Northwest China's Ningxia Hui Autonomous Region plans to invest more than 100 billion yuan (12.9billion U.S. dollars) to build Asia's largest liquefied-coal base, according to the regional development and reform commission.

The first group of projects, designed to produce methanol and other chemicals from coal, are under construction in the Ningdong Chemical Resource Base, which is located near coal deposits containing 80 percent of Ningxia's known coal reserves, said Hao Linhai, director of the regional commission.

Chemical plants will be able to convert more than five million tons of coal annually into chemicals such as dimethyl ether, olefin and methanol, which are fuel additives, he added.

Several plants that will turn coal into diesel fuel are now under construction and will go into production in 2020. They will be able to convert 50 million tons of coal into 10 million tons of diesel a year, said Hao.

"We are negotiating with South Africa-based Sasol and Royal Dutch Shell Group to introduce liquefaction technologies needed to produce diesel fuel," said Wang Jian, general manager of Shenhua Ningxia Coal Industry Group Co., Ltd.

Wang said they will invest 10 billion yuan (1.29 billion U.S. dollars) this year alone.

By 2020, the base will have a liquefaction capacity of 10 million tons and be able to produce 830,000 tons of methanol and 1.22 million tons of olefin, he said.

The area will become the largest coal chemical conglomerate in Asia, said company chairman Zhang Wenjiang.

Zhang said the base is designed to add value to the region's vast coal reserves. "We can't just dig the coal and sell it. Chemical processing of coal is a way to upgrade the local coal industry and make best use of the energy source," he said.

Zhang said the company has also taken measures to minimize the impact on the environment, including recycling sulfur dioxide using German technologies, and reducing emissions by liquefying them within the mines.

Ninety-four percent of China's fossil fuel is from coal and boosting liquefied coal production is seen as a practical way for the country to become less dependent on oil imports, according to Feng Shiliang, deputy secretary of China Petroleum and Chemical Industry Association.

Although liquefied coal fuels are seen as viable alternatives to crude oil, many worry about the enormous costs involved. Lin Boqiang, an energy professor in east China's Xiamen University, said it takes about four tons of coal to produce one ton of oil, and such projects will more rapidly deplete the country's coal resources.

The Ningxia coal chemical base is the second major liquefied coal project in China. The other is being built by China's top coal producer Shenhua Group in Erdos, Inner Mongolia Autonomous Region. Construction started on that project in 2005.

Ningxia, which covers about 60,000 square kilometers, has 31.1 billion tons of recoverable coal reserves. It is estimated to have unexplored coal reserve of 200 billion tons, ranking it sixth in China behind Shanxi, Shaanxi, Inner Mongolia, Xinjiang and Guizhou.