TIANJIN, China, Sept 8 (Reuters) - State-owned China Shenhua Group made a profit from its pioneering direct coal-to-liquids (CTL) project in the first half of this year, raising hopes that the world's second largest oil consuming nation may expand forays into alternative fuel production. China has rich coal reserves but limited oil deposits. After backing CTL as a way of improving energy security and easing its growing dependence on overseas crude oil, China went cold on the technology in 2008, cancelling dozens of projects amid concerns about high production costs and the impact it would have on scarce water supplies.
The parent of China Shenhua Energy Co , the country's biggest coal producer, produced 470,000 tonnes of oil products from coal in the first half and costs of the fuel were equivalent to crude oil prices of less than $60 a barrel, according to Shenhua Group's General Manager Zhang Yuzhuo.
Benchmark Brent crude prices LCOc1 have mostly hovered above $100 a barrel since February.
The CTL demonstration project, with designed fuel production capacity of 1.08 million tonnes per year, has been in continuous and stable operations since November last year, Zhang said in a speech prepared for the China Petroleum and Chemical International Conference.
He said Shenhua reaped 800 million yuan ($125.1 million) in earnings before taxes on the direct CTL project in Erdos, Inner Mongolia, in the first six months.
Zhang said Shenhua planned to raise fuel production capacity in Erdos to 3 million tonnes a year by adding another direct CTL line in the first phase and to 5 million tonnes a year after a second phase is completed. He did not specify a timeframe or the investments involved.
Shenhua also plans to start constructing a 56.5 billion yuan, 3 million tonne per year direct CTL project in northwestern Xinjiang later this year.
In March, China granted initial environmental approval to an $8.8 billion indirect CTL project in northern Ningxia region by South African petrochemical firm Sasol and Shenhua Group to make 3.16 million tonnes of diesel and 655,500 tonnes of naphtha a year.
Shenhua aimed to produce 3 million tonnes of oil products, 5 million tonnes of chemical products, and 1.8 billion cubic meters of natural gas in 2015 from its coal-to-liquids, coal-to-gas and coal-to-olefin projects, Zhang said in April.
Shenhua also planned to boost production of oil products to 11 million tonnes, chemical products to 10 million tonnes and natural gas to 18.3 billion cubic meters in 2020. ($1 = 6.394 yuan) (Reporting by Jim Bai and Chen Aizhu; Editing by Jonathan Hopfner)
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