Shell (China) Limited and China's Shenhua Group, the nation's biggest coal producer, Wednesday agreed to conduct joint research and development on clean coal technology.

A memorandum of understanding (MOU) on cooperation was signed between Shell (China) Limited and Shenhua Coal to Liquid and Chemical Co. Ltd., a subsidiary of the Shenhua Group.

But a joint coal-to-liquid project of the two companies is being halted because of fluctuations in global crude oil prices.

Shi Xiaoli, Shell China director in charge of clean coal business, said a feasibility study on the coal-to-liquid project had been conducted but it had been decided to halt it as global crude prices were currently at a relatively low level, which would make profitability uncertain.

Wu Xiuzhang, Vice Chairman of Shenhua Coal to Liquid and Chemical Co., said the profitability of such a project was highly dependent on market conditions, while quality of coal supplies and prices also impacted on the project.

But Wu said Shenhua's own coal-to-liquid pilot project, initiated in Inner Mongolia at the beginning of the year, would still be able to make a profit at current crude prices of between 65 US dollars and 70 US dollars per barrel.

Wednesday's MOU did not specify any particular project the two sides would work on. It only said the two sides would seek more advanced technology to turn coal into gas and then to liquid, and discuss possible applications of carbon capture and storage technology.

Three Chinese manufacturers have signed agreements with Shell to produce key equipment for the latter's coal-to-gas-to-liquid technology.

Shi said China is the largest market for Shell's liquification technology, and such agreements would lower its manufacturing costs and make Shell's equipment more competitive on the Chinese market.

(Xinhua News Agency September 9, 2009)