Shenhua Group to step into retail oil market

China Shenhua Group will reportedly open its first petrol station in northern China soon, underlining the coal giant's ambitions of grabbing a share in the oil market that has long been dominated by three domestic oil companies.

The station, located in Erdos, north China's Inner Mongolia Autonomous Region, will sell product oil liquefied from coal by Shenhua's coal liquefaction factory in Erdos, Securities Daily reported on Thursday.

The move came two years after the state-owned coal giant's Erdos subsidiary obtained licenses for wholesale business in the oil market.

Because of low costs and cheaper prices, Shenhua's coal oil will be very competitive with traditional refined oil provided by PetroChina, Sinopec and China National Offshore Oil Corp., analysts said.

The move will help diversify revenue sources for Shenhua, which has premium coal resources and a leading coal liquefaction technique, said Qiu Xizhe, an analyst with China Investment Consulting Co.

The three oil giants' market position is unlikely to change at present due to their dominance in oil and gas production and the small scale of Shenhua's production, but the promising coal oil will likely take a lion's share in the future, Qiu said.

China has been seeking clean ways to use coal, as it has large deposits of coal but lacks oil and gas. Coal is mainly used for power generation, which has been blamed for causing severe pollution.

In 2004, Shenhua broke ground on a coal liquefaction production line with an annual output of 1 million tonnes in Erdos, marking the country's only project targeting the industrial production of coal oil. No other country has put the coal liquefaction technique into industrial production.

The project produced 427,800 tonnes of oil products in the first half, and is expected to achieve its designed annual output capacity at the end of the year.