the move aims to ward off a potential investment spree as soaring global crude prices press China to turn to alternatives based on its abundant coal resources.

"Investment in coal-chemicals projects in China has shown signs of overheating many proposed plants will face great risk in terms of both technical feasibility and capital investment if we don't put a brake on them," said an official from the National Development and Reform Commission (NDRC), who wished to remain anonymous. "The upcoming policy aims to set the coal-chemicals industry on the right development track."

The coal-chemicals industry includes coking, coal gasification, liquefaction and the production of calcium carbide, the NDRC said.

Most of the under-construction coal-to-oil and coal-to-olefin projects in China, with a combined annual capacity of more than 100,000 tons, have not ensured viable technology and their single capacity does not satisfy government requirements, the NDRC said.

Pan Derun, vice-president of the China Petroleum and Chemical Industry Association, said the government would likely publicize the new industry policy by the end of the year, in line with last month's circular.

"It will not be as early as October, but hopefully within the year," said Pan, who participated in the workshop on the new regulation.

Related NDRC departments have yet to finalize the details of the policy, and an exact issue date for the new rules is not known, the NDRC official told China Daily on Friday.

The new industry policy will not place curbs on foreign companies' participation in China's coal-to-petrochemicals projects, although some industry analysts have suggested the government encourage China's home-grown technology and engineering, according to the NDRC official.

An increasing number of global giants in the coal conversion field such as Royal Dutch Shell and South Africa-based Sasol have shown strong enthusiasm for China, the world's second-biggest energy consumer and top coal producer.

Shell has so far clinched 15 deals to supply coal gasification technology to China, one of which is a 50-50 joint venture with the country's biggest oil refiner Sinopec. It has so far been used to produce synthetic gas for the manufacture of fertilizers, hydrogen and methanol.

Shell and Sasol have signed a deal with State-owned China Shenhua Group to study two coal-to-liquids plants in northwestern China with an investment of up to US$12 billion.

Meanwhile, both small and large domestic firms are mushrooming in the booming coal-to-petrochemicals market in China, prompting industry worries of overcapacity due to a potential investment binge.

"It has become a really hot investment destination almost every mining company said they want to build coal-to-petrochemicals projects," said Li Fengshan, deputy-director of China Petroleum and Chemical's international co-operation department.

"If not well-planned, the increasing number of coal-chemicals plants in China may lead to huge wastage of natural resources," said the petrochemical association's Pan.

Large-scale coal-chemicals projects need tens of millions of cubic metres of water for the production process annually, and runaway development of such projects will have an impact on the environment, the July NDRC circular said.

To address the situation, the nation's top economic policy planner said in the circular that local authorities should not approve new coal-to-petrochemicals projects until they complete a well-planned industry blueprint.

A major industry platform for government officials, company executives and analysts to canvass their ideas, Beijing-based China Petroleum and Chemical will work with the China Coal Industry Association and the Shaanxi provincial government during a two-day symposium on coal conversion and the coal-chemical industry on October 24.

Source: China Daily